India will always remain low cost IT service destination
Off late there has been a lot of discussions on increasing cost of Indian resources due to higher rate in salary increase than the western world. It has been seen that salary increase in IT sector in India has been always on an average of 10% as compared to average 2 to 3 % in US and Europe.
If this trend continues, India may no more remain competitive in Global scenario in next 15 years. Although this seems to be true on the face, we have to check other facts to understand that this situation may not arise. Considering the growth of India and the huge internal consumption, India would require large number of manpower to satisfy internal needs alone.
On the global outsourcing scenario, it is likely that most of the global companies would invest in India to increase their market in the second fastest growing economy of the world. All of this will keep increasing the requirement of both young and experienced work force.
While assuming the salary growth, it is always understood that the same person would remain in the organization and keep doing the same work and his salary would keep increasing at 10%. The practical scenario is that Indian companies use the huge manpower of fresh graduates and engineers to fill their majority ranks year after year. This would remain the trend for years to come given the fact that India would remain the youngest country for next fifty years.
Replacement of expensive senior staff with junior low wage staff and using senior expensive staff for expansion and business growth would always keep India as low cost destination for IT services.
It has also been seen that the third party IT service providers normally keep their rates way higher than the actual cost. Captive IT companies who operate in India, even after paying more salaries keep their cost lower than third party IT service providers. The key savings for Captive IT companies is primarily the zero cost of marketing and almost nil bench resources. These two factors alone contribute as high as 25% of the third party service provider’s cost.
In future, more and more companies opting for their own captives can drive down the cost with similar resources and always remain cost effective in India.