'India will enjoy low-cost IT labor edge for 20 yrs'

By agencies   |   Monday, 27 February 2006, 08:00 Hrs
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NEW DELHI: The low-cost labor advantage enjoyed by Indian Information Technology (IT) services over sourcing nations is here to stay for at least two decades despite the perceived sharp rise in wages. According to Everest Research Institute, India's cost advantage over most sourcing nations, including the U.S., the U.K., France, and Japan, is likely to continue for at least 18-20 years.

According to the ‘Sustainability of labor arbitrage’ report by Everest Research Institute, which offers research services, “It is true that the wages in developing nations in IT services and BPO are experiencing double-digit growth at select skill levels. However, the effects of this on labor arbitrage are overstated.”

“Across levels, the overall wage inflation is substantially lower. Further, exchange rates should continue to move in the favor of the offshore industry (developed nations’ currencies strengthening against developing nation’s currencies), helping sustain and even increase labor arbitrage,” it added.

Downplaying the perceived effects of the salary hike, it said that the wage increases in India differed by process and levels, with overall increase being much lower than commonly reported figures. For instance, in the Indian IT services ambit in 2005, the wage increase ranged from as low as six percent in case of project managers to 15 percent for team leaders.

The weighted average wage increase was 10.5-11.5 percent. In case of work off shored from the U.S. to India, the labor arbitrage can sustain for 18-20 years. For off shoring between Japan and India, the arbitrage can sustain for 26-28 years, for IT services. For work off shored by France and the U.K. to India, the labor edge can remain for over 30 years, the Everest report said.

The Everest Group India’s Managing Principal, Joe Fernandes said, “The three most important elements that current reports misinterpret are - the growth in individual salaries versus the more appropriate growth in role levels; reports also pick up the highest cost increases rather than taking into account the overall effect (bulk of costs are at entry level which only grew at six percent); and third, they usually just cover wage increases at the offshore destinations versus the composite picture, which includes wage increases in source country, and other cost changes," said Mr Joe Fernandes, Managing Principal, Everest Group India.

The Everest report also said that even in the worst-case scenario, the cost advantage could be sustained for about 10 years. "However, such pessimistic scenarios have a low possibility of realisation and in reality, labour arbitrage will be sustained for much longer periods of time," said Mr Sheetal Behl, market research analyst with Everest Research Institute.

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