IKnow

The Coming Death of Indian Outsourcing?

A few points:
1. Salary increases (percentages) are slowing down in India. This year the average increase is expected to be lower than last year. Same was the case last year and the year before that. As the salaries reach comfortable levels, the percentage increase is lower.
2. The rising rupee against the dollar is a definite concern. In fact, one of the reasons why salary increases were high in the past was that the rupee used to depreciate by 10-15% and it was easy to dole out high wage increases without affecting the bottom line. Now the reverse is true. However, there are also some predictions that the rupee will not appreciate against the dollar in 2008 and will remain steady around Rs 39-40 to a dollar.
3. Finally - and most importantly - I don't know where the figure of 1:3 in 2007 comes from. My experience is more like 1:5 if you take the blended rate and particularly if you add the overheads to arrive at a fully burdened rate in the US and in India. Therefore, with all the other arguments, it will still take quite a while for the cost arbitrage to come down to a level where outsourcing is not worth it.
4. Of course, there are some specialized skills, where companies are paying close to US salaries, but that is because those skills, in those numbers, are just not available in the US or in other geographies. I know a company that would pay even higher than US salaries, if they could get the specialized skills they are looking for, in large numbers. The value they derive out of these skills is far more than the cost they incur, even after the high salaries.