Software outsourcing and Offshore India

Tuesday, June 28, 2005

Software outsourcing to India has continued to grow in the last few years. This growth is driven by many factors. Cost-saving is not the only factor for software outsourcing. But it is the major factor in outsourcing. There are many factors which are contributing to cost savings in India. One of the most important issues is the difference in salary of a programmer in Europe or in the US and a programmer in India. Indian programmer gets less than 25% of the salary of a US programmer. This is the main factor which is driving software outsourcing to India.

Offshore India

Software companies belong to the knowledge-based industry. Unlike the traditional brick and mortar industry, here, it is not required to invest heavily upfront and there is no material cost in running production. So the majority of the cost is the salary. It contributes anywhere to 60-80% of the total expense of any software company. So when a company hires programmers in the US, the cost of software development shoots up to 60-70%. That is why ‘Offshore India’ is more preferred. Many companies prefer to offshore their development works to nearshore destinations like Canada instead of offshoring to India. But that offshore outsourcing generally reduces their cost-saving to nearly 50%. Asian countries are considered the preferred destination for offshore outsourcing. While Eastern European and Latin American countries and Canada are considered good for Nearshore operations. In the future, high-end services will move to nearshore or onshore while low-end services will be done offshore and especially in India.

In India, software developer doing offshore software development generally gets 15 to 25% salary rise now a day depending on his importance in projects. While in the US, a programmer gets a yearly 3% increment approximately. Although, salary rise in India is very high, the difference between salary of Indian programmer and a programmer in the US is such a wide that, cost-saving will continue to be a major factor in software outsourcing.