I read this article in Infoworld with interest. This is from IDG…
What this article does not necessarily address is that Indian Outsourcing Industry is also at a crossroad now. The salary structures in India has reached levels, where it makes it expensive to outsource to India on pure cost basis. Some companies like TCS and Infosys, have already started thinking ahead, and they are proactively opening up outsourcing/development centre (call it what you will), in other "emerging" countries – like Eastern Europe or even China ("Emerging" for Development related work).
NOW, that is an interesting take on the state of the business. Imagine, a company sitting in Europe, outsources work to a company in India, which actually does many of the work out of East Europe – which could be just next door!!! J Here is the article… a snapshot of it.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
(InfoWorld) - Foreign companies aiming to take advantage of India's less-expensive IT and back-office employees often take one of two routes -- they set up their own operations in the country, commonly referred to as "captive centers," or they outsource work. But new market research suggests there are cost benefits to turning over software development or business processes to an outsourcer rather than setting up a subsidiary.
Forrester Research Inc. found that hidden costs raise the baseline expense per person per month at a subsidiary to $4,944, compared to the baseline cost of $4,231 per person per month to hire an outsourcer. A number of companies are shutting down their captive centers and turning to outsourcers, said Sudin Apte, senior analyst and country head for India for Forrester.
"Captives centers run as cost-centers and cannot be as competitive as a vendor offering services," Apte said.
The size of the captive center also matters. "My experience suggests that generally the minimum economic size for a captive operation is about 1,000 staff," said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International in Houston. A smaller staff means the expenses of real estate, infrastructure, and other overhead keep the cost per person at levels too high to appeal to the parent company, he added.
More than 60 percent of the captive centers in India are struggling with escalating staff attrition and costs, according to Apte. Most of these centers have been set up with the expectation that they can do the work more cheaply than outsourcers as they will not be paying vendor margins. Money saved on the outsourcer's margins is outweighed by the inefficiency of the captive operation, he added.
Because they usually don't do leading-edge work, subsidiaries spend more than outsourcers to attract and retain staff, according to Forrester. Conversely, outsourcers provide staff growth opportunities and the chance to work on a variety of projects from various customers, Apte said.
|