Thursday, March 20, 2008

End of Outsourcing to India

The goras are back and with a vengeance. After years of unchallenged dominance of India's software labor force, a small ripple in the Indian outsourcing business may soon become a massive tsunami. The days of outsourcing Indian talent appear to be ending.

This may not seem evident now, but with the falling US dollar, which has depreciated 12% since its peak in 2007, Indian salaries are not exactly competitive, and Indians demand higher increases than foreigners. Last year software professionals received a 15-18% annual pay hike in India, as compared to 4-5% in other countries.

Further, with the US economy slumping, Indian IT bigwigs are keen to swing in lucrative federal (or US government) contracts, which favor local talent. To compound this, there is a strong possibility of an anti-outsourcing Democrat president in the US.

All these factors are making Indian IT companies switch back to on-site services, albeit with a difference -- it is not the software programmer Andhra Pradesh, but a local from Cincinnati, Ohio.

The red herring to this is TCS's new software development center in a suburb of Connecticut, Milford. The country's largest software exporter Tata Consultancy Services on Tuesday said it has set up a software development and delivery center in North America with a capacity of 1,000 seats to cater to the customers there.

"Most of them will be locally hired from the region and its universities," TCS emphasizes. The average salary would be $60,000 (EU38,000), and TCS will receive a 90% property tax break worth $15 million (EU9.5 million) over eight years to locate in Ohio.

This is not a new phenomenon, since companies like Infosys already have been practising this. Infosys's foreign campuses have at least 3% of local talent. Satyam too is planning on increasing its foreign centers although there are no numbers committed.

Facing a signficant downturn in the US economy, a growing number of IT employers believe hiring local talent reduces training costs as well as improves project execution. They say that locals are attuned with the cultural mileu and understand their region's businesses better. This may in fact be a feeble justification for the slow ejection of Indian software labor.

Posted by Eclectic Investor at 11:48 AM  

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IN PASSING

Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book


“When everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

“Last year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

"Most people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

The most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Prachi Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror

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