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Study: Outsourcing Job Drain 'Levels Off'
[September 29, 2005]

Study: Outsourcing Job Drain 'Levels Off'

India's getting half of Silicon Valley's outsourced jobs, but that's leveling off.
TMCnet CRM Alert Columnist
About half of Silicon Valley's outsourced jobs are winding up in India, Silicon Valley-area managers told a recent survey by a team of faculty at Santa Clara University's Leavey School of Business.

The survey has tracked outsourcing by regional companies over the last three years, and registered a slight decline in the number of companies taking jobs out of Silicon Valley last month.

"Outsourcing as a drain on area jobs seems to have leveled off," Mario Belotti, the W.M. Keck professor of economics at the Leavey School of Business said in the survey. "This leveling off is consistent with the latest monthly increases in the county labor force and civilian employment. Recent gains in both of these economic variables have been somewhat higher than similar gains for the U.S. as a whole."
The levels may go up and down, but it's hard to see India losing its position as the favored outsourcing destination any time soon. A recent study from NeoIT, "Mapping Offshore Markets Update 2005," advised American businesses to consider India, Canada, or China first for their outsourcing needs, putting India a comfortable first out of 14 possible IT outsourcing destinations, citing the country's "cost competitiveness, a highly skilled labour pool and a high level of service maturity," according to the report.
Outsourced IT services brought in $12 billion for India last year, leading the world in IT exports. Ironically, the only clouds on its horizon stem from it becoming too successful: According to San Francisco Business Times, an outsourcing company called Freeborders is helping companies re-outsource Indian work to cheaper fulfillment in China.
"Many financial services firms have outsourced call centers and technology work to India, but with costs now rising sharply for operations in that country, Freeborders hopes to grab a chunk of that multibillion-dollar market for its Chinese technology center," the journal reports.
Brad Bernstein, a partner with FTVentures, a VC firm interested in Freeborders, tells the SFBT that his firm noticed that India's booming financial services outsourcing industry had inflated wages there: "We started looking for outsourcing firms in China with language and technical skills to serve the U.S. market."
Indian firms are aware of the problem, but discount its effects. The chief executive for Tata Consultancy Services Ltd., an Indian software services exporter, told Reuters today he "expects the services industry to keep up its profit margins despite risings labor costs," in Reuters' words.
Increased outsourcing opportunities globally, such as those in China, will support margins in the short term, despite pressure from higher demand for skilled employees, Chief Executive S. Ramadorai said on a visit to Singapore.
"Looking at the supply and demand of professionals, skilled capabilities that are needed, on balance, the margin impact is not substantial," Reuters reported him as saying.
David Sims is contributing editor for TMCnet. For more articles by David Sims, please visit:

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