South Asia's IT – Industry or Excuse

IT Outsourcing- Is it all about the money?Peace everyone.
An established ‘dogma’  – If (outsourcing IT) then {Territory= South Asia}.
India undoubtedly stands as the undisputed giant when it comes to IT resource outsourcing. Emerging markets like Pakistan, Bangladesh (and certain middle eastern countries) have yet to come anywhere near its exploits.
While we all know these things, we seldom come across hardcore facts relating to why exactly does such a complex, high qualification requirement industry get outsourced to relatively underdeveloped regions and third world countries.
Here are some stats that we need to see, before getting to our real question:
Pakistan’s IT industry has grown at 40% CAGR during 2001-2007, and it is estimated at $2.8 billion as of last year, with about half of it coming from exports. This pales in comparison to over $5 billion revenue a year reported by India’s Tata Consulting alone(2008).
The revenue per employee for the top Indian IT firms of Wipro, Infosys and TCS ranges between $40,000 and $50,000 per employee per year…about $20 t0 $25 per hour per employee, according to Gartner. The Indian revenue per employee is quite competitive relative to the US firms IBM Global Services, EDS, ans Accenture whose revenue per employee exceeds $150,000 per year, about $75 per hour. In comparison, the average figure of $28000 per employee per year (or $14 an hour) is extremely competitive for Pakistan’s IT industry average. Probably the higher-end firms make more while others make less.
Getting to the question – Does ‘money’ make the ‘IT’ world go round? Is the South Asian IT Industry for real – or is it just a low cost workaround, much like batteries from China – everywhere, but not really there. As of today, are ‘cheapest rates’ all that are left to consider in this once-technological industry?
Statistics from 2008 clearly show that this is so – growth of the Indian IT market, followed by that of Pakistan is a mirror reflection of the same case repeating itself – cheaper rates getting more growth. For you, Is the ‘rate’ really what IT is all about? Distributing points from a total of 10, what would be your scores for QoS(Quality of Service) vs costs?
Mine would be 7/3 , meaning QoS is twice as important (for me) than associated costs. Because, well.. good things dont come cheap.
Have your say people, constructive comments welcome.
Data Sources:


  • Zohaib,
    Its is a function of past performance,reliability,business continuity,legal framework (if any mishap happens)plus costs(depending or service brand strength). Not just cheapest rate. Innovation is a seperate topic. Quantification I not under my purview.

  • zohaib
    the ceo of a leading IT company with branches in many countries of the world once told me that india was a choice not just because of cost but also because they were getting a very high quality of work here.
    he said that even basic entry level staff in india were graduates with many of them being qualified engineers.they were also able to employ chartered accountants, company secretaries, lawyers etc etc all who could put in a very high quality of work. the cheap cost was the icing on the cake.
    he compared this with developed countries where they would have to manage with a school graduate at most and school dropouits too in many cases.
    if only cost had been the criterion then the work would have gone to other countries like pakistan, sri lanka, bangladesh and who knows ethopia and somalia too.
    i would not compromise on quality. i would first ensure that quality bwas 100 percent and then give the full 10 for cost. there is no “either – or” possible here.

  • Zohaib, In the real business world I would go for 9/1. The giant outsource industry has convinced the world that it’s all about cost and that the world should take quality as a given.
    You have to congratulate them for getting the world to believe in such horse sh*t. You have got to wonder why the rest of the world has been roped in and have lost all their braincells in the process.
    Business does not give a damn about cost. It’s just that they do not know it. Or are too stupid to acknowledge it.
    What people are looking for is actually the ‘Cheapest cost for a unit of productivity’. That is all that matters. If it takes a person 5 times as long to complete a job satisfactorily and that person costs 25% of another, the benefit collapses.
    QOS / Quality / ‘Get it right’ / whatever-you-call-it is the absolute key to the equation. And that is where every single outsource agreement fails to deliver.
    The outsourcers realise it. Gartner will tell you an interesting stat on the dramatically decreasing number of fixed price contracts being agreed to today by the outsourcers. Outsourcers are cleverer than their customers. They realise the equation and have already compensated for the QOS factor.
    So I agree with you. Then ratio needs to be 9/1.
    The problem is that there is a $80bn (or more) industry telling the world that quality is a given so it’s all about price.
    One day, outsourcers’ clients will realise how clever their suppliers are.
    Till then, as you say, “Peace Everyone”

  • Zohaib,
    While cost is a factor, it is not the only factor. Keep in mind that in South East Asia:
    1) Quality – Most entry level or even temp jobs are being performed by graduates due to lack of opportunities in the market as a result of very high population growth rates and base population. Plus getting a Bachelor degree here is not the defining moment as it would be in, say the US which would involve sorting out cost and acceptance criteria before you even start. A Masters degree is what an average employer here treats as bare minimum for a junior management position
    2) Language – Its much much easier to find English speakers in SE Asia as compared to most other places. No communication barriers
    3) Technology – Surprisingly, a lot of the technology e.g. broadband is very high end (however penetration is not mass market) and cheap to utilize effectively
    4) Costs – And yes, the labor cost per head is very very cheap and especially when converted into hard currency (as the local currencies are subject to heavy devaluation in some countries)
    5) Pakistan vs. India – Well India has a head start on Pakistan, is a much bigger market with regards to the talent pool and infrastructure, enjoys political stability and as a result, consistent and supportive policies for this industry

  • I am always reminded of the quote from Robo-Cop “Good business is where you find it.”
    But the key is how you define ‘good’.
    Yes, you can more workers, typically at lower costs by leveraging overseas workers, but there are other factors to consider.
    Disclaimer: Please do not think that any comments here are pointed directly in the direction of US to other countries. ALL of these factors that I am bringing up can (and do) happen in BOTH directions of the global business equation.
    Quality – I really don’t want to go there because it is highly subjective. I am not implying at all that overseas workers hold any exclusive on good or bad quality work at all. I have seen both great work and effort on both sides of the equation, and I do think that sometimes the US thinks they hold an exclusive on ‘doing things better’ but I think that from a quality management standpoint is may be SIMPLER to manage quality, and the expectation of quality, when you use resources closer to home. If not for anything else than it being simply faster to react to quality issues once they are found. Again, I am not saying that just because someone works in India, or on the other side of the globe, that they are any less quality minded, but things do happen, and being able to react quickly can be a critical factor that may make a decision to keep things closer to home in some cases.
    One way to mitigate this risk is to lump dependencies together in logical units where quality can impact across functional areas. This keeps the risk induced via time lag to a minimum and allows cross functional teams working on different, but related parts of a project to react on the same timeline.
    Language – I hate to say it but it IS a factor. Like it or not, not everyone is easy to understand. I happen to have an ear for being able to understand and get past accents and cultural nuances in speech that make me more effective in dealing with certain areas of the world than others are. I also have difficultly in dealing with language accents form other areas of the world that other people are fine with. This varies form person to person greatly, and is not always a learnable skill, thus can be a barrier in team efforts that cross language\cultural boundaries. This is heavily compounded by the use of collaboration tools that further isolate the physical ability to interact. Trying to pick up on the subtleties of language based comments in a meeting is severely hampered when you are restricted to a crackly phone bridge or IP audio connection.
    Again, as with the first option, it may be better to lump together functional areas so this does not impact team effectiveness. Keep areas that NEED to communicate closely and very effectively within close proximity, and within a common effective language similarity and I think the team and project as a whole will function better.
    Culture – I have seen this play a huge role in cross team effectiveness. Just trying to set up a project schedule between opposite sides of the world where simply taking into effect holiday schedules can wreak havoc on a project manager planning book, let alone all the other factors that can come into play here. Just consider that, the last time I checked, the EU mandates at a minimum of 4 weeks vacation to start, and the amount only goes up form there. Also consider that they had adopted the 35 hour work week far earlier than most US based firms did and you can get an idea of how scheduling across boundaries becomes a factor. Just try to align a project schedule using that and see what odd anomalies crop up. Throw in one or two delays and watch things build up fast.
    As with the others, having an effective project manager and scheduling team that can work to identify inter-project dependencies, functionally related areas and other factors that may benefit from a good grouping strategy at the process or component level of a large project can go a long way towards mitigation in this area.
    I think as far as a rating goes, I can’t give on because it really comes down to the project, how well it can\could be segmented to account for these factors, and the companies overall willingness to accept risk at various levels. Personally I am always in favor of spending a bit more upfront (or at least planning to) to mitigate some risk and then not needing it than to plan to take what looks like the cheaper\cheapest route only to be bitten latter and have to go over budget ($$$ and time) to complete the project.
    That is not to say that I have not had projects go over budget ($$$ and time) without having issues due to outsourcing, nay nay, I have had plenty do that in my career and I have no intent on lying about them or ignoring them because each was a valuable learning experience that has helped me grow, but I think the risk is greater in introducing these opportunities when you take on the additional risk of using outsourcing firms. It is not always prohibitive, it just needs to be identified and managed closer.

  • One way to quantify this is to consider how much “insource” time is needed to drive the outsource. How many hours to prepare specifications? How many to communicate questions and issues? Will the project complete on time (and often the issue is computing resources at the outsource site)? How much rework, post production and QA work is needed insource to complete the task? Are there bugs or issues that cause problems for the final consumer of the IT and then loss of revenue?
    The answers to these questions vary considerably and the answer does not always lie with the outsource firm. Often the client prpares the work requests badly or doesn’t design and monitor the project realistically. Time zone differences alone can cause problems and delays.
    I prefer not to cast blame but to point out that the end result is not how much or little people are paid but how much reveune, customer good will and other benefits of a complete project is the result. No matter how much or little someone is paid, it begs the question of whether they can do the job. If the job is not finished, every penny is a waste.
    QoS is a good indicator but the real question is “What do you get for what you pay?” Well, what you get has to be of “sufficient quality to produce and optimum revenue result for the client.
    And … in conclusion. We Americans can screw up a project too. Getting paid more is not necessarily the answer either.

  • 8/2, but this is rare to find, and often we have to go in-house to achieve 9/1. Walls.

  • I have been looking for a good fit, for outsourced development with myself as an “onshore” PM.
    It is very frustrating, with language deficiencies that adversely impact understanding programming and documentation of platforms such as Drupal, a cowboy mentality that ignores standard practices and sometimes works but is often just strange, and loss of control – when a key contact “disappears” an entire project can go into limbo.
    The upside is up to 90% cost savings for the client, even with my PM fee, and I do ride them until it’s done correctly.
    So I would say perhaps I start with 4/6 and make it into 10/8 ?

  • i do not know a single business that will place QoS below costs. yet still, SEA is a destination for the IT industry on the whole. Skills, Language (English) and Manpower (numbers) are the reasons as on date.
    Cheap is a relative term. So do not look at cheap as poor quality. Value for Money is a 2-sided equation, either lower money for lower value or higher value for higher money.
    SEA IT industry is for real as long as businesses think of IT as a cure-all. The minute they move to realize its a business tool, then walk in the experts in tooling (Indian companies are mostly here). Continuous evolution is what makes an industry.

  • Zohaib, I believe that your stance that:
    If (outsourcing IT) then {Territory= South Asia}
    Is no longer correct as the cost of South Asian resources (certainly those from India) has escalated thereby making South American and Eastern European resources far more attractive.

  • Padric O'Rouark

    The specific are found in an article titled; Outsourcing: A Game for Losers written by Paul A. Strassmann, Computerworld August 21, 1995 []
    In this article Mr. Strassmann shows statistically that, “Those corporations which outsourced heavily were economic losers heading into the outsourcing act. They were shedding I.T. along with other corporate functions because they were in financial trouble.”
    Clarification added 5 days ago:
    The article compared outsourcing to an anorexic person with a distorted self image that thinks they are fat when they are emaciated.

  • James Adams

    Many Western colleges are setting up shop in these countries and the rates are much lower for talent acquisition. What we must remember is that the shark was jumped during the 1990’s and since then, IT has been taken off of the high priority list and put in as a normal function. Soon as labor rates rise, Africa and other regions of the world will do the same.

Leave a Reply