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The Voodoo Economics of Indian Outsourcing

In an interesting set of articles, Information Week reports that "IT employment in the United States is growing even as more businesses outsource tech work overseas" and Line 56 reports that India's labor shortage is driving them to hire Americans and other foreigners.

Recent survey data indicates that domestic US demand for skilled IT workers is on the rise, pay levels are up, and worker confidence is outpacing other sectors.

What's the voodoo? According to Indian trade group Electronics and Computer Software Export Promotion Council (ESC), India's revenues from outsourcing are still growing strongly with more than 32% increases in the second quarter of 2006. One would think such results would be mutually exclusive.

Information Week's Paul McDougall explains this apparent contradiction by saying that the money saved via off shoring the less sophisticated business processes and projects can then be invested in developing the more sophisticated ones, driving hiring for skilled IT labor.

Perhaps this is true. But perhaps there are other related forces in play here, namely a global shortage of skilled IT workers. Supporting this theory is reporting by Line 56's Tamina Vahidy.

Tamina reports that Indian outsourcer, Infosys, plans to add 25,000 new staff in 2006, ballooning the company size to more than 80,000 employees.

To put this size in perspective, IBM has about 330,000 employees. Microsoft has about 60,000 employees. Oracle Corp has about 50,000 employees. And itsy bitsy Google has less than 10,000 employees.

Currently only 3 percent of Infosys staff are non-Indian, with over 100 Americans in the line-up and plans to hire at least 200 more. The Indian skills shortage is driving companies like Infosys to hire from China, Australia, Europe and even further abroad.

As this trend continues, and it is going to continue, costs will rise, opportunistic employee turn-over will increase, mergers and acquisitions will muddy-up delivery organizations, and larger and larger bureaucracies will be running your projects.

None of this sounds especially attractive to me. Its no wonder that domestic demand is strengthening.