A recent
article in the WSJ confirmed some of the stories I have been hearing on outsourcing to India. The first generation of outsourcing was based on cost arbitrage and sending mundane back office work out to India. This worked well for the most part because the coordination requirements weren't that high and the presence of cheap and competent engineering talent in India. Some cracks are beginning to show now. As the article suggests, the nature of work that is being sent out have become more complex and require a lot of coordination by the outsourcer. In addition, the talent that is available is not ready to deploy without some training. While this can be done, the question is at what price? For some of the more value added and complex work hiring, training and retaining engineering talent has become very difficult. With turnovers reaching 25% in some cases projects are at peril. In addition to this, salaries are growing at a 30% rate over the past few years and bringing total compensation packages at par to the rates in Silicon Valley. This poses a clear threat to Indian vendors. At the lower end of the work spectrum there are cheaper alternatives (Vietnam, Philipines,..) developing and at the higher end the cost arbitrage doesn't work out.
As a result, at least two things can happen. One: outsourcers can learn to share knowledge and coordinate better by using some of the emerging technologies. Two: Indian vendors can move into the higher value added work and become part of the innovation network and not just a low cost partner. I'm planning to explore this through case studies this summer.