India’s competitive advantage of being able to provide cheap labour to the software industry will come under serious threat in two years as its currency appreciates and salary costs rise, a top industry official warned on Tuesday.
An army of software professionals, willing to work for one-eighth of the salaries of their counterparts in the United States and Europe, graduate from Indian institutes every year. These engineers have fueled the software boom in India, whose global exports are slated to grow 29% to 470-billion rupees ($9,7-illion) in the financial year to March 2003.
”I personally believe this cost advantage will fritter away as salary costs go up and, more importantly, as the rupee continues to appreciate,” said Vivek Paul, vice-chairman and president of Wipro Technologies, the global information technology arm of Wipro Ltd.
”If you have to take a purely economic view, I think the rupee is 20% to 30%undervalued. If the rupee ever rises to a true purchasing power parity level, that would take away a lot of the cost advantage,” said Paul.
The rupee closed on Monday at 47,65 to the dollar and has risen more than one percent against the greenback in the last six months. Wipro, India’s third largest software exporter, reported a net profit of 2,3-billion rupees ($48,2-million) in the third quarter to December accompanied by a 27% rise in revenue from a year earlier to 11-billion rupees.
Indian software companies such as Wipro, Infosys Technologies and Satyam Computers are facing increasing competition from the Philippines, Vietnam and China, which have started churning out software professionals.
”I am not discounting threats. I do not think it is an immediate threat,” Wipro’s Paul said.
”This (India) is the place where people are talented, innovative and disciplined and in turn are cost-effective. Everybody is going to emulate this model one way or the other. I do not see that changing,” he said.
Paul said Indian companies in the near future will look to set up software development centers and sales offices outside the country.
”India will continue to gain over the next couple of years. It has a fairly strong competitive advantage. But two years from now you cannot take your advantages for granted.
”India has to do more and Indian companies such as Wipro have to do more in terms of developing centers outside India where we can bring the advantage of cost and quality,” he said.
The United States accounts for more than 60% of India’s software exports followed by Europe. Most Indian software firms have already started establishing centres in Asia and Europe.
”To take any big steps immediately is to be ahead of time. There will come a time when we will have to do this (set up base near clients) and from our perspective we should be in readiness,” Paul said.
”Given a 12-month period we should have effective centres running anywhere we want in the world,” he said. Paul, who took over the reins of Wipro Technologies in 1999, slammed critics who have argued India had only cheap labour to offer.
”What is driving growth is not cheap labour but our quality processes which allow our software development to be consistent, repeatable, on time, on budget. And customers are willing to pay a premium,” he said.
”The sustainlable cost advantage is in the capability to deliver on time, every time,” he said. – Sapa-AFP