Outsourcing: Amit Shankardass And Andrew Kokes Of Sitel (Part 6)

By guest author Tony Scott

Tony: [What you just said about offering speciality skills] goes back also to another point, labor rates. Seven or eight years ago, when outsourcing was really just trying to take off in a big way for call center outsourcing, the labor rates, if you focus on India or parts of the Philippines, were at X per hour. Today, my expectation is that labor rates for the kind of talent outsourcing companies now employ have increased by a significant percentage. India is always touted as the largest producer of engineering and technical talent out of universities, and second only to China in terms of the number of total graduates. But there are still language and other skill gaps in both places that make it difficult to hire individuals with the talent needed for outsourcing.

As you continue to expand, and other outsourcing companies continue to expand, what are you doing to overcome the issues of labor rate increases and talent shortages? Is your going to all of these other countries partly a response to that, and part of your strategy?

Amit: That is an interesting question. Let me just clarify one thing, my comment on India’s being the country from which the greatest number of engineers graduate each year. Actually, I should qualify that to say the greatest number of English-speaking engineers. You are right, China certainly has a larger population, but it is of less relevance to most of the world in terms of the lack of English-speaking skills.

About labor rates – you are exactly right; labor rates have increased. But let us look at the base from where they have increased. The increase is from a very low base, and while the increases have been large, you still have a significant delta in labor rates compared to the United States.

There is a common fallacy that labor rates in offshore locations have increased so dramatically that the arbitrage is no longer relevant. That is not true; the arbitrage component is still a relevant component when you look at it on a comparable basis.

Another fallacy is that there is a labor shortage. Think about this: The middle class in these countries is growing dramatically, and the middle class is where the bulk of these knowledge workers and BPO workers come from. Where the difference is, though, is where ten years ago we had PhDs sitting in our call centers in India, today we don’t. We have changed to more university degrees, and more to liberal arts or professional degrees. Also, in many of our locations we have tier 2 and tier 3 cities with operations, as we do in the Philippines. The bulk of our activity in the Philippines centers on Manila, but there are great tier 2 locations like Sebu, Elo Elo, and Bargyo where we can sustain operations. Maybe they are not as large as Manila, but they are large enough. Similarly, in India there are tier 2 locations such as Chandigarh, Pune, or Mangalore that sustain some of these services. I think these notions of labor arbitrage and wage rate inflation in offshore markets and of lack of availability of labor causing problems for outsourcing companies are humbug.

Andrew: You can do straight math on the inflation in terms where it is today. Actually, I think numbers published by the Indian National Council say the middle is somewhere between $4,000 and $21,000 a year, which is somewhere around $10 an hour. Compare that to U.S. call center wages and there is still very, very favorable labor arbitrage. Again, you find the wages to be a problem in the equation if you assume that wages will continue to grow at the rate they have. If you apply U.S. inflation, assuming we actually have inflation, there is still a decade, a decade and a half before you get anywhere close to parity. I would absolutely agree with what Amit is saying, and the numbers support that.

This segment is part 6 in the series : Outsourcing: Amit Shankardass And Andrew Kokes Of Sitel
1 2 3 4 5 6 7 8 9 10