How flat is the world really?

To start, two animal updates.

First, I can't believe I forgot to mention this but on the drive from Cochin to the Snake Boat Race in Kerala, we passed 5 elephants on the "highway". First, one elephant alone. Then a group of 3. Then a final lone elephant.

Second, the big news in the paper yesterday was that a leopard had come out of the forest in the Bangalore suburb of Hosur and had gotten into the big shopping mall there. It terrorized crowds of people and injured 8 people before being tranquilized and returned to the forest.

Friday I went on a tour of Infosys's campus. Profiled in The World is Flat (the new version of which also starts with a big section on Georgia Tech), Infosys is the largest technology consulting/outsourcing firm in India. Infosys had its first high profile success implementing solutions to Y2K. Now, it is a large technology consulting conglomorate. Much of their work is quite similar to the work I did at PwC implementing SAP at Delta.

Infosys has just over 70,000 employees, about 3/4 of which are in India. They have three massive campuses in India (Bangalore, Mysore, Pune) and a number of smaller locations. The Bangalore campus is the 2nd biggest and is often described as a Corporate Disneyland. There are 18,000 workers spread around a massive enclosed area that looks like a college campus. People take golf carts and ride bicycles around campus. There are five huge food courts, a number of putting and chipping greens, volleyball courts, basketball courts, and several gyms. There is also a huge modern conference room with the largest flat screen tv in Asia. And since Indian infrastructure is so unreliable, the campus is completely self sufficient in terms of power, water, waste processing, etc. Finally, the campus has its own 3.5 star hotel with over 300 rooms. All summer interns live on campus in the hotel, and most corporate guests stay there as well.

Infosys is the "most admired company" in India, they get over 1 million job applications per year. They still have a significant turnover problem though, as qualified labor is difficult to find and keep. Their annual turnover rate is in the 15-20% range, which they say is lower than Tata, Wipro, Accenture India and other competitors, but still is quite high on an absolute basis.

It will be interesting to see what happens to Indian firms like Infosys. I am less bullish on outsourcing to India than I was before I arrived here. I don't think the Indian offshoring market is going away, or even that growth will stop, but I think it will grow at closer to 10% rates than 50%.

Talent is becoming more expensive to find and keep, and while software engineers do not make US salaries, they are getting closer. While a Chinese manufacturer may have a ~20-40x cost advantage in its labor force (I am ballpark estiamting hourly 50 cent - $1 Chinese labor vs $20 US labor), these firms have only a 2-3x cost advantage. This cost advantage has also been hit hard by recent appreciation of the rupee. Additionally, Infosys's clients are more and more demanding their consultants come work on site. This neutralizes Infosys's cost advantage. It also hurts the Infosys culture - especially since many of their employees are drawn to Infosys because of the opportunity to work on one of the massive campuses.

Finally, the overall outsourcing market is much smaller than I expected. Most people talk about how India is a "service" economy, and how ~40% of its GDP comes from services. While that is true, "services" largely does not mean services provided to Western countries. The entire Indian Technology (consulting/outsourcing/KPO/BPO) industry is only about US$10B today. By contrast, the US bought $290B worth of goods from China in 2006.

In their most aggressive case, Forrester Research estimates that by 2015 a total of 7.5 million jobs could be sent offshore by all western economies. Even if you assume 100% of those jobs went to India, India's workforce in 2015 will be at least 300 million people (and could be much more). So at most, only 2.5% of Indian jobs could come from the offshoring industry.

While a $10B outsourcing market is not tiny, I am less afraid that my job will be sent to India than I was three months ago. If I had a job, that is.