The world is the stage

The world is the stage
Bangalore's competition is not just from other Indian cities - it's from all across the world.

Businessworld


When we Indians look at the crumbling infrastructure of Bangalore, the pessimists among us throw up our hands in disgust. The optimists point out that there are other attractive destinations in India for IT service and business process outsourcing work. But often, that's not the worldview shared by multinational clients. To them, if it's not Bangalore, it could be anywhere else in the world.

Hartford Financial Services, a Fortune 500 company, faced that choice recently. It has nearly 1,500 people working for it on processing insurance applications and claims in Bangalore, and was looking at doubling the headcount. But rising costs, failing infrastructure and high attrition forced it to look away. And that hasn't taken the company to a less crowded Pune or Chennai - it's now looking outside India.




"In the early days of outsourcing, Bangalore was by far the best place to send work to," says Harris Miller, president of the IT Association of America. "Now there is a move to Eastern Europe, China, the Philippines and even Sri Lanka."

The first reason for that shift is cost. IT wages in India are going up by 12-15 per cent a year. Attrition, at 16-22 per cent for IT services and over 50 per cent for BPO, is adding to costs. On the other hand, the billing rates for basic programming have stayed flat for two years. Smaller companies, especially, may find Bangalore too expensive. Rajul Garg, COO (Indian operations) at US-based software developer IndusLogic, says: "Destinations outside India are attractive for a lot of small and medium enterprises and niche players." For basic testing, coding and programming, Budapest is likely to be cheaper than Bangalore.

Competition is coming from within the US, too. Rural Sourcing, an application development firm, services its half-a-dozen clients from Greenville in North Carolina and Jonesboro in Arkansas. At $32-40 an hour, the company's billing rates are half of those in Silicon Valley, but more than the $18-28 it would cost in Bangalore. To its advantage, Rural Sourcing's overseas marketing costs are a fraction of what an Indian company would have to bear, and data theft is less of a concern.

Comparison crops up on skill sets, too. Flextronics Software Systems has 900 engineers in Bangalore, 1,700 in Gurgaon, and 250 in Ukraine. Vinod Sood, head of engineering at Flextronics, says: "In Germany you get wireless engineers with over 20 years' experience. In Ukraine, signal processing, text-to-language and algorithm skills are easily available."

Says Arjun Malhotra, CEO and chairman, Headstrong, a US-based software services company with centres in Bangalore, Noida and Manila: "Algorithm skills in Russia are very good. You get experienced PhDs to work at less than $10,000 a year - cheaper than in India." Building on those skills, the Russian government is aiming to reach $10 billion in IT exports by 2010. In nearby Poland, the outsourcing industry has grown at a compounded annual rate of more than 40 per cent during 2002-2004.

India has an edge over countries like Poland and Russia on one count - a large pool of IT professionals, which translates to scalability for clients. Poland produces just 40,000 IT professionals a year. Ukraine's largest IT company has just 500 employees. In contrast, Nasscom estimates that Indian IT service and BPO companies will recruit 109,000 professionals in 2004-05 alone.

That's why India still attracts half the world's offshore IT spend. But given the rising costs, more of it may go to other countries. The competition for Bangalore isn't just from other parts of India - it's from nearly 50 cities around the world.