India: Offshoring Bubble?

By Deane Barker on December 11, 2006

Outsourcing: Beyond Bangalore: Apparently outsourcing in India is running into the same problems as everywhere else. I knew the polish was going to wear off this thing before long.

After 10 months of working with software developers in Bangalore, India, Bill Wood was ready to call it quits. The local engineers would start a project, get a few months’ experience, and then bolt for greener pastures […]

Many are fed up with the outsourcing hub of Bangalore, where salaries for info tech staff are growing at 12% to 14% a year, turnover is increasing, and an influx of workers is straining city resources.

I’ve heard that Bangalore has gotten so much outsourcing business because of the low cost, that’s it’s driving the opposite — real estate prices are through the roof now, so the cost of living is much higher, so workers are demanding more money to move there, so the cost of offshoring your work to Bangalore is going up.

The article goes on to say that the next offshore darlings of the tech world are likely to be Eastern Europe and Southeast Asia. Of course, I give them five years of “wonderchild” status before the same thing happens there.

The bottom line is this: there is no free lunch. If you find a part of the world that will do work cheap, there is a time limit on that advantage. They’re likely only willing to work cheap because their standard of living is lower than the options (e.g. — the United States).

But once you start pumping work into a situation like that, the standard of living and economic status that allowed you to do that will improve, and people will start acting very much like the alternative you were trying to avoid (e.g. — the United States).

What’s happening now in India is an example of what will happen everywhere. Economics is economics, no matter where you go.

Via MetaFilter.

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  1. Nice little rant. I’d sorta come up with a corollary to what you’ve written:

    Expertise and talent is somewhat rare, whether in Computers, Engineering, Biology, or even Business or Marketing… In a pool of a few hundred people, there’ll be a handful of standouts apiece in each field.

    So… you start a company up. Any sort of outsourcing company. Call center, data entry, auto parts manufacturing, etc. And soon you’ve got a thousand blokes at the company churning along at a furious pace. There are enough brilliant experts in each of the above specialties to effectively handle this company’s own IT and engineering and management and marketing… but there isn’t some mythical bottomless supply of any of these. Short of some SERIOUS effort to recruit new talent early in schools, the company will end up needing nearly all of the expertise to support itself.

    (Admittedly, the US pretty much SUCKS at guiding children in schools like this, esp. compared to India & China).

    That’s the second cause of the market forces you’re seeing in India, in my opinion. Once the few percent that happily eat/sleep/think the subject are hired, everyone else either has to recruit them away or watch their business fail. There’s just no way to fake that passion or expertise.

    And that percentage is about what it takes just to remain competitive. Raw unskilled labor is much more available, but if it is expertise itself that you plan to outsource… I predict you’re going to quickly grow into the same struggles finding and retaining talent that we’ve got here in the USA.

  2. Not so simple a call. And it also depends on the type of outsourcing and which sectors. BPO, ITO, ESO (engineering services outsourcing)? Financial services? Manufacturing? Packaged applications integration or algorithm development? All depends.

    My company serves as the outsourcing hub for Tsinghua University, China’s MIT. You can pretty much guess where we play. But others play in different spaces. You have to look at each opportunity on a case-by-case basis.

  3. I find the whole outsourcing thing a fiasco for the USA.

    It to me, bottom line is it is another form of “IT” Terrorism. All of that money fueling their countries to work hard against ours. EVEN military installations! IT wil be used to do more than run their cities when the full backlash gets going in this years elections. A LOT of H1b people will be losing their jobs, homes, etc. And then thay can feel the pain as they “may have” caused Americans by coming (and taking cheap pay – outsourcing) to America to displace “qualified” Americans. I think the word used to be SCABS to break the unions.

    I have been in diversity training and try to be tolerant of other cultures, but 4 years of my life down the drain when it could have been the best because I was kept out is very unnerving to say the least. WE are not talking about competing here. This is out and out takeover activities (IT CELLS) in IT Teams across the country…..especially “ORACLE” projects, my area. Takes 3-4 of them to replace me, and I don’t want to stick anyone in the back everyday.

    Cheap well trained talent to make companies go is one thing, but on a staff I witnessed these workers are agressive, threaten each other because of differing religions, and almost do anything to push “qualified” American workers out of the way.

    I was very sucessful from 200-2004, then out-sourced and kept out and off of “ORACLE” teams because of influences from INDIA.

    It is actaully discusting to see people with only 3 weeks of security checks working at USAF Bases when I had to go through 3 month investigation, and I am US Citizen.

    Makes you really look hard at leadership in Washington. They have really messed up on this issue and not promoted trainging Americans to get educated. Now we all will be “fighting” over job for the next 10 years. Economics is one thing, we are talking about politics here. Inside DC and inside these “Global” companies whose ITs have even started being run by people from overseas. See the problem here!?????

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