India's Outsourcing industry 2013
According to the latest study, India's $100-billion IT outsourcing industry has reached its limit and could not grow further due to changes in direction of its customers. The low cost model of providing technology works to western customers has changed faster than most Indian software companies can predict.
Today most customers are looking for software companies who can offer business solutions and full software development rather than just partial services such a coding, testing infrastructure supports, or maintaining old software systems. Many customers require higher skills from IT workers in which most Indian companies do not have enough. Even well-established companies with strong training programs cannot meet this new demand and therefore missing out on growth opportunities.
The study concluded that the current outsourcing business of Indian IT companies has hit the “ceiling” but if it cannot change fast enough, it will lose business due to customers losing confidence and begin to “insource”. It also concluded that the “low cost” model is no longer feasible due to intense competition from other lower cost countries, mostly from Africa. One analyst explained: “Why pay an Indian programmer $800 a month to code and test when you can do that in Africa for $200? Indian software workers no longer have cost advantage as other countries that are also following this approach and begin to compete.”
Currently large Indian software companies have quickly relocated to Africa and hiring workers there to continue their low cost business but they faced a lot of public angers about abandon their people for self-interest profits. A customer suggested: “It is time for Indian IT companies to move up to higher value by provide more trainings for their workers.” But the issue is NOT about the training but the attitude of most IT workers. As soon as they complete training, many left for another company to get better salary. A manager complained: “There is no loyalty in the IT industry. Training is a bad investment and it is better to “steal” workers than to train workers.”
Today customers who need newer technology solutions are beginning to insource or hiring their own IT workers rather than outsource. A software manager said: “Outsourcing is thing of the past, with the fast pace of technology change we have to rely on our own education systems to develop highly skilled workers rather than depend on somebody else to do it for us. Today most of the major works will be done at home.” Another manager said it bluntly: “We have to keep our jobs for our people. We have the best education and the best workforce so outsourcing is no longer a feasible solution anymore.”
A major fear among Indian companies is the new immigration law that allows skilled workers to stay and work in many western countries. This “brain drain” phenomenon may add another blow to the vulnerable IT outsourcing industry. Unless its education system can change fast enough to build a skilled workforce at home, India may lose the advantage of being the world's center of IT development.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
