Will India and China be upstaged by smaller countries for Offshoring?

What is the future of Indian Offshoring business? As far as I am concerned, pretty bad. The Indian offshoring companies are competing on cost advantage created by lower quality as opposed to a better process.

Cost Advantage as a corporate strategy can ONLY succeed if it is a result of a process superiority. See Southwest, Walmart, Netflix or Amazon. All of these companies have phenomenal process advantage in the Supply Chain or other Operational areas. If a company does not have that advantage, then it can not sustain the cost and pricing leadership. And that is happening to the Indian companies. Along with lower costs have come lower quality. Now, the Indian IT companies are even hiring non-IT people for certain IT jobs. Its a case of how low can you pay to afford the low cost despite bloated middle to top management.

Basically, the Indian IT companies are engaged in a Suicidal Spiral. “Oh, he can for 40 cents? I can do for 30!”.. “Aah he can do for 30? I can go to 20”. In this spiral, they are collectively committing harakiri.

Kevin Stringer in his article titled “India and China May Not Be the Answer” has argued that other smaller countries may be better destinations. Although quite of few of his claims are dubious, nevertheless his recommendation does seem plausible. At least I agree with the final outcome. Indian IT companies are cheap, senseless and at times in-human in the way they handle their own employees. Some other countries with better appreciation for process advantage like Taiwan or smaller European countries may come up.

I still think India is a large population to choose people from and despite mishaps, there will be extremely positive stories as well. Productivity in Indian companies is definitely low, as Indian psyche doesn’t value “Soft Skills”. We always go for technical skills, which may not be worth anything after a certain time. Here is a story that Stringer shares which is symptomatic of this thing.

The impact of this productivity gap was illustrated best by the experience of a global bank that set up a wealth management analytics team in India to provide equity research for private banking clients. At first the team seemed like a bargain: Indian research analysts were paid quite a bit less than their counterparts in London or New York. Yet, when bank executives examined productivity metrics, they made a troubling discovery: Although the Indian analysts were equal to or slightly better than their global colleagues in mathematical modeling, they were well below average in synthesizing the data, as well as in writing and producing the actual research and recommendations. This turned out to be a productivity cost not recognized prior to the launch.

What do you think? Will the small countries upstage India and China?