India’s Cost Competitiveness -
Separating the myths from the facts
Key highlights of the presentation by Nasscom dated 7th June 2006

Key findings indicate

On the basis of comparing full time employee (FTE) costs for like processes, Indian operations remain more cost effective across a range of popular ‘alternate’ locations

Savings in absolute costs can be significantly enhanced by the impact of higher utilization and scale benefits that have not been achievable ‘everywhere’

Reported estimates of wage inflation in India tend to overestimate its impact on total cost and India’s ‘declining’ competitiveness

India leads the global resource pool – not just in numbers but also capability

Maturing appreciation of fundamentals (skill and scale) re-affirming India’s indispensable role in any major global sourcing strategy

Comparison of India vis-à-vis key locations reveal that cost of BPO is 4-185% lower in India than the popularly cited alternatives, as is evident from a detailed comparison across eastern Europe, Philippines, Mexico, China and South Africa.

Eastern Europe

Central Eastern Europe (CEE) offers a significant wage differential to Western Europe (WE); India still better

Porous borders of the EU aiding access to diverse skills, but can it match India’s scalability Total population of ~450mn vs. 1bn

Philippines

Cost of sourcing BPO is marginally higher in the Philippines

While entry level wages are about the same, cost outlook favors India

‘Lack of mid-level management a constraint in building operations’

Higher wage inflation (observed to be trending upwards over past few years)

Size of resource pool ~0.5mn vs. at least 1.7mn

Room to ‘maneuver’ cost profile higher in India

Political risk is a concern

China

Suitability still restricts scalability

Scarcity in mid-level, project management and client engagement capabilities noted

Expansion in China led by MNCs building global delivery and local service capability and access Japanese market

Data and information security- a key concern

Mexico

Language capability to serve the large Hispanic population in the US

Scalability concerns exist which are driven by size and diversity of skill base available, and act as a constraint to expand scope of services

Considered suitable for low-end / data entry jobs and near shore presence, supported by a stronger global delivery model

South Africa

South Africa offers a fair mix of language capabilities as well as some level of cultural affinity

Unfavorable cost structure and lack of alternate compelling proposition keeping it from being a significant contender

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