Thursday, November 08, 2007

Customers Looking Beyond India for Outsourcing


Troubled by high staff attrition in India, which often disrupts work on projects, customers in the U.S. are increasingly looking for alternative countries for their outsourcing projects, industry analysts say.

The move by customers comes as Indian outsourcers are aggressively cutting costs. Some of the cost-cutting could impact quality of service, giving customers another incentive to take outsourcing projects elsewhere.

The frequent staffing changes caused by attrition, combined with increased staff costs, have lowered customer satisfaction with outsourcing to India, said Sudin Apte, senior analyst and country head for India with Forrester Research. For the first time, some customers are making a concerted effort to find alternative locations, he said.

The pressure to reduce costs comes from several fronts, notably the strengthening rupee against the U.S. dollar, rising salary costs in India, and the need to spend on new service centers around the world to serve customers locally and compete with multinationals.

The rupee has appreciated by about 12 percent against the dollar since the beginning of the year. The appreciation pushes down the revenue in rupees earned in the U.S. by Indian companies, even as staff costs in India rise. The U.S. is the largest market for Indian outsourcers, accounting for about two-thirds of revenue earned abroad.