Wage Inflation Unlikely to Soon End India's Offshore Dominance

Benefits are still too attractive to unseat it as outsourcing leader, experts say

When U.S. companies look to move IT activities overseas to reduce costs, the labor savings in India are typically compelling enough to keep them from shopping around for IT skills in places like China or Eastern Europe.

And even though wages for IT workers in India are expected to rise by double-digit rates annually over the next several years, few IT sourcing experts expect to see a massive shift in investment dollars to other countries in the foreseeable future.

One reason why U.S. companies will continue to prefer India is the depth of its labor pool, which stems from the eagerness of its citizens to obtain technical training.

"In most of urban India, a computer programmer is exalted somewhat, like being a doctor is in the United States," said Christopher Fisher, head of corporate IT strategic planning at Hong Kong-based Techtronics Industries Co. "Everyone wants his son or daughter to become a programmer someday."

Fisher said he's impressed by the financial sacrifices that Indian families are willing to make to ensure that their children get a good education. "[This] emphasis on education really struck me," he said. "It reminded me what [the U.S.] used to be about."

Wage pressure exists overseas for people with hard-to-find specialized skills such as ERP and program management, said Gordon Corbon, executive vice president and chief financial officer at offshore outsourcer Cognizant Technology Solutions Corp. in Teaneck, N.J. The company can make up for skills shortages in India by using U.S. workers, who make up 30% of its 10,000-person workforce, he added.

Gradual Migration

Outsourcing experts don't expect to see demand shift away from India anytime soon. Instead, "there will be a general migration of work to other countries as India gets its dance card filled," said Joan Conway, director of managed services at Fujitsu Consulting in Calgary, Alberta.

And that will likely take a while. According to the National Association of Software and Service Companies, an IT industry group in India, there are approximately 290,000 engineering degrees being awarded annually in India, with the majority of those workers entering IT fields.

Eugene M. Kublanov, vice president of corporate development at NeoIT Inc., a San Ramon, Calif.-based offshore outsourcing consultancy, said salary levels for Indian programmers are expected to double by the year 2010, based on a 13% compound annual growth rate. Meanwhile, programmers in China are typically paid 20% to 30% less than those in India, and a growing number of North American companies are looking to China for client/server and Java development skills, Conway said.

But it will be years before countries like China are able to overcome language barriers and produce a sufficiently mature set of IT workers to draw a significant amount of work away from India, said analysts.

Techtronics' Fisher said language and cultural issues in China make it hard to fill job openings there. "While the Chinese definitely have focus and immense talent, the barriers are much higher for them," he said.

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Unequal Pay

Average salary for programmers:

Country Salary
Brazil $12,500
Canada $37,500
China $7,550
Czech Rep. $12,350
Hungary $10,500
India $7,500
Ireland $24,500
Israel $29,150
Malaysia $10,750
Mexico $20,500
Philippines $8,700
Poland $8,100
Romania $7,700
Russia $10,000
Singapore $30,950
South Africa $18,000
U.S. $65,000
Vietnam $3,475
Source: NeoIT Inc., San Ramon, Calif.
Related:
Computerworld's IT Salary Survey 2017 results
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