Could the Tide Be Turning on IT Outsourcing to India?

In a recent ZDNet article, Michael Kannelos points out that India is now facing U.S.-style labor pains. He outlines a number of trends in the IT business in India that indicate the honeymoon may be winding down a bit with U.S. corporations who have been sending thousands of IT jobs – techie to Director-level – to the Indian subcontinent.

India has 250,000 students entering college programs in computer science and electrical engineering annually, and graduates flood the market each year. Infosys, for instance, receives a million applicants annually, of which only 1% or 10,000 are actually hired. However, those who do land positions soon find themselves in tremendous demand with unsolicited and very attractive offers flowing in. Salaries for IT professionals in India are growing at 18 to 20 percent annually.

The fact that workers at Indian companies are plentiful and cheap to employ in comparison to U.S. workers has ironically led to explosive growth and fierce competition for qualified employees, driving the double-digit salary inflation mentioned above. And the trend applies to managers and executives, too. Director-level managers earn between $30,000 and $51,000 per year, and Division Managers can command $76,000. While these salaries are half the going rate in the U.S., the trend is rapidly upward and the gap is closing.

As the gap between U.S. and Indian salaries grows ever smaller, issues of distance, culture differences, communications, time zone logistics, etc. may begin to outweigh historically strong financial incentives for corporations to send jobs to India.

Of course, it can be argued that other countries will simply step in to fill the gap. But this is a phenomenon that executives will want to monitor closely.