In 2005, a 26-year-old student of the Indian Institute of Management, Ahmedabad, the prestigious Indian MBA school, was picked up by HSBC for a salary of $152,000 per annum. In 2006, another school — Hyderabad-based Indian School of Business (ISB) — entered the astronomical pay packets race. Speculation was rife that at least one student from ISB had actually outdone the record of the highest starting salary ever.
Average salaries are steadily climbing in the Indian IT and BPO services industries as well — industries that have established their value proposition internationally on labor arbitrage. The country’s IT-services sector witnessed an average salary increase of 16%–18% in 2005, according to a Hewitt-Nasscom survey of 2006. At 13.9%, India also had the highest average salary increase in 2006, according to a Kelly
Services study.
Yet, the hiring spree in the country is growing unabated, the most recent example being that of Accenture’s plans of having more staff in India than in its U.S. operations. Accenture plans to have 35,000 people in India by this summer, as compared to 30,000 in the U.S. And companies are scaling up on their own; not through poaching staff from one another as was more common till a little while ago.
Even customers — at least those that have a well thought out India strategy — don’t appear too fazed.
“We observe that wage increase is an issue,” says Ashwin Adarkar, CEO, New Business Incubation and M&A, IndyMac Bank. “As a result we’ve spent a lot of time working on strategies to improve productivity and keep people loyal to us.” Adarkar has been involved in the bank’s outsourcing to India since 2001.
Often people start outsourcing to places like India for a desire to find cheaper labor, but that is not where the story ends; that is just the beginning. Using labor arbitrage to give you breathing room so you can create quality processes is where the real outsourcing opportunities lie.
Dr. Paul Fielding,
COO, Cadforce
We provision for wage increases — we build in productivity measures to offset any labor cost increases and we create an environment that is attractive to workers so that they stay and don’t leave for small pay increases.
Ashwin Adarkar,
CEO, New Business Incubation
and M&A, IndyMac Bank
Should You Reconsider Your India Strategy?
Not yet. Not for a long time. True, wages in India are on the rise. Yes, they affect the overall cost of outsourcing to the country, with service providers often passing on the extra salary costs to you — the customer.
Yet, India’s offshore market is likely to maintain its low-cost labor advantage over countries such as the U.S.A. and U.K. for at least the next two decades, according to Everest Research Institute’s 2006 Global Sourcing Market Update. We examine why.
