In recent months articles in The Wall Street Journal and Forbes.com have postulated that outsourcing information technology work to India was losing appeal.
They said that high employee turnover in Indian outsourcing companies and rapid growth had reduced work quality and upset Western customers.
1. Faced with high turnover, rising salaries, and a weak public education system, top Indian companies started investing heavily in workforce education and development.
As a result, since 2000, Indian industry made dramatic improvements in the education levels, productivity, and quality of its technical workforce. These companies retrained tens of thousands of low-level IT workers in advanced product design and development techniques to give them more valuable skill sets required to crack higher-value service offerings and fill managerial ranks.
These investments have started paying huge dividends. A few years ago, the Indian IT industry relied on experienced managers returning home from the West to fill mid- and high-level management ranks. Now, Indian HR managers say that they prefer to hire local talent rather than returnees.
2. Attrition rates have been remarkably low and are dropping.
This is also related to investment in workforce education and development. As Indian IT companies have focused on keeping employees happy and promoting from within, turnover rates at top Indian outsourcing companies have been stable or dropping over the last few years.
3. Rising salaries in Indian IT shops are no longer a problem.
The global downturn and concerns about job growth on the part of applicants have actually allowed Indian IT outsourcing companies to offer lower salaries for new recruits and to limit increases for employees. Plus, the rupee has dropped 25%.
This allows Indian IT companies to provide 25% more services for the same price in U.S. dollars. At the same time, real estate and other business costs have dropped. Keep in mind, these companies were highly profitable even before the rupee’s decline. Now they have become much more competitive.
4. Faced with brutal cost-control pressures caused by the global economic downturn, many companies are more desperate to outsource than ever before.
Pramod Bhasin, CEO of India’s largest business process outsourcing firm, Genpact, says that his customers are increasingly asking him to recommend what business functions they should outsource.
They are desperate to achieve the 30%-40% cost savings he says his company can offer them. Equally important is the rapid growth in higher-value work being done by Indian outsourcers as companies from the developed world increasingly move offshore tasks that were once considered untouchable core competencies.
As a result of this shift, India is becoming a global R&D hub in industries as diverse as aerospace, automobiles, and pharmaceuticals.
5. There has always been a trickle of highly skilled workers returning from the U.S. and Europe to their home countries for family reasons and because they felt homesick.
Flawed immigration policies in the U.S., have however created a situation in which there are over a million skilled immigrants and their families in line for a yearly allocation of 120,000 permanent resident visas. There is also a per country limit of less than 10,000 visas.
With over 350,000 Indians in the backlog, they are increasingly getting frustrated and returning home. All of the Indian company HR directors and CEOs I have spoken to say that they are flooded with rsums from Indians currently working in the West. They are able to cherry-pick those with the best skills.
6. India has been dramatically increasing the output of its engineering colleges, and now quality is improving.
In 2004, the country graduated just around 125,000 engineers with bachelor’s degrees. In 2007, this number had doubled and will double again by 2011. I have always been skeptical about the quality of Indian engineering education.