Wages and Turnover Hurdles

"> Wages and turnover hurdles

To rise to the next level, Indian companies will have to become expert at managing explosive growth. They have done well so far, but it doesnt get any easier to double in size, and there are still existing cultural barriers for every new employee to overcome. Companies are bringing on as many as 7,000 new workers per year. To keep a fair percentage of them, raises must be awarded regularly, a practice that, while necessary, erodes Indias chief selling point—low-cost labor.

Most companies report that annual raises are anywhere between 10 and 20 percent. But Indian companies manage attrition to their advantage, often shedding 2,000 workers per year.

"Wage inflation is here to stay," said S. "Kris" Gopalakrishnan, chief operating officer and co-founder of Infosys, in an interview at the companys Bangalore headquarters. "At 10.8 percent, we are one of the lowest," he added. He said his company continues to be committed to its core hiring practice of targeting college graduates right out of school for its entry-level positions, which pay about $5,000 per year.

As Indian companies look at the larger world, established companies are looking at India and, in so doing, may provide the Indians with their biggest competitive challenge. IBM, for example, is in the midst of an aggressive expansion in India, with a total of 38,000 employees in India, up from 23,000 just two years ago. Key to the expansion was IBMs acquisition in 2004 of Daksh, an Indian provider of business process and business transformation outsourcing services. What the Indian companies covet—a robust IP portfolio and international presence—IBM already has. And it may be easier for IBM to grow in India than for Indian companies to globalize and cultivate innovation.

Whats more, the Indian educational system, which feeds the IT players with tens of thousands of new hires annually, may not be up to the task of providing increasing numbers of qualified applicants, according to Indian IT executives .

And cultural differences arent going away any time soon, either. "Indians have a difficult time saying no or that youre doing it the wrong way," said Gopalakrishnan. "Indians are more hierarchical and might not say anything unless asked. Infosys teaches culture lessons in its training program for new hires, which lasts three and a half months and includes 10 days on communication skills alone."

When young Indians go abroad, they often face an adjustment period. "It is challenging for a lot of youngsters to go to a U.S. environment. Many people are vegetarians. There are also different sports such as football and baseball. We want to reduce the trauma as much as possible," said Gopalakrishnan. Still, he said, the United States, because of its openness to different cultures and to business change, remains the top destination. "The U.S. gets excited about change because they see that as an opportunity to improve," he said.

Read more here about how outsourcing in India has paid off for some companies. Indias social problems could slow the advance of the IT juggernaut. With between 200 million and 400 million people living on $1 per day, some Indians look to the burgeoning IT sector to improve the lot of all citizens, including its poorest.

While these problems are daunting, leaders of the Indian industry are not about to believe they will prevent India from achieving its destiny as a global IT hub. Japan, they know, overcame similar obstacles. During a session at Nasscom, an audience of several hundred was asked whether it believed that Indian companies could achieve the highest market capitalization among IT companies in 20 years. Nearly all voted yes.

But Japan benefited from corporate arrogance on the part of Detroit automakers, which repeatedly overestimated their own strengths while underestimating those of Japan. If its different this time, it might be because with Japan as an example, no established IT player can say it did not see India coming.

Stan Gibson can be reached at stan_gibson@ziffdavis.com. Check out eWEEK.coms for the latest news, reviews and analysis on IT management from CIOInsight.com.