India’s Outsourcing Industry Is Facing a Labor Shortage


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By SARITHA RAI
Published: February 16, 2006

MUMBAI, India, Feb. 16 — India’s leadership in global outsourcing may be in jeopardy unless it increases its supply of skilled workers, according to executives gathered here for an foindustry meeting.

Experts at the meeting of Nasscom, the country’s outsourcing group, said Thursday that an incipient skills shortage was the biggest threat to the industry’s blazing growth.

As the meeting opened Wednesday, Pramod Bhasin, chief executive of Genpact, a back-office outsourcing company once owned by General Electric, set the tone when he said, “If the talent in India is scarce, we will go wherever the labor pool is available.”

Lower-cost centers like Eastern Europe and China could become serious rivals for outsourcing business from Western multinational companies. Until now, corporations mainly looked to India to do work from customer support to writing software code to designing chips. But the supply of India’s famed “skilled, low-cost, English-speaking” work force may not quite match the sizzling demand.

India’s $23.4 billion outsourcing industry accounts for most of the country’s software and services industry, which makes up nearly 5 percent of gross domestic product. The industry employs 1.2 million workers, has sparked a consumer revolution in India, and is accelerating at more than 30 percent a year.

On the sidelines of the Nasscom meeting, B. Ramalinga Raju, chairman of India’s fourth- largest outsourcing company, Satyam Computer Services, said that India produced three million college graduates every year, including nearly 400,000 engineers. “But most of these are uncut diamonds that have to go through polishing factories, as the trade requires only polished stones,” Mr. Raju said.

In a country of 1.1 billion people, raw talent is plentiful, he said, but not all of it is market-ready.

Sensing the threat, government and industry are scrambling. Nasscom has begun a skill assessment and certification program for entry-level employees in back-office work; the group has plans to create such program for software services. The government has introduced computer classes in schools. Companies are working with academic institutions so that graduating students will have skills tailored to the job market.

The supply shortfall is even more acute in mid-level jobs, like software engineers. Salaries in this segment are rising an average 20 percent a year, and in some segments even 50 percent annually, compared with 5 percent annual raises for software engineers in the United States.

“The irony is that while the outsourcing industry partially fueled an economic boom amongst the middle classes, the growth has now spilled onto other areas offering ambitious young college graduates an array of job options outside of the outsourcing industry,” said M. S. Krishnan , professor of business information technology at the Stephen M. Ross School of Business at the University of Michigan. This, too, is putting an unexpected dent on the outsourcing talent pool, he said.

Outsourcing companies are taking matters into their own hands to meet mid-level skills shortages by setting up vast, dedicated training centers. Tata Consultancy Services, the country’s largest software services company, has a large training center in Trivandrum in southern India, while its nearest rival, Infosys Technologies, has a training campus in Mysore, a 100 miles south of its headquarters in Bangalore.

“At any given point in time, there are 4,000 people in the pipeline at Infosys’s training center,” Mr. Krishnan said. Many companies believe the skills deficit will only grow. “We are in the people business, and the situation will become more challenging in five years,” said Amitabh Ray, director of global delivery, IBM Global Services India. I.B.M. has 38,500 workers in India in centers spread across Gurgaon and Chandigarh in the north, Bangalore, Hyderabad and Chennai in the south, Pune in the West and Kolkata in the east.

The travails of many companies, even mid-size ones like Kanbay Inc., which has its headquarters in Rosemont, Ill., and specializes in financial services outsourcing, illustrate the gravity of the problem.

India’s Outsourcing Industry Is Facing a Labor Shortage (Page 2 of 2)

Cyprian D’ Souza, managing director of Kanbay in India, said workers with expertise in securities, investments, insurance and banking were “harder to find.” The company has 5,700 workers worldwide, more than 80 percent of them in India. As Kanbay has discovered, prospective hires often have solid technology backgrounds, but little business knowledge. For every 100 résumés it receives, only five candidates qualify to be hired.

“If the conversion rate is as low as 5 percent, the industry needs to look at ways to augment the supply so it is does not come in the way of our ambitious growth targets,” Mr. D’Souza said.

Once hired, Kanbay’s new employees are put through an intensive 14 weeks of training. The company said it was working with engineering colleges to influence and shape the curriculum to focus on industry needs.

Vikram Bahl, 26, was one of the two dozen employees Kanbay hired out of 1,600 applicants. An engineering graduate, Mr. Bahl is now based at the company’s Chennai center in southern India, and has averaged 25 percent pay hikes in his last two years at Kanbay.

The situation is much the same in the back-office and call center jobs: of 100 college graduates applying, only 8 are immediately employable. Another 20 require considerable training to be hired, according to Nasscom data.

Nasscom’s new call center certification program may help ease some of the pressure. “It is a finishing school concept, and these standardized tests could potentially make available hundreds of thousands of entry-level ready workers in predictable numbers,” said Sunil Mehta, vice president of Nasscom. The industry will make this test a requirement for hiring very soon, he said.

The call center and back office sector currently employs 400,000 Indians, but is projected to require at least 1.25 million by 2008.

Such hurdles, however, appear not to have dimmed industry aspirations. Nasscom is maintaining that its projected outsourcing revenue target for 2008 is $50 billion.