Problems with Outsourcing to India

by Armando Viteri, Neubloc, CEO and President

With major backlash against outsourcing to India, many companies with investments there are now looking for alternatives. Although there is discussion on the wage structure, the issues of outsourcing development services in India are deeper. This paper explores the continual issues with outsourcing development services to India and the shift to other alternatives.

A. High attrition leading to significant drop in productivity

The industry attrition for Indian software development firms averaged 50% annually, which has only continued to worsen according to the Computer Business Review. Traditionally, large US firms establishing an Indian presence were immune; only recently have companies like Cisco been affected. According to an investment banker, smaller firms currently experience attrition over 100% annually, causing them to look towards development firms in Europe due to their quality of work and low attrition.

B. Significant IP Risk

Indian firms and court systems are notorious for their lax approach to protecting customers’ source code. Despite the recent steps taken, Indian court systems continue to favor Indian companies no matter the problem. According to Rouse and Co., the global intellectual property consultancy, “Unlike China, there are no administrative remedies available in India for enforcement of intellectual property rights.” Foreign companies face quite the predicament in court cases against an Indian partner who “borrowed” software, and generally do not fare well in these cases.

C. Quality of work

According to Zinnov, an analyst firm specializing in offshore projects, “more than 75 percent of these cases fall short of expectations.” In addition, experienced employees receive 70% of a US salary after setting up a foreign development shop. Inexpensive talent pools and access to the Indian market are the main reasons for outsourcing, which are not primary objectives for many US software companies.

D. Talent base

The focus on embedded development dates back to Poland’s Soviet period. More recently, Poland has been the center of activity in Web 2.0 technologies for both users and developers. By contrast, much of the development work in India focuses on IT instead of software products because it has become difficult to recruit senior and architectural product developers.

F. Work style

Similar to the US, Poland questions these approaches to test their understanding and challenge assumptions. Time and again it has shown that the Indian work approach requires strict instruction. Indian teams regularly stop for clarification instead of making their own decisions. After accounting for attrition, productivity is surprisingly low.

E. Cost

There has always been a large difference between Eastern Europe and India. A decade ago, senior engineers could be hired for around a thousand per month in India. Today, 20% pay increases every six months translate into an annual 45% wage escalation. Only new engineers are cheaper than Poland’s, proving that India will become more expensive as a whole within two to three years. Although the US dollar has suffered the last couple of years, the Polish zloty has not escalated like the Indian rupee. Therefore, Neubloc has actually decreased prices due to the expansion of our customer relationships, instead of increasing the price of developers.

To learn more about the benefits of outsourcing to Poland, please contact:

Armando Viteri, President
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
Phone: (619) 322-6321