The problems with a report that says: By 2010, Indian techies will do 15% of US jobs – here are the possible wrong assumptions
Srini Ranganathan, Special Correspondent
December 18, 2004

A new study on the hot-button issue of outsourcing has forecast: Indian firms will perform 15 per cent of information technology jobs required by American companies by 2010 and save them $ 30 billion annually to be invested domestically in the US.

Unfortunately, the assumptions made in the study need some thorough analysis that can point out some possible flaws in the assumptions.

By 2010, the Indian IT labour force will be more than three million-strong, and half of the workers will be performing jobs for US companies, the firm AMR Research said in a report whose contents point to a growing interdependency between U.S and India in the services sector. 

The assumption is that US economy will be in great shape and no matter what happens to US budget deficit and trade deficit, US will keep outsourcing as much as it wants from India. Also the report does not attempt to address the growing loss of high tech jobs and resulting backlash in US. Another big assumption – software technologies will remain the same without automation and continue to
need Indian low-end software coding and testing. As a matter of fact most of US software companies are focusing today on automating repetitive tasks that may make software outsourcing obsolete by 2010.

Arguing at length that the outsourcing of work to India is good for U.S corporations, their stockholders and the American economy, the study claims "With the savings from outsourcing to India, US companies can fund and launch 12,000 new strategic projects." The study, "The Adolescence of Offshoring: Growing Up Fast," is one of the several in recent months that have challenged the populist assertion that outsourcing of US jobs is detrimental to the American economy. "Outsourcing to India will aid the U.S. economy if the savings from outsourcing continue to be reinvested in new strategic projects. The impact of these new projects can be huge," the study concluded.

Explaining the rationale for continued outsourcing, the AMR report said US companies use as much as 80 per cent of their IT budgets to maintain status quo. They are forced to delay investments in innovations that aid growth because they are spending too much of their limited IT budgets on non-strategic activities, such as data center operations, application development and maintenance, and staffing help desks. "It doesn't have to be that way...

Companies effectively outsourcing to India can slash by 40 per cent to 50 per cent of these costs," the study argued. It said with an average US IT fully loaded labor costs approaching $80,000 per worker per year, a worker in India represents a $36,000 savings per year, and 1.5 million workers represent $54 billion in savings each year.

Again the study assumes that IT is a non-strategic activity for the US Corporations. On the contrary, Information Systems especially Group Decision Support Systems are seen as the largest component of strategic side of business development. Some experts believe, the next generation software will be so intelligent that business profitability will depend on Information Systems and Database applications. 

The fact of the matter is that IT is becoming integral part of business models as businesses integrate eBusiness. For cost saving, eProcurement, Supply Chain Management, Reverse Auction and Production Management systems are getting deployed. Software companies are required to deliver more intelligent, automated and back office integrated Information Systems. That is the catalyst behind Oracle’s buying of Peoplesoft. On increasing the revenue, Business are focusing on Customer Relationship Management, Selling Chain Management though integrated eBusiness approach. 

In addition, the automation will really take off through more worldwide application of EDI (Electronic Data Interchange). The need of application development and data center management as we know today will be obsolete by 2010. By that time XML and EDI will compete and automate the Business processes. Applications will be configured through EDI translators and XML parsers or adapters instead of being sent to India or Ireland.

The world will be different in 2010 – quite different. It will probably be very deflationary with too many technical people looking for jobs while businesses have already automated most of the technical especially software work.

There is one catch though, if the world stagnates and technology moves no further in the next six years, the assumptions made in the report will be true, In that case India will perform not 15% of the US IT work – it will perform 85% of the world’s IT work.

If we assume that technology will move forward and the assumptions in the report are flawed, it is the time for TCS, WIPRO, Satyam and others to understand and position themselves strategically so that India can lead and not have to beg for tech contracts in 2010.