The Great Offshoring Debate!

CIO.com has come out with the third Offshoring Guide. It gives interesting comparisons between the various countries which are alternatives for off-shoring of technical and other work from companies in US and other Western countries.

It primarily rates the companies on three main criteria:
– Geopolitical Risk
– Salaries of the Programmers
– English Proficiency.

and has an Overall Ranking (which includes: Maturity of the Industry, Size of the market, availability and cost of skilled labor, and infrastructure)

It rates India as the Leading destination by a very wide margin! But according the author upheavals are in store:

Although Gartner estimates that India currently holds 80 percent to 90 percent of the offshoring market, wage inflation and the increasing maturity of other low-cost areas threaten its future dominance. And as India’s star has risen, so have its turnover rates—a growing concern for CIOs. Consequently, Davison expects India’s market share to shrink 20 percent by 2010.

It looks a very interesting take on how the different players like the Eastern Europeans are going to rise in importance as will China as it challenges India’s domination. So, Indian industry should not be complacent any more!

There is one point in this entire Offshoring debate that I have always believed in which is best represented by the simple Economic verity:

Demand and Supply decide the Price.

So, if Demand > Supply; Price Rises
and if Supply > Demand; Price Falls.

Hence Price is the result of the dynamics between Demand and Supply! It is not the primary variable.

Now, Offshoring is primarily a Cost Cutting strategy. Hence, it helps to create offices to offshore work that can do bulk work! It doesnt help to create small boutique stores if you want to be a lowest cost seller. You have to be a Walmart!

The critical factor for offshoring equation therefore should be the depth and numbers of the programmer-pool rather than the percentage increases in the salaries. After all, it is not efficient business to open 10 centers in 10 countries with 2000 people rather than having one center with 20,000 people working together. Now look at the Offshoring debate again from the one factor that is most ignored – SCALABILITY!

With Scalability as the guiding factor – which country do you think can provide a pool from which 10 companies can announce within a year to increase their staff by 10-13,000 people on an average?? Such an off-shoring destination ought to have at least 2-300,000 graduates in technical area coming out of the colleges!

Granted that may not be the numbers of Graduates from Indian Engineering colleges. But then is the Indian IT revolution a product of the Roorkee or the IIT graduates? My personal opinion is NO!

India’s IT revolution is not because of the IITs but because of the NIITs! It is those graduates from the normal BA and BSc courses who also go for the IT diplomas in those three years and come out equipped with programming credentials and knowledge!

Therefore, what seems like the pool of Art and basic science or accounting graduates are actually also the hidden pool of programming that have never been factored into the equation, but this very pool has played the largest role in India’s IT growth!

Such surveys therefore, make a basic and most crucial mistake in their studies. They miss the most foundational of all criteria that are driving the Offshoring efforts – Scalability of operations!

That also brings me to another point – the future of Offshoring. When the work has been offshored – then the war cry may no longer be Cost Savings in a few years – it may simply become “Getting the Work Done on a large scale with a reliable continuity”!! At that time, Offshoring would be replaced by Scalable Operations Locating! Price – as a explicit criteria – will be replaced by Scalable Supply Operations! Just as they should be!!