For a while now, India is the number one IT outsourcing destination. The first thing that attracts companies to outsource software development to India are numbers – with population of over 1.2 billion of people and around 3 million graduates that are entering the jobs market each year, the country has a vast talent pool, which is literally inexhaustible. Besides, it is the largest English speaking nation in the world so all possible communication issues and language barriers are avoided. Still, times are changing and as the years go by, can we so firmly claim that India remains the ultimate IT outsourcing destination?
What Made India No.1?
It is clear that India had all the necessary prerequisites to become outsourcing paradise. The most important reasons that drive companies to opt for India as their outsourcing destination are the flexible workforce prices (an average developer in the U.S. costs about $80 an hour while his Indian colleague will work for about $15 per hour). That flexibility allows companies to save large amounts of money, while getting the same or similar quality. Cost reduction is just one part of the reason why India is the preferred outsourcing destination. The country offers great infrastructure, technical capabilities and stable government which supports IT department with favorable policies.
The Years of Decline
According to U.S.-based research firm, The Hackett Group, outsourcing to India will end in 5 to 7 years. The report suggest that that will happen because of the traditional European and U.S. business model, which will eventually run out of jobs which can be outsourced to offshore locations. Still, not all responsibility lies on Europe and United States.
Indian IT outsourcing has become a commodity with nothing new and to offer. Though it is true that India is rich with human resources, the availability of those resources is very complex. Because of the popularity of working in IT department, more and more Indians want to get a piece of the cake (the cake being billions of dollars sent by U.S. and European companies). They decide to take quick courses which are not nearly enough to turn them into IT experts. Additional, the 12 hours time difference between the United States and India is making the communication difficult.
Changes on the Global Business Market
The changes on global business market make the future of outsourcing insecure. Outsourcing created labor shortages in many of the emerging economies. China, for instance, is experiencing 100% salary inflation and India is not far behind. Some industry experts predict that Latin America is the outsourcing destination of the future. Alternative destinations western companies will turn to might be Bangladesh, Pakistan (50% lower costs and over 200,000 IT graduates searching for work) or Vietnam.
Other companies are moving their businesses back home because the risks outweigh the savings. The risks of distance management, language and cultural differences, loss of intellectual capital, etc. are too great to ignore. If handled badly, those challenges can damage the corporate image, weaken the brand and lower the quality of services.
Though India is still the ultimate IT outsourcing destination, the current trends are leading us to believe that the country will lose its appeal for foreign countries during the next decade. It remains to be seen how that will affect the whole outsourcing idea.