Wednesday, 27 September 2006 16:56

India loses appeal as labour costs rise

Jim Sanderson, vice president and chairman of enterprise applications vendor, Lawson Software, says India has become a too high cost location to set up an offshore development center. That's why Lawson chose the Philippines.

Lawson, a US$750 million a year company, which develops applications for the services and manufacturing sectors, has set up a software development center in Manila which the company intends to build up to 400 people.

“After having partnered with a two companies in India, we have two or three years experience working remotely off shore with partners,” says Sanderson.

“Now we want to expand that activity in a low cost, well skilled environment and we selected the Philippines to build that. We hired our first three or four people in January and over the last nine months we’ve brought in 120 people, with the intention of growing that up to 400 or more over the next 18 months.”

Having had experience in India for some years, some might find it touch surprising that Lawson decided to set up operations in Manila rather than a place like Bangalore or Hyderabad.

“There are some challenges in India,” says Sanderson. “One of them is cost escalation. Costs are rising 15% plus.”

However, with India, it is not just a cost issue, according to Sanderson.

“Maybe even a bigger issue is attrition. It’s hard to keep people over there. The industry in India sees 25-30% attrition. In a lot of specific projects, you see even higher attrition than that,” says Sanderson.

“Being a software developer, rather than being a project related company, we have to keep people for years and we can’t have that kind of attrition.

“So we looked around and the Philippines seemed to be a pretty good fit. Their cost structure is about the same, they don’t have nearly the cost escalation and they don’t anywhere near the attrition rate.

“The Philippines has a smaller pool of resources but as long as we’re not for thousands and just hundreds of people, the resources are there and well skilled. The Philippines is a little weaker in top management but we’ve done alright.”

So why are people leaving companies in India and why the escalating costs?

“They basically have a shortage of skilled people,” says Sanderson. “They have six IT schools in India graduating very well skilled people but you’ve got companies like IBM looking for 11,000 people and there’re not that many skilled people that can feed those companies that fast.

“So if you bring in a new Indian IT person, he expects to be promoted within six months. And if he doesn’t get a 20% bump in six months and another 20% after that, he can walk down the street and get another job and that’s what they’re doing.

“If you’re looking for people with 3 to5 years’ experience, I would say that India is now more expensive than the Philippines.”

While the Philippines is a good option to India for companies like Lawson, Sanderson believes that organizations with bigger staffing needs will eventually turn to China as an alternative to India.

“In five or ten years, the big guys are going to skip over to China. It’s developing really fast and they’ve started teaching English in primary schools. In 10 years, those kids will have the communications and technical skills and there will be the numbers to staff the companies that want 1,000 to 10,000 employees.”

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Stan Beer


Stan Beer co-founded iTWire in 2005. With 30 plus years of experience working in IT and Australian technology media, Beer has published articles in most of the IT publications that have mattered, including the AFR, The Australian, SMH, The Age, as well as a multitude of trade publications.



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