The Off-Shoring "Sham"Steve Hamm
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.