CIO —
India is still an attractive offshore location for software development and other IT services, despite increasing staff salaries, according to analysts.
The cost advantage of hiring engineers in India is likely to continue for at least another five years, said Sudin Apte, senior analyst and country manager for India at research firm Forrester Research.
Indian outsourcers Wipro of Bangalore and Satyam Computer Services of Hyderabad warned earlier this month that salary increases could depress their profit margins in the current quarter.
A number of multinational companies like IBM, Accenture and Capgemini are expanding their operations in India, and competing for staff with Indian outsourcers.
Forrester, of Cambridge, Mass., estimates that salaries of Indian staff employed in IT services delivery are increasing at 12 percent to 15 percent a year on average.
But vendors delivering offshore services from India are introducing measures to improve productivity including creating reusable components that will make software development more efficient and require fewer new hires, Apte said.
Salaries for experienced engineers have been going up, though the salaries for entry-level staff have remained about the same, said Siddharth Pai, a partner at sourcing consultancy company Technology Partners International (TPI) in Houston, Texas. About 50 percent of India’s population is under 25, and another 15 percent lies between the ages of 25 and 30, so there is a large number of people entering the workforce, Pai said. Companies that have good processes in place can reduce costs without sacrificing quality by having a higher mix of younger staff, he added.
India’s demographics, including the large number of software engineers who graduate each year, continue to give it an edge over other countries such as China, according to Apte.
"In terms of ability to scale number of staff and everything else, I don’t think any other country can offer what India can," Aruna Jayanthi, vice president for outsourcing at Capgemini India, said in an interview last month. Capgemini plans to make India its hub for offshore services delivery.
The value of outsourcing contracts worldwide is likely to be lower this year than last year, according to a study by TPI. There has been a shift from large contracts to a number of smaller contracts, according to TPI. Rather than outsource everything to one supplier, customers prefer to outsource one process at a time, and to different providers, Pai said. Clients are also restructuring contracts with service providers for lower rates to take advantage of the cost savings from offshore delivery of services, he added.
