With all the brouhaha about outsourcing last election season, I thought this article provided an interesting snapshot of what techie outsourcing looks like today –
Silicon Valley has helped power India’s outsourcing boom by shifting technology jobs to that country. Three months ago, Munjal Shah reversed a bit of that shift.Shah, who leads a California start-up called Riya Inc., had opened an office in India’s technology capital of Bangalore in 2005, hiring about 20 skilled software developers. The lure was the wage level: just a quarter of what experienced Silicon Valley computer engineers make.
Then Indian salaries soared. Last year, Shah paid his engineers in India about half of Silicon Valley levels. By early this year, it was 75%.
75% of an average US Engineering salary goes FAR in India. Nevertheless, the big picture point remains true — salaries eventually normalize around productivity and, given the fiercly competitive global tech market, infinite pools of 3rd world workers aren’t exactly lying in wait (of course, the right policy mistakes can make this happen, but let’s not go there for now). It is, on the otherhand, pretty impressive and a testament to modern tech + capitalism that it’s happened this fast.
My company, Roundbox, has some similar, interesting anecdotal experience with outsourcing…
We started our operations ~3 yrs ago with an offshore office in India which was ultimately staffed up to about 10-15 folks. And, we also eventually closed down the office for very similar reasons to Munjal Shah @ Riya and the reasons documented in the article —
- Cost: It wasn’t much cheaper than having folks in the US. As a venture funded startup, much of the attraction to outsourcing was, obviously, about getting the most mileage out of precious working capital. And it was getting more and more expensive every 6 months –
Nasscom puts wage inflation in its industry at 10% to 15% a year. Some tech executives say it’s closer to 50%. In the U.S., wage inflation in the software sector is under 3%, according to Moody’s Economy.com.
…an average $5,000 annually for a new engineer with little experience — the experienced engineers Silicon Valley companies covet can now cost $60,000 to $100,000 a year. “For the top-level talent, there’s an equalization,”
- Churn: The massive boom in Desi tech meant that turnover rates for employees was becoming greater than even Silicon Valley. For complex tech, turnover KILLS.
Pervasive Software Inc. in Austin opened a Bangalore unit in 2004 and hired 45 people. But soon its annual turnover was more than 25%, says the company’s CEO, John Farr. The company kept investing in training workers only to see them leave.
- Name Brand Hiring: For a variety of reasons, there’s a strong preference for namebrand MNC’s amongst the tech talent in India and, as a new and thus unknown tech company, we couldn’t compete against the Wipro’s, Google’s & Microsoft’s when it came to hiring. In the US, on the other hand, quite a few young, ambitious folks would rather try their luck with a startup vs. going to IBM. Eventually, perhaps, Indians will feel, as their silicon valley brothren do, that “I can get a job at IBM anyday” but until that level of security is felt in their bones, risk tolerances won’t be where it is here in the valley.
- Quality: Perhaps most controversially, the quality just wasn’t all there. Many of the folks were no doubt fantastic, but too many of the famously touted “500,000 tech grads a year” were a notch or 2 below many vo-tech educated folks here in the US.
In a 2005 study, McKinsey & Co. estimated that just a quarter of India’s computer engineers had the language proficiency, cultural fit and practical skills to work at multinational companies.
But in our case, it wasn’t just language but actual core computer science. The ones who were truly as good as the folks we had in the US could easily command… a US-level salary. Return to square #1. - Communication: Famously, outsourcing works great if your product specifications are tightly defined, with crisp clear milestones and well understood, a priori, secondary requirements. Just about every one of these simply ain’t the case in a startup tech environment. When your requirements can’t be clearly stated, management overhead grows exponentially… and once again, in a startup, lack of overhead is supposed to be your competitive advantage –
Kana Software in Menlo Park has one engineering manager for every 25 to 50 engineers, but it found it needed one for every five to 10 engineers it employed in the Indian city of Chennai.
While there are tons of examples otherwise…. at least in our limited experience, outsourcing to India didn’t work out. Perhaps there were little tactical things we could have twittled with to eventually find an arrangement that could work but, alas, we didn’t have time….
Moral of the story – global trade and old fashioned econ 101 has created a pool of folks in India who make some pretty serious dough – even by US standards.
My own experience isn’t quite that stark. I know quite a few guys in Bangalore who are working in startups, are starting their own companies, etc. And I am talking about hard-core engineering rather than pure BPO. Of course, the number of startups in India is nowhere near silicon valley’s numbers, for various reasons which will probably surface in another thread soon enough … 🙂 Perhaps the reason why VCs cannot find deals to fund is because they aren’t looking in the right places, or aren’t making themselves available easily. Remember that engineers in Des still do not have too many examples of ‘couple-of-guys-with-an-idea-raised-n-million-and-went-IPO’ to follow. In any case, I would hesitate to talk be dismissive in the style of – ‘for all the talk of tech innovation etc’
I do take strong issue with your assertion that patents are a good, or even reasonable, measure of innovation. If OTOH you are saying that Indian companies have not learned how to play the game by not filing for enough patents, that may be true.
Gabroo Punjabis eat butter chicken (and wash it down with IMFL whiskey), CTM is for effete Britishers … 🙂
???????????
One day the world will figure out that humans can’t digest plastic and micro-chips and we’ll all get back to agriculture again.
conclusive evidence of the above person being a great thinker
Yo brotha! You got some numbers to back that up? And if you do, we’d rather see numbers of the kind ‘patents per employee’ or something, not absolute numbers to account for the size of the industry. Plus, a well made point is that the companies might just be waking up to the patent phenomenon and some might consider it an avoidable expense. India is still new to the patent culture.
hey, conclusive evidence of someone being a great conclusive evidencer.
Hmmm…given the emerging female deficit, entire brides may be hard to swing. Perhaps polyandry marketed as “Pandava Marriage” will solve the problem without turning saffron balls red with anger or blue without “creative outlet”?
We might need to outsource this to Ukraine. I don’t know about you guys, but I get tons of love mail from Ukrainian women I don’t even know. My dravido-lemurian man musk beckons across the steppes of greater scythia…
Haha yeah, I just realized it first hand upon reading this amusing example of what I presume, came out of the “creative outlet” of louiecypher 😛
louiecypher, people have already beat us to marketing polyandry. it is apparently the world’s most ancient start up.
Haha, thanks louciecypher, but I think I’ll pass. The idea of randomizing the marriage market and then sampling this sounds awful.
Actually, they would probably reserve comment depending on how I pitched it 🙂
By “butter chicken,” are y’all referring to chicken makahani? I eat CTM, largely because it is easier to de-ghee it (I couldn’t transliterate “ghee’o”). Does that make me an effette Briton? >:(
By “butter chicken,” are y’all referring to chicken makahani?
Yes.
I don’t know what’s in the air, but the repartee on SM has become very delightful (if a little snarky otherwise). From “barby girl” Divya to Manju’s swipe at Salil:
At least on the web, your wit determines your playa quotient, rather than your job with Infy or IBM.
A question:
Lots of people pointed out the inflationary salary trend as well as the long-term equalization of factor prices among countries well-entrenched in global trade. Some argue that the trickle-down effect will eventually make the entire economy better-off (increase consumer demand/consumption leads to more job creation and so on, sort of a Keynesian story), while others will say that the trickle-down effect is slow/minimal, that the rural sector is entirely excluded from the job market because of various infrastructural bottlenecks and that the upper classes are (in countries like India) very adept at cronyism and preserving their monopoly on the command of resources. In fact, some economists have tried to show that in India, the concentration of wealth has increased and the wealth disparity has increased even between the very rich and the well-off (i.e. the middle classes).
What do you think will happen in India (especially the more knowledgeable social scientists among us) in the next 10 years: upward mobility beyond a secular rate of growth or a concentration of wealth scenario?
LeftyProf has been writing about this… it seems like the bubble has to burst sometime, just as it did hear. It can only go so high before it no longer pays to go ‘offshore’, or another shore is cheaper…
Camille, but ‘ghee’o’ is the essence of ‘saada’ punjab, right after patiala peg, that is. But just for attempting to transliterate ‘ghee’o’, your effete card is revoked … 🙂
I would not claim to have much knowledge as a social scientist or an economist since I am neither. But let me take a shot still. Economic models predict that when a country goes through a period of rapid economic growth, there is an initial phase of increased disparity and concentration of wealth (this is where India is today). This is when there is creation or wealth but there has not been enough time for it’s disbursement. However, the models also predict that gradually as long as the wealth stays put in the same broad geographical region it gradually makes it to the market (think Ambani building his mansion, someone gets richer – that person then spends his new wealth and so on). Thus over time the trickle down effect does indeed happen, how can it not unless you are kanjoosimal and lock it all away doing Puja in front of the tijori. However, how long it takes for this wealth takes to make it’s way back to the market depends on not only the social situation and spending habits but also on Governmental policies, taxation, etc. In India we have not seen much in terms of Government efforts for reducing the disparity. If the disparity increases to too large an extent or the time it takes for the disbursement is too large, there is a very real danger of social unrest which I think if not rectified, India could move towards. This is what rahul breifly alluded to a few posts back. Thus while I am not too worried about the disparity, I am a little concerned with Govt. measures for wealth distribution. For eg, in India a salary of 10lakh or more I think is the same salary for everyone whether you make 10 lakh or 10 billion. Similarly, there are not enough welfare schemes, job creation is only starting to happen in low end skills, etc.
As is always the case, there are economists who disagree with this model but to me it seems quite rational when you come to think of it. Where would India go – I guess it’s a little early to say, depends on what the next election brings to the center. Some acts like the NREGA are quite profound in the impact they can create but so far leave a lot to be desired implementation wise.
I mean Taxation is the same, I think. Someone who understands Indian tax laws better could throw light on this.
Ardy,
I think the highest tax bracket is 30% and there is a 10% surcharge if an individual’s salary exceeds a certain limit. I can put more details later.
This is not an analysis of India, but an Israeli economist has studied career choices of young men w.r.t marriage:
And from today’s dispatch from the Annals of Completely Random Research:
“Mustache Fashion Covaries with a Good Marriage Market for Women“
louiecypher, that’s not nice. You know Vinod is highly marriageable.
Vinod has nothing to worry about, I’ve never met the guy but I doubt that he will be going on a wife hunting safari in the desh anytime soon. And desi parents in the US are different, working for MSFT/Cisco (and probably Google two years from now)here is alot like being a “B” student. They know startups is where it’s at
Even though I work with a startup that doesn’t even have the prestige of being in tech, I told my mommy that in terms of women/girls/”damsels” (to use the term from Dalrymple’s “City of Djinns” from the “old country,” I was only interested in Stephanians–presto, still a bachelor. 😉
Yes, but what’s that got to do with it? What a man can buy on the marriage market with money and a high-status job, a woman can too. The possible ugliness is just to make the point clear.
I’m with louiecipher. How can one anyone, esp. male (in a place like India) not be mindful of how they are going to look on the marriage market when they make their initial career decisions?
More generally, in all cultures, success is sexy and everyone understands that at some level. This explicitly or implicitly influences many career choices of singles. And when I say sucess, I don’t necessarily mean monetary success.
Companies which come to India “just” for saving $$ don’t do well in general. The quality of employees you get is proportional to the salary you are willing to pay them. From my personal experience companies like TI/Google/MSFT/Veritas which have done well in India are the one who are in India not just cost savings, but for the talent. There are people who are very much willing to work in a startup, atleast in IIT’s. But you need to pay them at least as much as what the established companies are willing to pay them.
73 Kurma:
success is sexy and everyone understands that at some level. This explicitly or implicitly influences many career choices of singles. And when I say sucess, I don’t necessarily mean monetary success.
Absolutely–seizing power also helps. Send lawyers, guns, and money, baby!!!
“I’m with louiecipher. How can one anyone, esp. male (in a place like India) not be mindful of how they are going to look on the marriage market when they make their initial career decisions?”
Ummm maybe not. I know so many brilliant students who choose to study pure mathematics and theoretical physics over MBA and S/W jobs.
Hey Binoy … Sapient Bangalore reprazent !!! A shout out to all the other sapientoids 🙂
And whats with all the desh hating? I think most of the Indians would choose to stay in India if they got the same dollar pay converted into rupees. That is a lot of money. I mean even with the current wage levels the attraction for permanent immigration or relocation is waning. Most of my friends and colleagues have no intention of leaving the desh. The current model of getting a chance to go onsite and save some moolah and comeback before you get homesick works best for us. There definitely is a great interest in being well travelled but eventually we all want to come back to our “home” office because we love it warts and all.
When talking about the woes of startup company’s ability to hire in India, what is the value-proposition that it is bringing to the new hire? In the US some of the reasons to join a startup is to learn a lot of new skills in a short period of time along with the hope that the stock options will materialize into something big to be an instant millionaire. I am not sure if they offer such incentives to folks in India. If they are not provided such incentives, any graduate would like to join a “Name-Brand” company to increase his/her marketability in the future. In addition, we are talking about global capitalism. If cost was the initial driver to go to India, it will correct itself if such incentive does not exist in the future.
One can’t have success in these fields? Anyways, math and theo. phys. may be more sexy than MBA to some potential partners – certainly more than S/W in the US. How often do you see a theoretical physicist embarrassed about their profession? If anything, there is a fair amount of showing off, although in a fashion less obvious to people not in science.
Sure, wherever there is a dictatorship/ martial rule, the military is one of the top career choices of young men. Lawyers? Only in the US are lawyers needed for seizing power.
Physics or Math careers make no money except for academics which usually is non research based anyways (or I guess tuition classes). Thus this does not hold if you are supporting the belief that certain career choices are made keeping prospective partners in mind. If that was my sole intention, I would choose something with a large market value, not something considered eccentric and financially non lucrative.
@kurma
When someone decides to make a career in Math or Physics, then the prospect of attracting a better mate is hardly on people’s mind. I was trying to point out that there a lot of people in India who do not consider potential marriage prospects while choosing their careers. And I choose these two subjects as an example because if you are going into these fields for reasons other than genuine interest, then you are pretty much hosed.
A little pompous and self congratulatory this… but since KPO was not mentioned, this may be relevant.
was wondering if any of you have connections with the SalaryBase.com folks. Would be rather interesring to see the US tech India vs. US stats on some key positions
You might want to take a closer look at who’s the most in demand on Wall Street nowadays.
“You might want to take a closer look at who’s the most in demand on Wall Street nowadays. “
Didn’t I say Pure Mathematics in my previous post? Oops My bad.
Firms like D.E. Shaw primarily hire people with purely Mathematics background, the highest paid hedge fund manager James Simon has both a bachelors and Phd in mathematics earned about $1.5 billion I think in 2005-2006. Mathematics is in high demand like Kurma noted.
Sure Mathematics in high demand, but not really in large numbers like those with software skills. I am not arguing that a few brilliant graduates make it to Wall Street. But what are the odds of the average Math graduate making a ton of cash akin to those in software?? And for those engineers who crave the big bucks on Wall Street schools like Columbia and UC Berkeley offer graduate programs in Financial Engineering. A lot of the financial engineering students I know are students with EE and CE backgrounds.
Yes, pure physicists and mathematicians are very employable by virtue of being hella smart. DE Shaw is paying these guys to work as applied mathematicians/quant jocks…not explore something because it is “beautiful” as pure mathematicians are wont to do. I have friends from school who did PhDs in theoretical physics and now work for strat consulting firms making pretty, pretty powerpoint and getting paid $300k a year. The question is what are the employment prospects for people in their fields of study in India. I would contend that up through the 70s there would have been less parental opposition to pursuing pure math & physics because engineering would not necessarily have provided a significantly better livelihood. My earlier comments regarding risk aversion were specific to the choice of large public company over startup in India
I will make pretty powerpoints for 300K, jokes apart I was responding to spark’s comments about people choosing mathematics as career options being hosed.
its an awesome arb….be d*mber and make more $.
I am not sure if it is necessarily be dumber or dumb down your knowledge, whatever it is it is lucrative
the beautiful thing is that you dont need a phd in physics to do those jobs. you can be a dmb@ss and make a d!sproportionate v!g for $h!twrk.
Puliogre, man, for g*d’s s@k3, use something other than shift and the top row of keys 🙂
@ 87 by louiecypher
well considering this blog-post about outsourcing and the above comment abt physicists working in wall street here is an interesting news article from the news-tab abt the concern of physicists’ postion being “outsourced”
where did my comment go ? initiallyshowed up but later vanished!!
For a thappal in the back room of the bunker.
I am vindicated by this Economist article, marriage marketability hampers startup recruiting. Stuff it Louiecypher naysayers !