Could the fall in Indian Oursourcing lead to Innovation?

March 1, 2008

Sramana Mitra has an interesting article on “The Coming Death Of Indian Outsourcing“.

The death of this industry is far from anyone’s mind.

However, the reality is that wages are rising in India. The cost advantage for offshoring to India used to be at least 1:6. Today, it is at best 1:3. Attrition is scary.


Forbes recently published some scary statistics on wage inflation in India. (See “Indian Employees Enjoying Swift Pay Hikes.”) Salaries rose 15.1% in 2007, up from 14.4% the previous year. The 2008 forecast: 15.2%. This would be the fifth consecutive year of salary growth above 10%.

Raising salaries, falling dollar, raise in cost of living etc in India could hurt the outsourcing industry. Recently I was looking to buy a house in Hyderabad, India and it turns out it is cheaper to buy a house in Silicon Valley than to buy in India.

But then, in the long term, I see the fall of outsourcing industry in India as good news. It’ll pave the way for the new breed of innovation. India got a jumpstart with the outsourcing market. It now has a HUGE pool of resources to build on. If it can focus more on innovation and entrepreneurship instead of ‘outsourcing thinking’, it can turn itself into a new innovation powerhouse. I see this inevitable.

Time for India 2.0


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