Much news recently has been given to the companies starting offshore software development facilities in India. Recently, IBM opened up a Linux research lab employing 500 engineers; Nortel Networks, will add 500 scientists to their already existing 1300 an spend an additional US$350 million; Cisco Systems and Deutsche Bank are also following suit -- but how long can it last?
With the National Association of Software and Services Companies predicting $6 billion in software exports this year (up from $4 billion last year) and $50 billion by 2008, some are starting to question whether India can maintain its competitive edge. Low-cost and equally capable software outsourcing firms exist in China, the Philippines, Russia and Pakistan and are causing industry experts to predict software grown in India will diminish over the next few years.
The Information Technology Association of America, an industry trade group, estimates that some 840,000 information technology (IT) jobs in the US will go unfilled this year. Those jobs, for a first-year graduate, start out with typical salaries of $45,000 to $50,000 and rapidly escalate. The offshore software outsourcing industry will no doubt continue its hyper-expansion in the next few years as Western firms look for cheap offshore talent to fill that gap, and to lower costs.
According to Marty McCaffrey, executive director of Salinas, Calif.-based Software Outsourcing Research, India is projected to have difficulty meeting market demand by 2008 level. He estimates that India would need to have 1 million qualified software engineers to support exports of $50 billion, and the country currently graduates around 110,000 computer science students a year. With a lack of experienced project leaders already on the horizon, that problem will reach a crisis point as outsourcing continues to expand at a rate of more than 50% a year. Additionally, many of India's best and brightest will continue migrating to the US in search of higher wages.
China is the logical beneficiary of this. With and estimated 400,000 - 800,000 software professionals, most of China's high-tech laborers are well qualified to work on software applications maintenance and migration projects, and these workers come at a significantly lower salary than do their Indian counterparts doing the same work. India's current advantage over China is that it has more high-level, systems-integration projects outsourced, and therefore has an edge in experience at this moment. But as more projects migrate to China for development that could change.
The Chinese environment has traditionally been grounded in manufacturing and hardware, but that is changing. The Chinese government has recently placed great emphasis on teaching English to students and IT workers, and China has a much larger number of American IT managers than does India. This, of course, is an extremely important skill requirement for American firms looking to outsource.
As far as Russia is concerned, McCaffrey calls the situation there "murky." After the fall of the Soviet Union, there were more than 1 million registered engineers, but many of them have since retired, been out of work for long periods of time or don't have the necessary skill sets. Nevertheless, McCaffrey praised Russia's university programs in physics and mathematics and noted that the country has "tremendous outsourcing potential" as an alternative to India. While topnotch talent falls into roughly the same price range, programmers can be found in areas outside of Moscow for as low as $3,000 a year per programmer.
According to Prim Ananed, the Editor of Indian Programmer Magazine, China is in a remarkable position to become an IT super power. For one, Chinese domestic IT industry is bigger than any other country, save the United States'. In addition, it boasts of better IT infrastructure of either India or Russia. Recently, the Chinese government has formulated a policy aimed at making China the IT super power in the new millennium and has invested heavily into improving high-technology sectors. Growth centers like Hong Kong, Shenzhen and Beijing have much potential for IT and IT-enabled services. These in turn provide the much needed experience environment for programmers to mature. There is another factor too: in Silicon valley and other high-tech zones there are more Chinese immigrants than Indians. For example, about 2000 Chinese head firms in Silicon Valley - far more than Indians do. This could be an indicator of the power they can wield in the industry.
China and Russia, along with a host of others such as Indonesia, Malaysia, Thailand and even Vietnam, will collectively challenge India's IT prowess in the next few years. Projects that last year and this year went to Bangalore, India's hi-tech center, might well be going to Manila and Shenzhen, China.
