Will India price itself out of global market? Or will it really matter?

In my last piece, I referenced India’s potential to gain from outsourced engineering design services.  I have noticed another trend that is running in parallel with this. Over the last year or so, in the UK and the USA there have been several stories of India outsourcing its jobs to places in Eastern Europe and South America, including the big news last year that Tata was outsourcing 5,000 software jobs from India to Mexico.

Even more interesting have been reports that suggest Indian multi-nationals are unable to find senior managers for their operations in India and were therefore offering general manager positions to overseas nationals who were willing to relocate to India.  The reason quoted is that local Indian managers are becoming ‘too expensive’.

And this seems to be the point.  India turns out thousands of engineers and managers, especially from the IITs and the IIMs.  Emerging from these and other renowned institutes, the people who have figured it out have used the value of their qualifications as bargaining chips to rapidly accelerate their career paths.  And in doing so they are lifting the whole cost base of companies based in India.

While the Gartner report on offshoring to India (see article in main EE Times India news section, “India will remain the dominant location for IT offshore”) suggests that offshoring to India will continue to rise, the anecdotal observations above seem to hint that it is just quite possible there may come an inflexion point in just a few short years when India will price itself out of the global market. Even the Gartner report hints at the appreciation of the Indian rupee and rising wage rates making benefits of India’s offshore services less cost-competitive.

So what does it mean for the Indian electronics and software engineering community and its place in the global ecosystem?

Well there is no doubt that Indians will still be a significant contributor, but the shape of the design teams is likely to be different – more multinational.  To illustrate the point, I met three Brits in the business lounge at Mumbai airport last week; one was in the mobile billing systems sector, one in pharmaceuticals, and another with a financial services company; all were large multi-nationals based out of the UK.

The story was the same for each of them; they were here in India for the first time, and they had spent up to two months in India managing and training their (large) back office operations in Hyderabad and Mumbai, they were going home for a week or two to the UK, and would be returning for several more stints in India.

Similarly, the electronics design team will probably increasingly take its lead from someone senior from overseas departments. In the last 10 years we have seen this in a different guise with project specifications created by semiconductor and telecoms companies abroad, looking to smaller Indian companies to develop intellectual property or telecoms networking blocks. 

But with the shortage of experienced or ‘reasonably priced’ India-grown project managers and team managers, and with increased mobility for global staff plus the attraction of locating in India for overseas visitors, we will see less of the specification being sent over, and more of the team manager and design team project managers being sent over from abroad to oversee and manage the whole project or process.

India will then become a place where the design teams will comprise a mix of international and local engineers, and the overall cost-advantage will be neutral. The main benefit of coming to India in the future is not going to be for low cost outsourcing, but the ability to build a multinational team comprising a mix of Indian and overseas skills which can effectively deliver the product designs or IP that meet the needs of a rapidly moving consumer electronics world.