IT Wage Costs Heading North
The Financial Express, June 7, 2004

The Indian software and services industry is slowly turning into an expensive destination for companies looking at outsourcing, if one was to track the labour costs. According to National Association of Software and Service Companies (Nasscom) president Kiran Karnik, labour costs have risen by more than 15 per cent across the software and services sector in the last one year.

“In the coming years, companies in the IT software and services sector will have to move up the value chain. Companies specialising in intellectual property rights, IT infrastructure management and HR business process outsourcings will be able to drive a good price for their services,” Mr Karnik said.

India still enjoys the numero uno position as a low-cost option for companies looking at outsourcing. However, new destinations like China, Czechoslovakia, Vietnam and Philippines, are becoming popular for low-end work like call centre and maintenance, QAI managing director Navyug Mohnot said.

QAI offers consultancy to software and services companies.

“Costs are up by 25-30 per cent from last year, primarily due to wage costs that have increased 15-20 per cent. Rupee appreciation also added to the costs,” Mr Mohnot said.

Mr Mohnot’s advice is quite similar to Nasscom’s: It is high time that the companies accelerated their high-end offerings. Companies can achieve competitiveness by engaging in high-end innovative IP work.

Cost is a driver for outsourced work making its way to India. Yet, it is not the only driver, say experts.

“Costs have been the prime driver for outsourcing to India, but it’s not the only factor. India remains the choicest destination because of skill sets, both soft and IT,” NeoIT managing director Avinash Vashistha said.

NeoIT is a Bangalore and US-based consulting firm on outsourcing.

For business process outsourcing (BPO), the best bet will be to focus on areas like end-to-end processes rather than handling a piece of the entire process, high-end work like analytics and back-office work

“Moving up the value chain will require high investments and BPO companies should seriously look at this. There are alarm bells ringing that indicate we must protect all the advantages that India offers and not let wages go up due to internal competition for a larger labour pool,” EXL Service Pvt Ltd vice-president human resource Deepak Dhawan said.

Mr Dhawan indicated that concentration in select locations by BPO companies is largely responsible for the increase in wage costs.

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