India upbeat about grappling with labor crunch

BANGALORE, INDIA - As business booms for Indian IT outsourcing service providers, hiring and retaining software engineers at salaries considered reasonable in the country has become difficult. Despite the staff crunch, however, multinational companies are still setting up or expanding software development facilities in the country, or outsourcing to Indian software service providers.

In the face of a looming labor crunch, multinational and Indian companies have used a variety of tactics to help ensure delivery of high-quality services that are still well below U.S. and Western European costs.

If a company is looking at a combination of relatively low cost, high quality staff and a large pool of talented people, then India is still the best location, said Chinnikrishna Kommi, managing director of Trilogy E-Business Software India Pvt. Ltd., the Bangalore, India-based software development subsidiary of Trilogy Software Inc. in Austin, Texas.

However, large multinational technology services company like Accenture Ltd., Electronic Data Systems Corp and IBM Global Services are hiring staff by the thousands in India, and are blamed by Indian service providers for pushing up salaries .

These big companies "are willing to give 30 to 40 percent hikes in salaries," said Laxman Badiga, chief executive for staffing at Wipro Ltd., one of India's largest IT services companies.

Salaries of junior management and software professionals in the IT services industry in India will grow by 16.3 percent this year, compared to an increase of 15.3 percent last year, according to Aditya Kohli, associate at Gurgaon, India-based Hewitt Associates (India) Pvt Ltd, the Indian subsidiary of U.S.-based Hewitt Associates LLC, a human resources outsourcing and consulting firm. Salaries of senior management will grow by around 11.8 percent over last year, he added.

Staff turnover rates are also going up across the industry, reaching 12 percent to 15 percent per year at Wipro, according to Badiga.

While large Indian outsourcing companies and multinationals with strong brand names will not face much difficulty in hiring and retaining staff, the smaller Indian companies are likely to be hit, according to Ravindra Datar, principal analyst for IT services and BPO (business process outsourcing) at Mumbai, India-based Gartner India Research and Advisory Services Pvt. Ltd.

However, the overall climate for hiring IT professionals could get even more difficult. India's IT services exports are forecast to grow to $28 billion by 2009 up from $7.5 billion in 2003, according to a joint study by KPMG Advisory Services Private Limited and the Delhi, India-based National Association of Software and Service Companies (NASSCOM). But by 2009, India's IT manpower resources could fall short by 235,000 of the 1.12 million staff required both for IT services exports and domestic IT

services, according to the KPMG-NASSCOM study, which suggests remedial measures, such as higher private sector support for IT education.

Nevertheless, India is not going to get undercut by cheaper prices from service providers elsewhere, say industry sources. Software development staff in India still costs about one-fourth what it is in the U.S., according to Trilogy's Kommi.