FT : Nasscom Rejects Claims Of “Reverse Offshoring”

Tuesday, July 3, 2007

India’s software industry association yesterday rejected claims that wage inflation was making the country’s computer services industry uncompetitive as it unveiled bullish growth forecasts for the sector this year.  Responding to claims from some Silicon Valley companies that wage costs in Bangalore have risen to near-US levels, the National Association of Software Services Companies said this was an isolated phenomenon.  “It is there in pockets,” said Ameet Nivsarkar, vice-president, research at Nasscom.  “But we haven’t come across this as a large trend.”  In spite of rising salaries and real estate costs, India’s information technology software and services industry is booming, with Nasscom forecasting sales will grow up to 27% to $50bn in the year ending next March.  The industry reported growth of 30.7% in the year ended March 2007 to reach sales of $39.6bn, driven by the country’s top IT services companies as well as an increasing shift among western IT groups to India.  But the growth has been overshadowed in recent years by the mounting debate over wage inflation in India.  Like.com, a Silicon Valley search engine start-up, created waves after Munjal Shah, its chief executive, complained he was forced to shut his Bangalore office because of wage costs and shift the jobs back to the US in a form of “reverse offshoring”…..

However, Mr Nivsarkar said that while India no longer competed only on wage costs, its graduates were still more plentiful than elsewhere and were generally paid much less than their western counterparts.  The country produced 3m university graduates last year, of whom just more than 10% were employed in the IndianIT software and services industry.  Starting salaries in the industry were $10,000, about one sixth those in the US.  Wage inflation in India, which averaged 15% last year, was still lower in absolute terms than the salary increase of a US worker, who received an increment of about 3% a year on a much bigger salary.  He said, however, the quality of some new graduates was an issue, and that scarcity became more of a problem at senior levels or in specialised sectors.  Hilary Robertson, offshore development officer with UK-based IT outsourcing company Xansa, said the company, which has extensive operations in India, was finding that it was taking longer to find senior managers.


…The supply of skilled Indian software engineers is too limited…True, India is still the leading player among developing countries.  Yet while India’s universities produce many superb graduates, they pass far more who are not up to international competition at any price.  A survey carried out by McKinsey and the Indian software industry’s trade body, Nasscom, estimated that the Indian software industry would be shy of half a million suitably qualified – and competent – workers within three years.  Given that prediction, it can hardly be a surprise that the cost of an expert Indian software engineer is going through the roof. Surprise surprise, markets work…..The growing affluence of Bangalore may present headaches for a country that remains extremely poor: it is one thing for a family living on a dollar a day to know that there are millionaires in California, another to watch them pass by in the street every day.  Yet if the political ramifications can be managed, the wealth will spread as the affluent spend their money locally.

As for the US, do not expect to see an end to stories about outsourcing to India or cheap manufactures from China.  They will continue, and US citizens will continue to benefit as they always have done.  America has survived cheap foreign competition from the likes of Japan and South Korea; Detroit has suffered but the country has not.  Reverse-outsourcing may be a curiosity, but it is a reminder that the laws of economics have not been suspended.  A country with decent education and a good business climate will always be host to successful companies and prosperous workers.  And these words were written in London, not Bangalore.

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One Response to “FT : Nasscom Rejects Claims Of “Reverse Offshoring””

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