India retains the crown on IT offshore offshoring

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India will continue to be the favoured destination for IT offshoring despite rising wages and surging rupee. According to industry experts, emerging destinations like the Philippines, Brazil, Russia and other countries in East Europe do not, at present, pose a threat to India. It will take at least five year for these emerging countries to pip Indias position, they say. Reports suggest that on average, an IT workers salary in India is growing at about 12 percent annually. The rupee , too, has risen by around 12 percent against the dollar this year. Despite this, an India software engineer gets only onefifth of what his counterpart in the US or Western Europe earns.

MNCs alone cannot make a country a viable offshore market. A country needs to have local players, which have the business model and size to play a major role in developing that market, says Forrester Research vicepresident John McCarthy.

India certainly has an advantage over others in this aspect. India has a vibrant domestic market and has about five large IT service providers. Besides, the availability of quality talent pool also makes this market attractive, says CA president John Swainson.

CA has already invested US Dollar 30 million to set up its largest development facility in Hyderabad. It expects the 1,650member team here to take a lead role in advancing its enterprise IT management strategy. We are looking at tapping some Eastern European countries for specific expertise like mainframe . But Russia is not on our radar as the domestic market there is not growing, he said.

Forrester also endorses the view that scalability of resources talent pool is the major factor that makes India an attractive offshore location.

The cost of operations in India can be 2030 percent higher than places like Vietnam or lower than places like Brazil. But part of the challenge for these countries is the lack of skills. There is a very limited set of lowend work that companies like GE are looking at and lack of quality resources makes it hard for these countries to get started. The work going offshore today is geometrically more complex than the Y2K work that India got started on with, says Mr McCarthy.

According to him, Eastern European countries face other issues like limited pool of talent. Also, there are problems like cultural affinity, where people are not willing to move for weeks at a time to do transfer and other onsite work. Even in other locations like Brazil and Malaysia, these problems exist as people find it difficult to work late to match with the time zone of their clients,’ he said.

Russia, on the other hand, is an interesting market for highend product development and IT work given the mathematics and engineering skills. One can expect about 1020 percent cost advantage in Russia as against India, depending on the cities. Also its proximity to EU helps. However, one cannot overlook the fact that some locations are slowly emerging to provide offshore work. Accenture, for example, has the largest nonIndian centre in the Philippines with over 10,000 people. Most other MNCs have 3001 ,000 people in China. IBM and EDS have 1,000 to 2,000 people in Brazil and TCS has 650 in Uruguay.

Companies are setting up offshore centres outside India to mitigate geopolitical risk. Besides, clients are also asking companies to have centres close to their locations. So, service providers are expanding their presence in Eastern Europe to serve the clients in Western Europe,’ says The Hackett Group chief research officer Michel Janssen.

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