Is the concept of Indian Outsourcing threatened?

Sramana Mitra writes that the future of Indian Outsourcing is bleak. In fact, her article on Forbes.com Friday titled “The Coming Death Of Indian Outsourcing”, frames the basis of her argument by indicating that the cost advantage for offshoring to India used to be 1:6, whereas today it is 1:3 at best, with high attrition. She further predicts it will drop as low as 1:1.5 over time.

MItra goes on to say that that automatable Indian jobs will disappear over the next decade. We know that as MSP’s, this concept is not hard to believe – we do it here today. The article continues by stating that India’s tech industry is a “services” industry, and that Indians don’t do the thinking, their customers do, then India executes. As a result, India has failed to learn how to invent technology products of its own.

According to the article, Forbes’ recently published wage statistics for India reflect that salaries rose 15.1% in 2007, up from 14.4% the previous year, with 2008 forecasts of a hike of 15.2.%, signaling the fifth consecutive year of salary growth above 10% - incredible numbers in any job market, and when paired with the devaluation of the US dollar against the Indian rupee, these numbers are even more striking.

Mitra’s final thoughts forecast the cost advantage of Indian Outsourcing disappearing by 2015, leveraging a 15% year-over-year Indian salary hike rate and projecting the aforementioned continued decline in the cost advantage for Indian labor to 1:1.5 over time. Read the entire article here.

These are very interesting statistics and conclusions, as we ourselves have seen our Partners begin to adopt Outsourcing/Offshoring solutions in regions such as Russia and Eastern Europe in 2007. In fact, at the 2007 ConnectWise Summit, I had the opportunity to speak with representatives from a South African organization that were working to put together a back-office support offering for Managed Services RMM Vendor Level Platforms (www.levelplatforms.com).

These indicators signal to us that we will indeed see more Offshoring opportunities move away from India and to other developing nations, as well as back to the United States. IT Distributor Ingram Micro's Services Division is on an aggressive Partner acquisition strategy in this regard with its Seismic offering, which delivers traditional back-office outsourcing services to Solution Providers; and is attempting to differentiate itself from competitors by adding additional products and services valuable to Solution Providers to its Sesimic portfolio, such as email protection and archiving, online backup and restore services and a nationwide network of Partners who can provide onsite project delivery and support services (www.ingrammicro.com/servicesdivision).

Zenith Infotech, the recognized leader in Indian Offshoring and back-office support for MSP’s, has also recognized the reality that, as its back-office services become commoditized and it becomes more difficult to maintain its dominance through delivery of these services alone, it needs to diversify its product offerings to the channel. In this regard, Zenith has recently announced its partnership with A-Server, a Belgian company that has created a mash-up of Virtualization and SaaS technologies to create DaaS – Datacenter as a Service. This announcement follows closely behind Zenith’s BUDR Solution for Partners, whose newest version has just been released (www.zenithinfotech.com).

As both Ingram and Zenith compete for the back-office business of IT Solution Providers, they are either creating or Partnering with other organizations to add value-added products and services to their core Outsourcing attractiveness as a hedge against Sramana Mitra’s predictions.

What do you think? I’d like to hear your comments…

Erick Simpson

Comments

[James Zachman]

To some extent I agree that the "labor arbitrage" value proposition may continue to deteriorte but I find it hard to believe that many MSP's can find cost-effective 24x7 support in the U.S. like we have now with our NOC in New Delhi.

[Erick Simpson]

Hi Ricardo - great to hear from you. I think extending this thought points to the potential reality that folks in Youngstown will be able to compete to deliver these same services along with everyone else in the world over time...

[Erick Simpson]

Hi Stuart - we discussed this quite a bit during today's show. Thanks again for inviting me to participate. Here is the link in case folks missed it: http://www.blogtalkradio.com/smb.

[Ricardo James]

Hello Eric,

I read this blog post a couple days ago and thought it was quite interesting. I didn't get reply then. However I was listening to the Blog Talk Radio show today and wanted to ask a couple questions. With regards to the present state of our economy, what are your feelings towards outsourcing Help Desk, NOC, etc to a North American based company versus somewhere else. My wife was born and raised in Youngstown, Ohio and during the whole presedential debates and campaigns alot of mention was made to towns and cities such as Youngstown. Where lives were destroyed and uprooted because of people losing jobs to offshoring. I've been there numerous times and it hurts to see how the place has changed. That lead me to think of my Children's future. What will happen to my kids down the road when they get older. Will there be any jobs for them if everything is going to be outsourced and offshored to other countries. We all know countries like china is about to give us a wake up call if the haven't already done so. I totally understand the value and the economy of scale that outsourcing and offshore provides. But what about my children's future. Will our town we live in today look like Youngstown some years in the future ?

Thanks and have a wonderful day.

MSPU Rocks !!

[Stuart Crawford]

Great Posting Erick, makes me stop and think about everyone who is reading the "4 Hour Work Week" and "The World is Flat" where offshoring is a big part of the publications.

It maybe the reality in the not so distant future that we are all one in a flat society and the salaries will be level for IT Professionals will be constant throughout the globe, doesn't matter if you live in Russia, South Africa, Canada, US or South America.

Wouldn't that be fun!

Looking forward to what happens next.

Stuart Crawford
Calgary, AB
http://www.stuartcrawford.com