Rising Wages, High Turnover in India Create Scramble for Workers

India may become a victim of its own success as a center for outsourcing.

As U.S. companies continue to rush business offshore, the competition for labor is getting fierce — so fierce that a typical business-processing center can expect to lose 15 to 20 percent of their workforce every year, the New York Times reported. In addition, wages have been rising by nearly 15 percent a year, according to a recent survey by the consulting firm Hewitt Associates.

Even with such rapid wage increases, the cost for workers in India is a fraction of what companies would pay for comparable employees in the United States. Still, the rising wages and quick turnover are cutting into the savings American companies aim for when they send work overseas.

The business-processing sector, which handles customer service, payroll, accounting and human-resource work, has the toughest time keeping employees. One problem, observers say, is that workers are usually sent to the American company’s headquarters at the beginning of an outsourcing project. Workers often don’t want to return to India, but if they do, their American working experience can easily be parlayed into a higher-paying job.

To retain employees, the top business-processing outsourcing firms reached an informal agreement not to steal employees from each other, the Business Standard reported. Some companies are including clauses in their employment contracts that require workers to wait three months before taking another job.

Higher wages are the biggest draw. One top outsourcing company, Wipro, gave raises of between 10 and 15 percent for its 24,000 employees last year. Competition for workers is the most intense in Bangalore, Mumbai, New Delhi and Hyderabad, where attrition rates can be as high as 50 to 75 percent a year, according to Indian trade group Nasscom. In response, some Indian vendors may move their operations to less-expensive cities, such as Nasik and Ponticherry, or they could outsource work themselves, to China, Southeast Asia and Eastern Europe.

Nasscom chairman Jaithirth Rao says the labor shortage will be temporary. Universities are offering more two- and four-year business programs, he said. If the rates of college graduates do not increase, however, Nasscom projected that demand would exceed supply by 20 percent by 2008.

Dan Zadorozny, a vice president at Electronic Data Systems, said, "Candidly, we see a labor problem in India right now."

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