Deepak Shenoy

How Much Longer Will Indian Outsourcers Offer Cost Advantages?

I'm in Bangalore where the "maximum" for 10 years of experience (equivalent to the 120,000 a year salary in say Northern California) is about 20-25 lakhs. (2-2.5million rupees) Your mileage may vary of course.

Also it's not just about quality. The time differences is a huge issue in my opinion. Secondly communication skills vary, and the best communicators (in India) demand and get far higher salaries. Thirdly, process management is great for the lower cost jobs, but innovation is more important for moving up the value chain. We have not yet demonstrated our prowess in that field, at least not in the outsourceable dimension, if there is such a thing.

I don't think you can outsource innovation unless you can outsource ownership as well. Innovation comes from the ability to benefit from the ends, not the means.

IMHO, what will happen is that eventually there will be balance sheet transfers. Meaning a division of a big company gets transferred over to Mr. Wipro or Mr. Infosys. This then generates future cash flow, and then the Indian company can choose to have American Employees, or Indian employees or use people in Mexico, Argentina or Philipines - makes no difference.

Now they're competing with HP, IBM and the like, which are a) more experienced in deal making, b) also have offices in India and other lower cost countries and c) have far bigger balance sheets and deal absorbing leverage.

From a stock perspective this means a hit to P&L upfront, dilutions or fund raising if necessary etc. If they go down this route (they have to, in my opinion) we will have to see how they pan out, since they haven't done this in any significant way earlier.

Another thing is to spend money on a product framework that could be cross-sold among customers. It needn't be a software product - those can't be cross-sold effectively - but could be things like TPA services or wholesale agency networks for insurers, deal syndication for banking (buy prosper.com!) and so on.

This is now an acquisition based process rather than the plain old gimme work and I'll do it. It's more like "We know your process well enough to take it over,manage it, give it to you for cheaper than you pay right now, and even use it to cross sell to others". Different ball game, different rules. We'll see how it pans out.