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.
Read this article on the McKinsey Quarterly site
