Will Wage Increases Drive Companies from India?

Ann All

There is no question that wages in India are rising, up by 15 percent in 2004 and even more for recent college graduates, according to AMR Research. But folks seem to disagree on how much of an impact higher salaries are likely to have on the country's outsourcing industry.


According to a recent National Outsourcing Association survey, 60 percent believe that higher wages will increase costs of outsourcing and send companies looking elsewhere.


The Everest Research Institute disagrees, saying that the wage gap between India and Western countries is large enough that companies should continue to enjoy significant savings for 20 more years. Even if wages increase more rapidly than expected, the firm says, gains in productivity should help offset the hikes.


Some observers suggest that, to protect its outsourcing stake, Indian providers will need to begin focusing on more high-end work and also to tighten security.


Interestingly, a third of the respondents in the National Outsourcing Association survey said that security concerns would prevent financial institutions from offshoring to India in the short and medium term.


Some savings tips from AMR: Send more work to India to increase total savings; negotiate longer contracts; skew offshore investments in favor of tools vs. labor.

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