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Troubling Signs for Indian Tech Outsourcers

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If you are an investor in one of the many U.S.-listed technology outsourcing giants such as Infosys, then I have some bad news for you: they are no longer the cherished destination for the brightest and the smartest in India. Instead, they are being viewed derisively as “code factories.” What gives? Read on…

One of the most amazing things you notice about Indian newspapers recently is the lack of technology headlines. Instead the focus is on telecom and manufacturing and organized retail. This is in sharp contrast from a few years ago, when I encountered newspapers proudly chronicling the tech outsourcing boom while visiting the city of my birth.

A few reports today in the local media, when taken together, seem to be like the proverbial dark cloud hanging over the Indian technology sector that sparked off the local economic boom. The Hindustan Times reports that an increasing number of employees who work for business process outsourcers (BPOs) are leaving their jobs and heading to the business schools. Nearly 10-to-12% of new management students came from the BPO industry. The grueling hours and hard life with few prospects to rise to the managerial ranks are the main reason why many are looking to upgrade their professional lives.

The Times of India today is running a piece called the Myth of The Indian Programmer, which has some pretty startling revelations. Apparently, last year only 10 of the 574 graduates of IIT Powai joined the tech outsourcers, with a majority opting for the likes of Google.

The article argues that a lot of churn at companies like Infosys is a result of dissatisfaction with being just coders and engineers are switching to jobs with bigger challenges. A Tata Consultancy Services (TCS) executive acknowledges that the outlook is gloomy. The question then is that if the top outsourcers cannot attract the best and the brightest, then how are they going to stay competitive?

The third piece, again in the Times of India, points out that the IIT system is facing a resource crunch, which could mean even the brightest minds may not be able to get the resources they need to become world-beaters.

Maybe I am being pessimistic, overcome with the idea of a 22-hour journey and leaving my family, but something tells me that my pessimism may not be completely unfounded. If you are a professional from the “outsourcing” business, please let me know how you feel about your business, and give us your outlook. Comments are open.

49 Responses to “Troubling Signs for Indian Tech Outsourcers”

  1. Well the reason that Google is such a hot employer is because of the work culture and brand name it offers.
    Most of the Indian outfits like TCS and Wipro are run almost like govt. departments with a very different and restrictive work environment.

    Also now we are getting better quality work in India. In IT outsourcing focus has shifted from just coding to other things like R&D and Business Analysis.

    Furthermore we should not forget that much of the ‘Indian Talent’ doesn’t remain in India for long. They head off for greener pastures to do their bachelors or masters. Many manage to find jobs in their adopted countries itself and settle there.
    But in the recent past there has been an encouraging reversal to this. Students prefer to come back to India after their studies are completed.
    India is not seen as a dead end kind of place any more. With a foreign degree in your hands you automatically become highly qualified. Thus the Indian student knows that their chances of finding a job in a top notch co. in India are much better than in their adopted country.

    While there needs to be a shift within the Indian companies from bespoke development and services to product development backed by top notch R&D these things cannot come up overnight.

    The Indian IT industry is just now waking up from the boom times… now that the headlong rush towards big money is easing off it is the perfect time to take stock of the situation and to plan ahead for the next big thing.

  2. @Kiran “Once slow down happens … Hiring by the big Indian outsourcing firms – continues…”

    Really? Do these big Indian outsourcing firms work in a vacuum? What happened when last time there was a bust? Remember?? These firms were laying off people without a care.

    Looking at the mass of people TCS, Infy, Wipro each 65,000+ scares me away from joining even for a slightly higher salary (which is non-existent anyway, because these Indian firms seem to prefer graduates right out of college for cheap).

    I would much rather do some interesting work at a technology or other MNC company as their permanent staff and learn something for real.

    I picked up perl in a few weeks, and can pick up whatever else is needed, in short time anyway. What matters is the domain knowledge. This you can only get by sitting at the clients house (working for an Indian rupee paying firm). Or as a first class citizen by being employed by these Indian firms’ client, getting paid in dollars and a good slice of the action.

  3. Google is a unique environment, but certainly Yahoo! isa a poor example as the other end end of the spectrum.

    Yahoo! is one of the better companies to work for in the valley. I live/work in the valley and know engineer “artists” type who are quite happy to work there.

    Sorry to get off-topic. I just hate bad anologies.

    • this seems like choosing to work for Yahoo or Google.
    • Google is run by engineers building cool engineered products that will make money. It would be my choice. It is a place for “artists”
    • Yahoo is run by business people whose only goal is make to make money first and products second. This is no place for engineering “artists”.
    • I belive that given a choice engineers will always choose the work environment where they’ll be given the chance to be an artist instead of “just delivering” on some business plan.
      ** Most Indians I’ve worked with are very creative. I couldn’t and can’t see them as “outsourcers”.
  4. I am a US citizen, not of Asian decent, working in this same industry being discussed. And I work out of India 1-2 months each year. In an effort not to redo what has been stated above, and with all due respect to the author, you missed the point. The most painfully accurate statements are those of Mohit, Jaggi and Santosh.

    The problem with your article starts with you opening statement. It reads “If you are an investor in one of the many U.S.-listed technology outsourcing giants such as Infosys, then I have some bad news for you: they are no longer the cherished destination for the brightest and the smartest in India.” You are correct in that their stock is not going to continue to show the pop it has enjoyed in the past. You missed the point in that the best and brightest of India were never really needed in BPO houses (refer to Mohit). But, those two are not necessarily related points.

    As for why these BPO services can’t retrain their best nor attract more of them is best articulated by Jaggi and Santosh. The really short answer is that never needed that many of them in the first place.

    In my opinion, what are the issues facing one trying to outsource?
    1. Cost advantage gone: In 98, one US developer cost same as say 10 in India. Today, good luck if you get 2. Unless one goes into outsourcing as a core strategy initiative, cost advantages of the late 90s are today simply a myth.
    2. Loyalty is non-existent: Thailand, Vietnam and Philippines are perceived as loyal to those they work for. In India, I feel I suffer from issues of the grass is greener on the other side. In the States, 90% of a person’s resume is probably accurate and often one is trying to figure out which 10% is fiction. In India, the same holds true in reverse.
    3. Coding is everything: I am at a loss in trying to understand how too many engineers in India measure growth of their career by how much time they are spending on core development and not on growth of communications skills or business process acumen. If more of them are going to get their MBA that is great. This will actually help.
    4. Is good education still valued? A person who did not apply himself/herself in school but has good language skills can get a very nice job in India in the burgeoning telesales and support center environment. How good? Pay can be better than a well trained engineer. I am not sure if the exploding opportunity environment really compels the young of today to apply themselves in getting the best in IT neither in training nor in skills.

    But, then again, this is just my opinion.

  5. Two points:
    1. In the US- Did the smartest minds go to Microsoft/ Sun in the 90’s or did that go to Accenture / EDS. Same holds true for India.

    It is the industry diffrentiator and the type of work that gets the resource.Guys from IIT will end up in Google because of the nature of the work.

    1. The shift in the headline news from IT to Retail/manufacturing does not signify a downturn in IT. All that it means is that IT in India has matured and is no longer the cool new thing on the block.
  6. Hari Swaminathan

    With most developed nations populations shrinking, or their population demographic tilting sharply towards the aged, like it or not, India will remain one of the key destinations for the world’s backoffice. Lack of talent cannot be looked at as a problem. It is an opportunity for entrepreneurs and companies to bridge the gap between the status quo and the market needs.

  7. The future growth of India cannot be based on outsourcing of low-medium end jobs, whether it is coding or the ‘highly glorified’ KPO business where we are supposedly providing knowledge services. KPOs are struggling with starry eyed ‘Research Associates’ (equivalent of coders in the IT world) who are performing Google searches to service client requests and would like to move towards high-end ‘challenging’ jobs, which come along once in a blue moon.

    Even the big R&D houses in India have PhD’s working on projects that have been conceived in the US or Europe, something that goes against the very idea of research, where a researcher should be generating new concepts or ideas. The reason that people are moving to business schools from BPO firms might not be simply because of the money, but because the ‘coder’ is looking for a greater challenge.

    Todays well educated, highly opinionated, keenly observant and most importantly ‘super ambitious’ youth of India in my opinion do not fit into the outsourcing dominated, service oriented economy that India could be conjuring up for itself. With China being the manufacturing base of the world, India is being looked at as the IT or Knowledge Processing, BPO back office and the idea of India climbing up the services value chain is something that is a myth to some extent.

    India needs a wake up call in my view. We should be looking at India being a thought leader, an idea driven powerhouse that is not servicing ideas generated elsewhere but is generating its own ideas. I think instead of being a service driven economy we should start discussing how we could build a ‘creative economy’ where creativity and entrepeneurship are rewarded and nurtured.

    I think the first place to start is business schools (at least thats where all the bright Indian kids are ending up for now), where students should be encouraged to start their own Google rather than equip them to work for Google.

    P.S – I hate to break it but Infosys is not going to be India’s Google. To put it in simple language Infosys has merely made a living by helping Fortune 1000’s become Fortune 500’s, while Google has helped redifine the way we conduct business,shop and live our daily lives. Spot the difference?

  8. Om,
    Engineers from IIT have always been preferring jobs in which they can innovate, therefore retaining them for outsourced maintenance project has never been possible.
    Also they make mere 2 to 7% of the total IT workforce in India. It is the second rung NIT/REC, prestigious institutions and private colleges which produces engineers for the Indian IT industry.

    However as some of the reader has mentioned, salaries are going high, which is bound to go up because every company wants to hire the software engineer/programmer to support the project delivery. Will this cause serious trouble? Yes. But then Indian BIG 5 outsourcing providers (Infy, Satyam, TCS, Wipro, and others) are already in China, Poland and other upcoming low cost destinations, therefore they will be in game.
    However for small and middle scaled outsourcing providers, the trouble sign is clearly visible unless they position themselves in global scale and are capable of competing on low cost and high value addition.

    Also being a techie, I know that all jobs doesn’t need engineer, therefore basic science graduates with logical skill and masters in computer application will be enough to keep pumping the low cost outsourcing engine for many more years.

    Regarding the BPO industry, it was never a long term professional goal for many Indians. I have met plenty of professional in BPO industry, they have opted job for increasing their earning potential and use that for higher education.
    I think KPO industry will thrive in India as in general Indians prefer more learning and long term job prospects.

    Whoever in Times of India did this study looks to me focussed on too much on IIT and ignore the bigger mass of programmers.

    I run a Start-up company in India and according to me it is time to move to second rung cities like Kochin, Chandigarh, Coimbatore, Bhubaneswar, Bhopal, Pune, etc. Plenty of engineers come from such cities and if companies can catch them there, the cost is bound to stay low.

  9. I work for one of the global majors at their India facility. Most of the work done here is routine maintenance work on multi year contracts. We have problems retaining our best and brightest as they feel that the work is too mundane and leave for more challenging work.

    I think this is a trend that is seen across most Indian software houses. They don’t need the brightest of people and the brightest aren’t interested in joining them anyway.

    The greater danger I see is in the galloping (make that soaring) salaries. If they continue at this pace, we will no longer be competitive

  10. Getting resources is a huge problem – and good resources are harder to find – in the Indian scenario.

    The current boom is driven by MNCs coming to India to set their own Development Centers and offering salaries at least 30-40% higher.

    This will continue till
    a. Salaries reach 70 – 80% of US levels
    b. Some kind of slow down in the tech space

    Once that happens – guess who gains?
    a. Product shops will layoff – and move work to cheaper vendors
    b. Hiring by the big Indian outsourcing firms – continues…

    Any takers?

  11. High churn rate has always been a problem in the Indian IT industry. While the number of engineers produced by the top institutes is only handful (who anyway never preferred to go to one of the BPO biggies as already pointed out in one of the comments), if I recall right, the number of engineers that India produces every year is of the order of half million or so. Of course not all engineers are from IT related disciplines, still these companies anyway never had a high bar to entry (as far as knowledge of Computer Science is concerned) as they make their employees go through training programs.

    On the brighter side (maybe a bit digressing), we are seeing Indian companies moving up in the value chain and working on products from concept to final stages. I am hoping with this trend and given the current enthusiasm in the entrepreneurial scene, we will see software products for the world markets soon from India (early examples: Zoho, Dimdim, etc.)

  12. Mohit Mahendra

    Om, neither do Accenture, IBM Global Services, Cap Gemini, etc ever attract the sharpest engineers. Or need to. Its not the nature of the outsourcing business to need that sort of talent. Its more about good project managers running the laid down process smoothly, and a few better ones designing the process to be followed. Purist engineers see thru this model right away for the commoditized manner in which it views technical workers. Or they find out soon enough. Also, the problem solving space involved in these projects is itself fairly structured, well-defined, often solved with a cookie-cutter. They’re not pushing the technology and/or engineering envelope. You can give them credit for innovating on the global delivery process, and now with some of their M&A activity, the corporate model, but you don’t need engineers for that.

  13. Om,

    It’s amazing how you have been able to deliver a series of posts while on a short personal trip :)

    Thanks for sharing your take on the state of indian markets in your recent posts – and your interesting observation about how IT isn’t making as many headlines in India anymore…

    As for the “dark clouds” on the IT horizon, I am also seeing the signs of an inevitable slowdown… But, I think companies like TCS, Infosys and Wipro will not be as dramatically affected (although they will not be able to sustain the recent heady growth, so their shareholders should be concerned as you have indicated)… They have not attracted the top talent in the past (except the founders and senior management), so they will be able to continue to rely on masses of fresh engineers and science grads to keep their blended rates in control… Also, larger US-based companies will probably also follow a similar path… But, for software product companies and start-ups, which require top tier talent and productivity, the life is becoming much more difficult…

    On the other hand, the good news is the productivity and quality of many Indian teams has also substantially gone up in the recent past… It remains to be seen whether they can shine through the dark clouds of increasingly higher costs… I am optimistic as always, but the tech job market in india is sure looking like the 1999 bubble in the bay area – so a correction can not be too far away!

  14. My opinion is that the Indian IT story is not just about labor arbitrage alone. It is a much more complex mix of delivery/domain capabilities at the right price point (as opposed to low price). So anyone who is in India just because of the “cost-advantage is bound to be disappointed. You wont be able to find many people willing to work for you. OTOH, the larger Indian players are doing pretty well in attracting and retaining Indian talent.

    It is also kind of bizarre to see this image of “overworked youngsters with no potential for career progression” in the Indian “mainstream” media. Remember that most of Tier-1 Indian IT companies grow at an astounding pace of 30-40% CAGR – in my opinion and experience, this translates to one of the fastest career progression pipelines anywhere.

    On the other hand, there is a real lack of good, employable people – most of the people in the job market are just there for the easy-money factor – which probably explains the low career satisfaction figure. India’s public education/health care system is so broken that there is no way to fuel growth figures like this. And that “shortage” is quite evident in the way, Indian players are structuring their deals. No one is reliant on “India-sourcing” alone. Case in point look at the way TCS has structured its ABN-Amro/Pearl deals.

    So in short, yes there is a supply-side shortage – but most of the Tier 1 players have sophisticated network delivery models that are not necessarily dependent on India.

  15. These days it’s really hard to find good talent in Pakistan too. People are either moving abroad or asking for US/Europe equivalent compensation. Production houses are sub-outsourcing their work to far-east / Russia for economical labor.

  16. Siddharth

    @Jay, I checked out your site ObjectCube, and it is clear your entire customer base is adult-entertainment (aka hardcore porn) sites. I assume you had trouble recruiting talent in India because, talented Indians are a bit, well, squeamish about working on compressing/delivering videos like this. So I don’t know what your experience teaches, other than the fact that porn is not mainstream in India.

  17. I don’t quite agree with your pessimism, Om. My company – Dolcera – provides technology and IP (intellectual property) research services to CPG, high-tech, pharma and life sciences companies and we have our offices in Hyderabad. We are growing quickly and hiring regularly. We are seeing the following:
    1. IITians (as someone else says above) are anyways few in number. But there are a number of new colleges and universities all around the country churning out better quality graduates than when I graduated 10 years ago. The competition for this talent pool is fierce, but the quality is pretty good.
    2. There is a big dearth of talent with “people” and “business” skills. So having more MBAs is not a bad thing at all.
    3. This does not directly relate to your point, but there is a decent pool of people in other domains (chemistry, life sciences etc.) that we are able to tap into for our clients in non-tech industries.

  18. Based on results from an outsourcing industry survey, ‘Eyes on Electronics Outsourcing Industry Survey’, (results: see, India rated among one of the highest sought after destinations by executives when outsourcing electronics product design. (Some countries India ranked higher than include Russia, Thailand, Mexico)

    However, with regards to BPO and outsourcing of electronics design, there is less supporting infrastructure required for these business models than, say, that needed to support a manufacturing base which, contrary to what many people might want to believe, India has not yet been able to create an adequate manufacturing-based supporting infrastructure. The manufacturing technology infrastructure currently in place in India today has been largely due toforeign direct investment (FDI) of MNCs doing business in / with the Indian technology market sectors.

    In order for the world’s last great emerging economic market to thrive as a technology powerhouse, she must pull together the forces which can help make one of her dreams become reality, which involves constructive dialogue among:

    1. International and regional industry organizations
    2. Indian government
    3. Private sector
    4. Universities and technology / research centers

    One challenge to this may be where some say there is a great amount of corruption in Indian society and government. On this note, In his book, The Corrupt Society, Indian author Chandan Mitra compares Indian society to that of one of Niccolo Machiavelli’s second-category societies mentioned in the 1505 novella, The Prince. In such a society, Mitra points out that India’s citizenry, while actively participating in the political process through elections, is primarily engaged in promoting its own ambition to the detriment of the common good.

    I’d still like to believe odds of success are in her favor.

  19. I ran a Banagalore office for 3 years and then endedup closing it late last year and moved all the work back to US.

    The biggest problem is lack of quality tallent. Each job advertisment will bring in like 1000 resumes and even not one guy will be good.

    Granted their are very good developers in India, but they either work for Google or they want a salary that is equal to what is paid in US.

    So its a moot point running a offshore center when your end to end cost is same as what its here in US.