CNN: “Shortage of workers in the Indian market along with salary inflation cause companies to seek other alternatives” (August 30, 2005)

CNN's financial supplement published this weekend an article about India 's off shore activity. According to the American news network report, India , considered a “leader” in off shore outsourcing, is gradually losing its status as such, and the centers that symbolized “low cost”, do not necessarily fall under this category any longer.

The report is based on a study by the World-Wide Gartner Institution that forecasts and warns of a 45% reduction in India 's outsourcing activity due to the rise in salary and shortage of workers. In an interview to CNN's financial supplement, Mr. Kiran Karnik, president of NASSCOM, the National Association for Software and Services in India , says that the outsourcing industry, the country's main growth engine, is experiencing great difficulty that is liable to harm the industry's two-digit number growth rate.

Gartner's study indicates that other alternatives that offer reduced costs along with high quality have emerged in the past two years and they present a challenge for the Indian industry. Sujay Chohan, Vice President of India Research at Gartner, and one of the study analysts, illustrates the problem: “a Call Center employee in India earned in the past four years $114 - $136 per month. Today, his salary may reach $159 - $204 per month. This salary increase might be “loaded” on the Western companies receiving the service and cause them to seek out other alternatives”.

Ronen Engler, Matrix's Talpiot division VP for marketing and sales, reinforces the study's claim. He says, “Indeed, not all is perfect at the off shore outsourcing kingdom in India . In addition to the increase in salary in India and the high turnover of employees deriving from the great demand, there are several other factors that raise the question of ‘is it worth it?' – obstacles such as the geographic distance and cultural differences, the project managers' many business trips overseas, the different working hours and working days in both countries, a different working culture and different language, all these make work more difficult and increase costs even more”.

Mr. Engler indicates that the Matrix Company has identified these trends, and in order to provide a solution to the increasing costs it established the Talpiot development center where it extensively trains orthodox women in the development field. Since this is a high quality population interested in integrating into the labor market in an area where the cost of living is low, it is possible to supply local off shore outsourcing services in Israel at the same costs as those in Eastern countries, but with the benefits embedded in working with a local development center.

Mr. Engler adds that companies in the United States have realized that it is difficult to compete with countries such as India and China through the development centers located in the big cities, so they have established development centers in outlying areas where trained and quality personnel cost less due to the lower cost of living in those areas.