India outsourcing firms report surge in hiring

In quarterly reports released this week, three big India-based offshore outsourcing companies detailed sharp increases in employee head count, clear evidence of growing demand for offshore services. Analysts say this demand is increasing wages in India by double digits and raising the potential of rate increases for U.S. customers. For now, at least, competition in India is keeping billing rates stable. But analysts say that won’t continue indefinitely as competition for experienced employees increases.

In a quarterly report released today, Wipro Ltd. said its workforce rose by nearly 18 per cent, adding 5,546 employees in the three-month quarter that ended Sept. 30, to bring its total to 37,063. For the same period one year earlier, the company reported 24,500 employees.

For the same period, Infosys Technologies Ltd. said this week that its workforce grew from 27,939 employees to 32,949 employees, also an 18 per cent increase. One year ago, Infosys had 18,580 employees.

For the same quarter, Tata Consultancy Services Ltd. said its head count had climbed nearly 12 per cent, from 36,636 to 40,948. In June 2003, Tata reported 24,000 employees.

“Bangalore today is like Silicon Valley was five years ago,” said Lance Travis, an analyst at AMR Research Inc. in Boston.

The growth in overseas IT employment is coming from demand from U.S. companies. Stamford, Conn.-based Meta Group Inc. said the use of offshore services by U.S. companies will grow at about 20 per cent a year through 2008.

Meta Group estimates U.S. spending on offshore services at US$10 billion this year, and that’s with 55 per cent of U.S. companies not using any offshore services, according to Dane Anderson, a Meta Group analyst.

This demand is driving up salary rates in India by about 14 per cent this year, especially for experienced workers, said Eugene Kublanov, an analyst at outsourcing consulting firm NeoIT Inc. in San Ramon, Calif.

An experienced Indian programmer making US$7,400 this year can expect to earn about US$8,500 next year. By 2010, that same employee may be making double that, Kublanov said.

To cover these increases, service providers will have to shrink profit margins, improve efficiency and add more sophisticated IT services that allow them to charge more. While India application development rates remain roughly a third of U.S. costs, they are creeping up to about US$19 to US$20 per hour for software development this year, up from US$17 to US$18 an hour last year, Kublanov said.

But competition for employees, as well as the threat of increasing turnover, is prompting companies to try different approaches to recruiting and retaining workers.

At its Hyderabad, India, outsourcing facility, Sierra Atlantic Inc. has begun holding “parents day” programs for recent college graduates mulling job offers from the Fremont, Calif.-based firm. Win over the parents and the likelihood that their son or daughter will accept the job offer increases, the company hopes.

“The majority of college graduates have arranged marriages still,” said Marc Hebert, a vice president at Sierra Atlantic, an outsourcing firm that specializes in research and development. “The parents are very involved in these kids’ lives.” By exposing the parents to the company’s culture, working conditions and values, the hope is that it will leave a favourable impression on the parents, he said.

Hebert said that in Hyderabad, where Sierra has a 700-employee facility, turnover has reached about 15 per cent, about par with other large cities, he said. While high, it has been historically similar to the turnover rate in Silicon Valley, he said.

The accelerating demand is prompting Sierra Atlantic to consider operations in other regions of India, as well as China and elsewhere.

To minimize the impact on their projects, U.S. companies are increasingly using dedicated development centers, which establish a separate work environment with employees who do work only for that client and are made to feel that they are part of a team. While these dedicated centers may stabilize a workforce, they also lock a company into a multiyear contract.

As customer use of offshore outsourcers increases, Travis said he is unaware of any provider that “is turning away business because they don’t have enough resources.”

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