Indian Offshore IT Projects – Boom or Bust

Posted by Kevin Brady on Sun 15th July 2007 at 11:00 AM, Filed in OutsourcingIndustry News

I have just come back from a trip to Bangalore India having been asked to set-up for a well known consultancy an offshore software development centre.

Complete Gridlock

Bangalore was selected because there is already a significant offshore IT development presence by companies such as Accenture, Honeywell Bull, Intel, IBM. It was decided that here I would pull together resource in order to set-up a 200 to 300 man software development factory.

When I got to Bangalore on a scoping and discovery trip to estimate the time /cost and contacts that would be needed for such an undertaking I was shocked by what I found:-

- A city which had grown 7-fold in population size over the past 5 years to 7.3 million people.

- No train /metro network to support the labour force.

- No international size airport (only one terminal)

- No regulated taxis system, so the streets have become clogged 24/7 with Auto Rickshaws to the point that everything is grid-locked.

- Smog & Pollution everywhere, mostly generated by 2 stroke Auto Rickshaws. I would describe this level of green /yellow haze as a health hazard to anyone.

- Poor water quality. Even local people suffered at least 5 working days off work per annum due to what they call “Hygiene Sickness”.

- Frequent Power Cuts each day. The locals call this “load shedding”. I call it not enough power generation to support the growing economy.

- 2300 motor bike registrations a month in Bangalore. NO CONTROLS adding to the gridlock and pollution.

- No proper network of buses for people to get to work on.

- Inflation set to hit 7%

- Cultural issues with staff and management unused to raising issues or saying NO.

- Hotel Rates rising exponentially. Very difficult to get a hotel up to Western Standards for less that £200 per night!.

So what does all this negativity add up to? Well if we take £11 per hour as the cost of a low level Indian software engineer & £35 per hour as the equivalent in the UK it means that these resource costs (unloaded) have a smaller differential than might first appear.

Having done the numbers on the effect of all these “Gotcha’s’” on delivery margins along with the need for larger than expected onshore presence to give delivery assurance, it is clear that the cost differential is negligible. In-fact when taking into account Indian IT wage inflation of say 10% PA it will soon be cheaper to run development onshore.

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READER COMMENTS:

This is a little ridiculus IMHO.

“Having done the numbers on the effect of all these “Gotcha’s’” on delivery margins along with the need for larger than expected onshore presence to give delivery assurance, it is clear that the cost differential is negligible.”

I think a statement like that clearly needs more support than what amounts to a “because I said so.”

This doesn’t even rise to the level of psuedo-analysis.

Posted by Mike  on Mon 16th July 2007 at 11:38 AM | #

Way to list a bunch of complaints and wildly link them to “profit margins”. Like Hotel rates and international airport sizes are going to significantly impact a development shop.

Posted by Matt  on Mon 16th July 2007 at 01:19 PM | #

A good story to direct an episode.

Posted by avnsuresh  on Mon 16th July 2007 at 03:05 PM | #

You should consider Argentina then. Highly educated people and Buenos Aires is an european-like city with almost nothing of the negative issues you describe from Bangalore.

Posted by Alex  on Mon 16th July 2007 at 03:05 PM | #

The blog only mentions one half of the story. Some important items on the other half of the story include
1. The international airport becoming fully functional in another 8-10 months
2. Construction of Metro Rail for mass transportation has started.
3. Elevated express ways are being built to connect the city with the airport and the IT hub(Electronic City)
4. All major IT companies have already a presence in Bangalore and are under constant pressure to increase the head count in Bangalore
5. All the IT majors in India are growing at a neck breaking speed which companies outside India are not able to match.
6. Hotel capacity is getting more than doubled in the next two years.
7. Time difference esp with US allows for a seamless 24x7 setup

I can continue writing on the positives of Bangalore and India. grin

http://bootstrapinbangalore.wordpress.com/ is a blog which shares some of the pain and gains of Bangalore.

Thanx
Vijay
http://www.linkedin.com/in/spvijay

Posted by S P Vijay  on Mon 16th July 2007 at 03:13 PM | #

Can I really be bothered to list all the negatives…

I might be here a very, very long time…

Posted by Chris  on Mon 16th July 2007 at 10:20 PM | #

At last, someone telling it the way it is.

Posted by Troy Winters  on Mon 16th July 2007 at 10:28 PM | #

Indian off-shoring is not all its cracked up to be.

Here’s another list of pro’s and con’s:

http://suuga.communityserver.com/forums/thread/65.aspx

Posted by Bob  on Tue 17th July 2007 at 04:18 PM | #

When like you everybody is concentrating on Bangalore alone, then what else can happen?

Posted by Jack  on Fri 20th July 2007 at 04:58 PM | #

I am contacting you through this contact form as there was no email address available. We would be interested in purchasing advertising on your blog http://www.claretyconsulting.com/it/comments/indian-offshore-it-projects-boom-or-bust/2007-07-15/. Please get back to me using the email address I have entered if you would be interested in discussing this further.

Posted by Scott  on Wed 27th February 2008 at 05:56 PM | #

Answers to comments made by Vijay

1. The international airport becoming fully functional in another 8-10 months -

Understanding the corruption which extists in local government in India I would double this estimate. Furthermore at the rate of Bangs expansion the airport looks undersized.

2. Construction of Metro Rail for mass transportation has started.

This will take years to build and again the corruption and mismanagment of the local government will see this project gets delayed and has endless service issues. They have already proved to date to be poor urban planners. The Governer untill recently has done no strategic planning for the growth of the city.

3. Elevated express ways are being built to connect the city with the airport and the IT hub(Electronic City)

Same as above. All the while uncontrolled motor veicle registrations are allowed to take place (totally nuts policy) and a complete lack of traffic control will continue to jam the city. Why don’t they come to London and see what we have done in the UK with the conjestion charging. You might be surprised how us westerners have a few ideas of our own smile

4. All major IT companies have already a presence in Bangalore and are under constant pressure to increase the head count in Bangalore

Because the labour is cheap.

5. All the IT majors in India are growing at a neck breaking speed which companies outside India are not able to match.

This is rubbish. UK /US and European companes have managment maturity and capabilty to expand but the labour is expensive and so long as clients put cost ahead of quality India rules smile

6. Hotel capacity is getting more than doubled in the next two years.

This will need to more than double and 2 years is to long. If the road and rail links are not built this will be wastied capacity because you won’t be able to move too and from your hotel accept at night.


7. Time difference esp with US allows for a seamless 24x7 setup

Agree

Posted by Kevin Brady  on Tue 11th March 2008 at 12:31 AM | #

Kevin, there is always positives and negatives in any scenario. Several companies shop IT services in India because they find that the positives over weigh the negatives. Perform a Due diligence, weigh your costs against the benefits and take a decision that makes sense. That would be a ‘Mature’ approach. What you get is worth what you have in your pocket. There is no point in cribbing about what is NOT good.

Posted by suresh  on Wed 4th June 2008 at 10:36 AM | #

The airport is complete and quiet fine, however, they forget the transport links to the airport. So it can take you longer to commute from to the airport then to the UK!!

Posted by Zapper  on Thu 19th February 2009 at 11:56 AM | #

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