http://economictimes.indiatimes.com/articleshow/msid-656961,curpg-1.cms
IT pros make life difficult for IT companies

IT companies, the building blocks of new India, are facing a
conundrum.  They are flying high and in their very success is lying
the seeds of their problem. The culprits: Their own star performers,
the  IT pros whose constant job hopping is on the one hand leading
to a constant attrition of trained people and on the other hand
driving up the salaries.

It is not only attrition that is beefing up the salary bill.
Increasing competition for workers, thanks to a rush by American
companies to outsource work offshore, is mainly behind increasing IT
salaries in India. This year, Infosys had to disburse $23-million
worth bonus among its 10,000 employees!

But while higher salaries spell good time for the techie as well as
the economy, it may have a different long-term effect. Outsourcing
by US companies, which has mainly been responsible for the IT boom
in India, may find Indian centres to costly and they may start
looking for cheaper options.

Is India pricing itself out of offshore market?

As techie salaries continue to move up, the cost-advantage that
India offers as a source of cheap trained labour may be over soon.
IT salaries in India recorded double-digit growth in 2003, while pay
for similar work within the US remained stagnant if not declining.
Indian salaries are still way lower than in the US, but the wage gap
is narrowing and at least some American companies may be reassessing
their cost savings from outsourcing.

A DiamondCluster International study of more than 180 companies
outsourcing companies in the US found that while most buyers in
earlier studies expected 50% gains, now hope for only 10 to 20 per
cent gains.

A recent Hewitt survey pointed out that techie salaries have been
going up on an average of 15% every year of late. By region, India's
highest increases were reported in Chennai, at an average of 13.5
per cent, followed by Bangalore, with 12.5 per cent, and Kolkata,
with 11.5 per cent. For 2004, the study predicts that average wages
will rise again, as much as 13.4 per cent.

The rise in salaries could prompt more US. companies to consider
other parts of the world, where wages are far lower. Indeed, even
some Indian companies have begun offshoring their own work to China.

By 2005, Tata Consultancy Services (TCS) plans to have 3,000
software engineers in China, or 15 per cent of their global work
force! Adding to the cost escalation, is the high attrition rates
being experienced by Indian companies. In fact, call centers can now
expect to lose 15 to 20 per cent of throe work force every year,
against single-digit losses in the late 1990's.


The stiffest competition for workers is in the metros -- Bangalore,
Mumbai , New Delhi as well as Hyderabad.  In certain sectors of the
outsourcing market, attrition rates are 50 to 75 per cent, according
to Nasscom.

The situation is particularly acute for BPO managers. Many workers
going onshore to the US headquarter does not want to come back to
India. Or even if they do, their American experience give them an
edge in the Indian job market.

The attrition rates have been so high that BPO companies in India
have often reached informal agreements no to poach employees from
one another.

How to hold back employees

Most companies, however, depend on paying higher salaries to hold
back staff. Wipro for example hiked salaries by 10%-15% last year.
The higher wage bill dented its operating margin by 1 to 1.5
percentage points a quarter. But a portion of Wipro's higher costs
was also passed along to customers.

A Nasscom report projected that if India continued to produce
college graduates at the current rate, demand would exceed supply by
20 per cent in the main outsourcing markets by 2008.

"Candidly, we see a labour problem in India right now," says Dan
Zadorozny, the vice president for applications delivery at
Electronic Data Systems, a global outsourcing firm that is based in
the United States but has operations in India.

But the costs are still lower

All's not lost for Indian companies, however. Even with wages rising
by 15% per year, the cost of a computer programmer or a middle
manager in India is much less than in the US. A programmer with
three to five years' experience makes about $25,000 in India, but
about $75,000 in the US.

Even if the salaries are going up in big cities, Indian outsourcing
companies may simply shift their operations to cities like Nasik and
Pondicherry, where wage inflation is still mild.

Others, like TCS, may outsource work offshore themselves, to China,
Southeast Asia and Eastern Europe. India is still years ahead of
countries like China in terms of its workers' facility with English,
its telecommunications, the sophistication of its legal system and
the stability of its political system.

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