Offshoring Fuels IT Hiring Boom in India

Computerworld - In quarterly financial-results reports released last week, offshore outsourcing firms in India detailed sharp increases in employee head count. But analysts said the growing demand for offshore services and workers is increasing wages in India, raising the potential of rate increases for U.S. customers.

For now, at least, competition in India is keeping billing rates stable. But several analysts predicted that the current situation won't continue indefinitely because competition for experienced employees will increase.

During the quarter that ended Sept. 30, Infosys Technologies Ltd.'s workforce grew from 27,939 to 32,949—an 18% increase in just three months. At the end of last year's third quarter, Bangalore-based Infosys had 18,580 employees.

Mumbai-based Tata Consultancy Services Ltd. said its head count climbed nearly 12% in this year's third quarter, from 36,636 to 40,948. In June 2003, Tata employed about 24,000 people.

"Bangalore today is like Silicon Valley was five years ago," said Lance Travis, an analyst at Boston-based AMR Research Inc.

The growth in overseas IT employment stems from rising demand for offshore services from U.S. companies, according to Meta Group Inc. Meta estimates that offshore spending by U.S. businesses will reach $10 billion this year and that the use of offshore services will grow about 20% annually through 2008. And that's with more than half of all companies not yet using any offshore services, said Meta analyst Dane Anderson (see chart).

Offshore demand is expected to drive up salaries in India by about 14% this year, especially for experienced workers, said Eugene Kublanov, an analyst at outsourcing consulting firm NeoIT Inc. in San Ramon, Calif. The increases are likely to continue at a similar pace, Kublanov added. An experienced Indian programmer making $7,400 this year can expect to earn about $8,500 in 2005, he said, noting that the same employee may be making twice that amount by 2010.

To cover such increases, offshore vendors will have to become more efficient and add more-sophisticated IT services so they can charge higher prices. Kublanov said that although application development rates in India remain roughly one-third of what they are in the U.S., the costs there are creeping to $19 to $20 per hour this year, compared with $17 to $18 in 2003.

Competition for employees, as well as the threat of increasing turnover, is prompting some companies to try different approaches to recruiting and retaining workers.

At its offshore outsourcing facility in Hyderabad, Sierra Atlantic Inc. has begun holding "parents day" gatherings for recent college graduates who are considering job offers. The Fremont, Calif.-based company hopes that winning over the parents of potential new hires will increase the likelihood that its job offers will be accepted.