Wednesday, March 05, 2008

Is Indian Outsourcing Industry Losing Out To Other Sources?

Someone posted an interesting question on LinkedIn, that I have also seen being asked in other places, whether India was not the top outsourcing destination and why?

From discussions I have had with various people, and my own observations, I think that, yes, India's value as an outsourced services provider has increased in volume but is now less of a cost advantage to client companies. Quality has suffered, and many American companies in particular have pulled back from Indian operations.

While it will take some time for India to fall off its perch as the main focus of IT and even other professional services outsourcing, IT is beginning to show some changes.

Several factors are at play. In the past Pakistan, etc. could not really come close to what Indian companies could offer in a scalable manner. Such countries are getting better, though India still has far more momentum.

A major problem, besides India's poor infrastructure, is the fact that GOOD Indian engineers can now command salaries not a small but a significant fraction of salaries for similar positions in the USA.

Additionally, the quality of resources being churned out, almost mass-produced, by the professional/educational system there is not at par with what Indians have previously built a great reputation on. So some clients are starting to see significant declines in quality and significant increases in the amount of hand-holding or reiterations needed to get things right.

That still does not mean it is a slam dunk for Pakistan, Bangla Desh, etc. to steal India's thunder. India still offers far greater stability than, say, Pakistan can - so a US businessman is not going to worry too much about being beheaded during a trip to India.

So, yes, India is vulnerable to good competition on cost with good quality work. But, it is not on the way out.

Certainly many Pakistani and other countries' companies are leveraging that. But, I do not see Pakistan's built-in tendency to self-destruct any great opportunity going away anytime soon. Having been born in Pakistan, I have been an entrepreneur in Pakistan in the 80s. I know how tough it was then - even before suicide bombings became a problem. Now, suicide bombings targeting Pakistanis are a DAILY occurrence. I can only imagine how difficult it would be for a Pakistani company to convince Americans or any foreign clients to visit and freely move about the country.

I surely respect those that are trying to do it in the even worse situation of law and order they face. Their job is not going to be easy to even catch up to India, much less get ahead. But, time, effort and rising Indian costs can give them a better foot in the door than ever in the past.

In the meantime, Indians being far more strategic and better business-minded thinkers, are doing a great job not just moving up the "food chain" in services they provide, but are also leveraging global capital markets to turn the tables and buy American and European companies.

I do not see Pakistan's biggest business, industry and media tycoons thinking or being far sighted beyond the lengths of their own noses.

What do you think?
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