Posted by: Charles Maitland | Thursday 26 January, 2006

Outsourcing

I picked up an excellent post (as always) from the blog of Munjal Shah. He is the man leading the Riya application.
Riya is generating a huge amount of buzz about its facial recognition web site. It is still in Alpha (PS any invites going I would love to test it with my identical twin girls) but is getting good reviews.
Anyway back to the point. A lot of the hard core work is happening in Bangalore and he has been out there.
He made the following comment:
3) The wages are rising. This is probably the biggest issue for Bangalore long term. At the core, Bangalore’s growth is built on an arbitrage of prices between the G7 and India prices for an engineer. As the prices rise the spread gets smaller. The first to be hit will be the services companies. For them each engineer is a Cost of Goods sold. It is only the product companies that can sustain higher wages since R&D is a fixed and not variable cost. I tried explaining this to people in Bangalore, that companies like Riya would be the future of the next wave of technology in the city and not large scale outsourcers like Infosys or Wipro, but most didn’t understand what I was talking about.

What I found interesting are the statements that “The spread gets smaller” and “Only the product companies …”

It is my contention that as the development tools get better even this spread will shrink. With the powerful tools and visual coding methods (Think VS 2005 Class Builder) that are coming on stream the amount of a project budget that is spent on grunt coding is being reduced. Already ASP.NET 2 claims a 70 % reduction in code typing.

This means that the cost benefit of outsourcing is being slashed. The biggest slice of the budget will now be spent on the design and architecture of the application and for that the biggest factors are skills, communications and immediacy. All these work against offshoreing.

The key to the long term success of the Bangalore IT industry is to develop home grown products so that their home grown developers can leverage the same benefits against the G7 countries.

In other words by a very different route I agree with Munjal.

About these ads

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

Follow

Get every new post delivered to your Inbox.

%d bloggers like this: