Ensuring India's offshoring future

McKinsey & Company - September 2005: "India has the world's largest and fastest-growing offshoring sector, dominated by IT services, which play a major role in the country's overall economic growth. But signs of strain are appearing that could hamper the nation's growth.

Research by MGI shows that India's vast supply of graduates is smaller than it seems once their suitability for employment by multinational companies is considered.

And in the country's most popular offshoring locations, such as Bangalore, rising wages and high turnover are evidence that local constraints on talent supply have already appeared. Worse for India, other low-wage countries such as China, the Philippines, and Hungary are gearing up to challenge its lead.

In addition, public investment in airports, roads, and utilities – necessary for the millions of people in this field to live and work more efficiently – has not matched private-sector investments in air-conditioned offices, apartments, and shopping malls in offshoring centers

But the end of India's offshoring bonanza isn't necessarily at hand. In 15 years of offshoring, the country has developed a stable of world-class IT service vendors that can save foreign companies the trouble of setting up their own captive offshore centers. And it has a large supply of qualified talent in areas outside IT, such as R&D, finance and accounting, call centers, and back-office administration.

Still, India's leaders have to ensure that companies hunting for places to offshore don't turn to other locations: they must not only adjust the country's educational policy to ward off the looming squeeze on talent but also invest more money in infrastructure.

From now on, government and business must work together if offshoring is to remain India's engine of growth. "

India's lead in offshoring stems from its pool of well-trained, low-cost engineers for IT services.

That pool is smaller than it appears, and there's a risk that it may run dry in the most popular offshoring locations.

For offshoring companies, India's weak infrastructure is its least attractive feature.

India's policy makers must improve the quantity and quality of its graduates, strengthen its infrastructure, and disperse offshore demand for talent to second-tier cities and services other