India: Good Help Is Hard To Find

Higher wages and lavish perks reign as outsourcing outfits scramble for talent

When Indian software services giant Wipro Ltd. (WIT ) hires middle managers these days, it doesn't just negotiate pay and benefits. Instead, the company engages in an elaborate mating ritual that includes helping a new hire find a home, providing compensation for lost salary to recruits who don't give enough notice when leaving their previous jobs, and even easing school admissions for their children. "We have to offer a virtual valet service for them," says Sudip Banerjee, president of enterprise solutions at Wipro.

It's no wonder Wipro has to be more aggressive in wooing staffers these days. The Indian outsourcing industry grew by a sizzling 35% last year as big multinationals and smaller U.S. and European companies handed over to Indian firms everything from software development and computer help desks to financial analysis. That growth has boosted competition for workers, as employment in the sector jumped by 20% last year -- and Wipro, Infosys Technologies (INFY ), and Accenture (ACN ) each hired 10,000 new recruits. Entry-level wages have climbed by as much as 15% annually over the past two years, while salaries for mid-level managers have clocked 30% annual growth during the same period, to a median of $31,131, according to Nasscom, India's software industry association.

The quest for workers is creating a talent crunch that some believe might dull India's competitive edge in outsourcing. "With rising wages, many companies are just not making money here in India, especially in call centers," says Chiranjit Banerjee, a director for human resources firm Quest Research Ltd. The industry today employs 1 million people in India, but that number is expected to double by 2008, Nasscom says. Although India produces 2 million college graduates a year, the services industry has a shortage of seasoned professionals. On-the-job training can fill the gap, but it's pricey: Educating a new recruit takes months and costs up to 40% of a rookie's annual salary. Worse, once the newbies get some experience, they're often lured away by rivals offering higher pay.

To some extent, the rising wages faced by the services industry are offset by falling costs in other areas. For instance, deregulation and competition have helped cut telecom fees for Indian companies by up to 25% annually since 2002. And as the outsourcing shops grow and provide similar services to a growing pool of customers, they can increase productivity by retooling software that was written for one client and adapting it for many others. Revenue per employee at Indian services players jumped by as much as 18% last year, says Ravi Aron, a professor at the University of Pennsylvania's Wharton School. "What matters for the end customer is price and not [labor] cost," says Nasscom Vice-President Sunil Mehta. "Prices have been stable, or just marginally higher."

But at least one company is scaling back in Bangalore. On Jan. 19, Tampa-based Sykes Enterprises Inc. (SYKE ) -- a call center operator that has been in India since 2002 -- said it would shift much of the work handled by its Indian operators to centers in Manila and Shanghai. "We moved calls to other facilities in Asia to get a higher rate of return," says Dan Hernandez, Sykes's vice-president for global strategies.

The biggest worry for most in the business is the shortage of managers. Currently, the industry needs 15% to 20% more mid-level execs than it can muster, Nasscom and company officials say. Without these professionals on board, teams of software writers, analysts, or call center operators can drift, hurting productivity. The shortage has worsened as employees cash in stock options granted in the past few years and start looking for a better deal, says Ajit Isaac, chief executive of Bangalore headhunter Adecco Peopleone Consulting. For instance, after options granted by Infosys in 1999 vested last year, Isaac says more than 25 middle managers contacted him about finding new jobs.


The crunch is serious enough that companies are doing everything they can to keep talented veterans from jumping ship. At Accenture Ltd., top managers spend at least an hour every couple of weeks with software coders and call center operators to make sure they understand shop floor issues, and every quarter, teams and their leaders head to a nearby resort to review operations and relax. At Wipro, CEO Vivek Paul often personally chats with mid-level hires. And Infosys last year marked a milestone -- reaching $1 billion in revenues -- with celebrations featuring Indian pop singers and gala dinners. It's not just parties, though. The company also handed out $25 million in bonuses -- between $500 and $5,000 for each worker.

For favored employees, there are lavish perks and lots of opportunities for advancement. Wipro, for example, attempts to identify leaders early, putting top performers into an accelerated training program, and sometimes pays for a certification in project management. Call center operator 24/7 Customer Inc. pays half the $2,900 annual tuition for employees to earn a business certificate from the Indian Institute of Management in Bangalore. "You can appeal to the careerists with the lure of learning and stability," says Shanmugam Nagarajan, 24/7's co-founder and chief operating officer. Cincinnati-based Convergys Corp. (CVG ), the world's largest call center company, initially had trouble finding managers for its Indian operations. "We hired almost from the street: from hotels, airlines, and even manufacturing and the railways," says Maneesh Goswami, a senior manager at Convergys. Today, though, it has beefed up its in-house training and hires 10% of project managers from outside, down from 75% three years ago. Some companies are even looking to Indian expatriates to fill the management gap. In the past three years, about 20,000 tech professionals returned to India from abroad, says Nasscom.

Most insiders expect the talent crunch to be relatively short-lived. Although wages for mid-level managers will continue to rise, many Indian execs say their companies have enough of a profit cushion to absorb increased labor costs. And they say wage inflation in the U.S. and Europe will raise costs for rivals overseas, helping the Indians remain competitive. In the meantime, Indian colleges have begun offering courses in tech project management and back-office processing, so within a few years services companies should have an easier time finding qualified recruits. "This is a transition period for the industry," says S. Padmanabhan, global human resources chief for Tata Consultancy Services, India's largest software outsourcing shop. "These shortages will not last more than three years." Perhaps. In the meantime, good valets may be in as much demand as qualified managers.

By Josey Puliyenthuruthel in Bangalore and Manjeet Kripalani in Bombay

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