Three big India-based offshore outsourcing companies
claim sharp increases in employee head count is clear evidence of
growing demand for offshore services.
Analysts say this demand is increasing wages in India by double
digits and raising the potential of rate increases for US
customers.
For now, at least, competition in India is keeping billing rates
stable. But analysts say that won't continue indefinitely as
competition for experienced employees increases.
In a quarterly report, Wipro said its workforce rose by nearly
18%, adding 5,546 employees in the three-month quarter that ended
30 September, to bring its total to 37,063. For the same period one
year earlier, the company reported 24,500 employees.
For the same period, Infosys Technologies said its workforce
grew from 27,939 employees to 32,949 employees, also an 18%
increase. One year ago, Infosys had 18,580 employees.
For the same quarter, Tata Consultancy Services said its head
count had climbed nearly 12% , from 36,636 to 40,948. In June 2003,
Tata reported 24,000 employees.
"Bangalore today is like Silicon Valley was five years ago,"
said Lance Travis, an analyst at AMR Research.
The growth in overseas IT employment is coming from demand from
US companies. Meta Group said the use of offshore services by US
companies will grow at about 20% a year through 2008.
Meta estimates US spending on offshore services at
$10bn (£5.5bn) this year, and that's with 55% of US companies not
using any offshore services, according to Dane Anderson, a Meta
Group analyst.
This demand is driving up salary rates in India by about 14%
this year, especially for experienced workers, said Eugene
Kublanov, an analyst at outsourcing consulting firm NeoIT.
An experienced Indian programmer making $7,400 this year can
expect to earn about $8,500 next year. By 2010, that same employee
may be making double that, Kublanov said.
To cover these increases, service providers will have to shrink
profit margins, improve efficiency and add more sophisticated IT
services that allow them to charge more. While India application
development rates remain roughly a third of US costs, they are
creeping up to about $19 to $20 per hour for software development
this year, up from $17 to $18 an hour last year, Kublanov
said.
But competition for employees, as well as the threat of
increasing turnover, is prompting companies to try different
approaches to recruiting and retaining workers.
At its Hyderabad, India, outsourcing facility, Sierra Atlantic
has begun holding "parents day" programmes for recent college
graduates mulling job offers from firm. Win over the parents and
the likelihood that their son or daughter will accept the job offer
increases, the company hopes.
"The majority of college graduates have arranged marriages
still," said Marc Hebert, a vice-president at Sierra Atlantic, an
outsourcing firm that specialises in research and development. "The
parents are very involved in these kids' lives."
By exposing the parents to the company's culture, working
conditions and values, the hope is that it will leave a favourable
impression on the parents, he said.
Hebert said that in Hyderabad, where Sierra has a 700-employee
facility, turnover has reached about 15%, about par with other
large cities, he said. While high, it has been historically similar
to the turnover rate in Silicon Valley, he said.
The accelerating demand is prompting Sierra Atlantic to consider
operations in other regions of India, as well as China and
elsewhere.
To minimise the impact on their projects, US companies are
increasingly using dedicated development centres, which establish a
separate work environment with employees who do work only for that
client and are made to feel that they are part of a team. While
these dedicated centres may stabilise a workforce, they also lock a
company into a multi-year contract.
As customer use of offshore outsourcers increases, Travis said
he is unaware of any provider that "is turning away business
because they don't have enough resources".
Patrick Thibodeau writes for Computerworld