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BPO Journal

Sunday, July 17, 2005

Salary Trails in Outsourcing

This News.com article refers to an interesting report by NeoIT on the wage rate differential in popular onshore and offshore or nearshore locations. Here is a sample of average annual salaries (in USD) for IT professionals with 2-3 years of experience:

Vietnam: $5,404
India: $8,429
China: $8,799
Thailand: $10,272
Philippines: $11,256
Malaysia: 19.915
Singapore: 37,924

"Salary differences are huge when comparing IT jobs onshore versus offshore, but taken in isolation they don't provide an accurate picture of the total cost of offshoring since it requires a more complex management and governance structure in order to ensure that goals are met," Atul Vashistha, CEO of neoIT, said in a statement. Wage Rate represents 35-45% of offshore costs and 55-65% of nearshore costs.

As coordination and communication techologies become sophisticated and ubiquitous, it is difficult to escape the allure of outsourcing. However, the report also highlights that wage inflation is higher in the cheaper countries. For example, of 18 outsourcing countries, India had the highest year-on-year growth in average salary for IT outsourcing professionals in 2004, at roughly 13 percent. This is an indication that the savings from offshoring may soon thin out as salary levels converge. So, while this may not offset the advantages of outsourcing in the near term, it may well impact the structure of user firms' future-state global sourcing portfolios.

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