Monday, December 1, 2008

Terrorism Could Mean Death In Outsourcing To India

The last several days were a stark international reminder that we live in a dangerous age of terrorism. Ten armed terrorists killed nearly 200 people in India as that country's totally unprepared police force looked on.

In fact, policemen trying to disarm terrorists linked to a Pakistani militant group associated with al-Queda had only batons or World War I-era rifles to use as weapons.

As a result, India's top law enforcement official has just resigned, bowing to criticism that the attackers appeared better trained, better coordinated and better armed than police. The truth is that India does not even have a trained SWAT team.

These international headlines about a lack of homeland security in India must give corporations that have already outsourced their business functions to that country a reason for concern.

The fact is that Information technology and IT-enabled services will employ 4 million people in 2008 and account for 7% of gross domestic product and 33% of India's foreign-exchange inflows, according to Nasscom, an Indian IT industry organization.

Meanwhile, employee wages are rising rapidly in India and fast becoming more competitive with the rest of the world. The cost advantage for outsourcing to India used to be at least 1:6. Today, the ratio is down to 1:3 and worker attrition is high.

Indeed, the increase in wage inflation in the last several years is staggering. Salaries in India rose 15.1% in 2007, up from 14.4% the previous year. The 2008 forecast is an increase of 15.2% and it marks the fifth consecutive year of salary growth above 10%.

So, after this recent terrorist attack, security against terrorism will become yet another issue for international corporations to consider before outsourcing jobs to India.

As a result, the last few days of terror in India may have ramifications well beyond international politics and the tragic human cost. With worker wages skyrocketing, a lack of national security against terrorism could well mean the death of international business outsourcing to India.

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