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May 07, 2007
The Off-Shoring "Sham"
There's a lot of fretting these days among Indian IT executives about wage inflation and a temporary talent shortage. In spite of that, just about everybody I speak to believes the Indian labor cost advantage is still very real. But, as they say, there's always one exception to the rule. I ran into this one last night at Wipro's "Mandala" conference in Austin. Wipro has invited 130 CIOs and other top executives from its customers to a two-day event that includes speeches, briefings, a traditional Indian music concert, and, of course, given the locale, armadillo races. The dissenter was Don Brilz, of Brilz Consulting. He's a sourcing advisor who formerly worked for TPI and now lives in India helping clients with off-shoring projects in Gurgaon and Chennai. His take on off-shoring: "It's a sham."
That's not to say there's no value in it. Brilz, after all, makes his living advising clients how to get the most out of off-shoring. What he means is that the traditional labor arbitrage advantages of off-shoring to India are fast going away. He says in a typical deal the client pays $50 per programmer per hour in the US, compared to $14 per hour in India. Yet because of the significant costs of setting up an off-shoring relationship and the ongoing overhead, "the overall economics of the deal and the savings aren't that great," says Brilz, a Canadian. "It's becoming less and less economically viable, and, in five years, off-shoring will dwindle to about zip."
At that point, and even now, the main reasons to move offshore will be for the expertise of the programmers and the business processes of the IT service companies. "It only makes sense if you outsource for the business value in the processes and experience of the company, plus the potential," says Brilz. He expects the ratio of on-shore to off-shore labor in a typical outsourcing deal to shift from 20/80 today to something closer to 50/50 in five years.
If Brilz?predictions come to pass, it will be good news for North American programmers, but today's investors in highly valued Indian tech stocks will have a bad case of the blues.
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Don Brilz’ predictions are correct. Low end Indian sweatshops calling themselves software companies are squeezing the clients for more than what they should pay. Their pretensions of doing more than cheap labour are false. The sooner they realize this, the better for them.
Posted by: Ex Indian Software at May 10, 2007 06:27 PM
The conclusions are a load of bull. If you look at India, there is tremendous talent buried in the smaller Indian cities such as Hubli, Bhopal, Madurai, Cochin etc. Thanks to TV and the Internet, there is a lot of education, training and knowledge on IT/BPO even in the remote areas of India. The state govts in these cities are welcoming export oriented companies by providing tax breaks and infrastructure. One former chief minister (Laloo Prasad Yadav) from Bihar (worst state in India) is now the Federal Railways Minister and has been invited by Harvard/MIT to lecture on howto run profitable public railway services.
So - all the doom and gloom is simply a poor understanding of India's primary resources - affordable MANPOWER.
Posted by: Goleez at May 11, 2007 02:39 AM