World Inc May Shed India
Now that's a scary thought. This article appeared in Financial Express a couple of days ago and what it says makes a lot of sense. Bangalore is already reeling under skyrocketting cost of living and the city may be heading toward imminent infrastructural collapse but that's not the end of its woe. According to this article India as a whole may be losing its sheen as the favoured location for IT outsourcing and the primary reason is the shooting salaries. We are almost at par with Israel and the East European countries, which are more attractive shores to US. So if the trend continues it may spell disaster for the booming IT industry in this country. Just take some time out to read through it...
Promod Haque, who was ranked first among global dealmakers by Forbes in 2004, said escalating salaries posed the biggest threat to the development of technology companies in India.
Salaries for technical workers in the southern city of Bangalore are likely to catch up with Israel's, where employees are paid half U.S. levels, in the next two to three years, Haque said in an interview in Bangalore. Compensation levels in the city have already increased to about one-third of that paid in the U.S. from one-fifth a few years ago, he said.
Rising pay may jeopardise the country's chances of winning the 3 million so-called white-collar jobs that will be moved overseas from the U.S. by 2015, Haque, 57, said. Salaries in Indian cities such as Pune and Chennai, rivals to Bangalore, are already at a quarter of U.S. levels, said Haque, managing partner of Palo Alto, California-based Norwest Venture Partners.
“India today is the leading recipient of information-technology outsourcing jobs,'' Haque said. “If salaries continue to escalate, China is more attractive to us as venture capitalists, Israel is more attractive to us, and Eastern Europe is more attractive to us.”
Employees at start-ups in Israel and Eastern Europe are more willing to accept stock options instead of large salaries, helping maintain lower costs, said the Indian-born Haque.
Bangalore is two to three years away from getting serious competition from Israel, where the engineers also have more product development experience, he said. “The cost advantage that India had is starting to erode.”
More Jobs
The growth of the technology sector is critical to India, where well-paid software engineers are fueling economic expansion by spending more money and creating additional jobs, said Anand Shah, who helps manage $1.5 billion at Kotak Mahindra Asset Management Co. in Mumbai.
“Every information technology employee buys cars, and eventually they have drivers and maids at home,” Shah said in an interview. “They have been creating jobs, which has been phenomenal.”
Software exports accounted for an estimated 2.7 per cent of economic output in the country in the 12 months ended in March, according to the National Association of Software & Service Companies, NASSCOM, and almost 19 per cent of total exports.
Norwest is funded by Wells Fargo & Co., the fifth-largest U.S. bank by assets, and invests about $1.8 billion on developing nascent information technology companies. The company plans to spend about $100 million this year in new investments.
Ranking
Haque slipped to No. 8 in the Midas list of venture capitalists, bankers and lawyers published by Forbes this year. He continued to rank above Kleiner Perkins Caufield & Byers' Vinod Khosla, another Indian-born venture capitalist.
Norwest owns stakes in about 75 start-ups that are based in the U.S. and have development centers in countries such as India, China and Israel, to maintain lower costs, Haque said. As much as 40 per cent of those companies have facilities in India and spend about $2 million a year in developing products there.
The migration of jobs to markets where labor is less expensive is “not going to reverse, it's just going to escalate,” Haque said.
India's large numbers of English-speaking engineers may help soften the impact of rising salaries, Kotak's Shah said.
“These are twin things, it's not only about the lower salaries,” Shah said. “The huge talent pool that's available in India” will help balance the scales.
Start-Ups
The U.S., which accounts for about $490 billion in spending on information technology, will continue to be headquarters for the start-ups, with chief executives and heads of sales vying for business from U.S. banks and retailers, Haque said. China's domestic technology spending is about $47 billion and India's about $13 billion, he said.
Haque's investments in start-ups with operations around the world include San Jose-based Veraz Networks. The company provides technological products and services to phone carriers using Voice Over Internet Protocol. Veraz develops software in India and the U.S., its hardware in Israel, and has its sales and marketing in the U.S.
Norwest's biggest investments are $50 million in Global eXchange Services and Yipes Enterprises Services. The company makes small investments because of the lack of interest in initial public offerings and acquisition prices that are capped at $150 million, he said.
“A lot of the VC business for all of us, in the last two to three years, has been very tough because we've gone through the recession,” Haque said. “Today, IPOs aren't happening.”
The fund's biggest success in the past 18 months has been the sale of Airespace Inc., a wireless-network equipment maker, for about $450 million to Cisco Systems Inc. in March, he said. The company had 90 employees based in Bangalore and 200 in northern California.
Promod Haque, who was ranked first among global dealmakers by Forbes in 2004, said escalating salaries posed the biggest threat to the development of technology companies in India.
Salaries for technical workers in the southern city of Bangalore are likely to catch up with Israel's, where employees are paid half U.S. levels, in the next two to three years, Haque said in an interview in Bangalore. Compensation levels in the city have already increased to about one-third of that paid in the U.S. from one-fifth a few years ago, he said.
Rising pay may jeopardise the country's chances of winning the 3 million so-called white-collar jobs that will be moved overseas from the U.S. by 2015, Haque, 57, said. Salaries in Indian cities such as Pune and Chennai, rivals to Bangalore, are already at a quarter of U.S. levels, said Haque, managing partner of Palo Alto, California-based Norwest Venture Partners.
“India today is the leading recipient of information-technology outsourcing jobs,'' Haque said. “If salaries continue to escalate, China is more attractive to us as venture capitalists, Israel is more attractive to us, and Eastern Europe is more attractive to us.”
Employees at start-ups in Israel and Eastern Europe are more willing to accept stock options instead of large salaries, helping maintain lower costs, said the Indian-born Haque.
Bangalore is two to three years away from getting serious competition from Israel, where the engineers also have more product development experience, he said. “The cost advantage that India had is starting to erode.”
More Jobs
The growth of the technology sector is critical to India, where well-paid software engineers are fueling economic expansion by spending more money and creating additional jobs, said Anand Shah, who helps manage $1.5 billion at Kotak Mahindra Asset Management Co. in Mumbai.
“Every information technology employee buys cars, and eventually they have drivers and maids at home,” Shah said in an interview. “They have been creating jobs, which has been phenomenal.”
Software exports accounted for an estimated 2.7 per cent of economic output in the country in the 12 months ended in March, according to the National Association of Software & Service Companies, NASSCOM, and almost 19 per cent of total exports.
Norwest is funded by Wells Fargo & Co., the fifth-largest U.S. bank by assets, and invests about $1.8 billion on developing nascent information technology companies. The company plans to spend about $100 million this year in new investments.
Ranking
Haque slipped to No. 8 in the Midas list of venture capitalists, bankers and lawyers published by Forbes this year. He continued to rank above Kleiner Perkins Caufield & Byers' Vinod Khosla, another Indian-born venture capitalist.
Norwest owns stakes in about 75 start-ups that are based in the U.S. and have development centers in countries such as India, China and Israel, to maintain lower costs, Haque said. As much as 40 per cent of those companies have facilities in India and spend about $2 million a year in developing products there.
The migration of jobs to markets where labor is less expensive is “not going to reverse, it's just going to escalate,” Haque said.
India's large numbers of English-speaking engineers may help soften the impact of rising salaries, Kotak's Shah said.
“These are twin things, it's not only about the lower salaries,” Shah said. “The huge talent pool that's available in India” will help balance the scales.
Start-Ups
The U.S., which accounts for about $490 billion in spending on information technology, will continue to be headquarters for the start-ups, with chief executives and heads of sales vying for business from U.S. banks and retailers, Haque said. China's domestic technology spending is about $47 billion and India's about $13 billion, he said.
Haque's investments in start-ups with operations around the world include San Jose-based Veraz Networks. The company provides technological products and services to phone carriers using Voice Over Internet Protocol. Veraz develops software in India and the U.S., its hardware in Israel, and has its sales and marketing in the U.S.
Norwest's biggest investments are $50 million in Global eXchange Services and Yipes Enterprises Services. The company makes small investments because of the lack of interest in initial public offerings and acquisition prices that are capped at $150 million, he said.
“A lot of the VC business for all of us, in the last two to three years, has been very tough because we've gone through the recession,” Haque said. “Today, IPOs aren't happening.”
The fund's biggest success in the past 18 months has been the sale of Airespace Inc., a wireless-network equipment maker, for about $450 million to Cisco Systems Inc. in March, he said. The company had 90 employees based in Bangalore and 200 in northern California.
posted by The Soulforged @ 5/25/2005
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