The People Side — HR Trends, Metrics, and Costs in India

Before planning an offshore presence in India, please review the employee cost data that follow. Not paying attention to the trends shown in the data can result in a low return on investment (ROI).

• The Indian outsourcing industry expanded by 35% in 2004 as multinationals as well as smaller U.S. and European companies outsourced to Indian firms projects ranging from software development and computer help desks to financial analysis [source: Nasscom].
  
• Growth in the BPO industry has boosted competition for workers, as employment in the outsourcing sector jumped by 20% in 2004. The result of this growth has been a tremendous rise in salaries.
  
• Entry-level wages climbed by as much as 15% annually over 2003–04. See Table 1 for details.

• Educating a new employee may take months and cost up to 40% of their annual salary.

• Salaries for mid-level managers increased by 30% during 2003–04, to a median of $31,131 [source: Nasscom].

• The outsourcing industry needs 15%–20% more mid-level execs than it currently has to get the job done. Some companies have turned to Indian expatriates to fill the management gap. During 2003–04, about 20,000 technology professionals returned to India from abroad [source: Nasscom].

• Annual bonuses are between $500 and $5,000 for each employee. Mid-level managers receive higher amounts.

• The average attrition rate in the BPO sector is approximately 40%. It is much higher for call center jobs and lower for high-end engineering jobs and for established firms like Infosys, Wipro, and TCS
  (12%–20%) [source: financial reports].

• The offshore call center industry employs 1 million people in India, but that number is expected to double by 2008 [source: Nasscom]. The attrition rate in the call center industry is a concern as it affects productivity and utilization and has led some companies like Sykes to pull out of India. Part of the attrition problem stems from poorly run call centers where young agents sometimes work nightshifts of more than 12 hours a day with only a 30-minute dinner break and often forego their weekends. Agent burnout is the invariable outcome.

Rising salaries in India are being offset, to some extent, by decreasing costs in other areas. Deregulation and competition have helped cut telecom fees for Indian companies by up to 25% annually since 2002 [source: Nasscom].

EBS analysis: We expect the talent crunch for entry-level employees and mid-level managers to exist for at least five years. We expect the cost of retention (additional perks such as car and housing allowances) to rise at a 15%–20% rate in
2005–06.

Companies must take a long-term view of outsourcing since relative labor costs can change fairly quickly. Making strategic commitments based on small salary cost differentials is generally a mistake since it is likely to produce unsustainable returns.

If you are building an ROI model and business case to evaluate entry into India, we can help. We have detailed data and analytic models that can assist you in evaluating different scenarios. For more information, contact us.