Companies in Pakistan as well as India are facing rapid shortages of adequate low-cost workers (or I should say optimal-cost workers).
Here is the basic set of competitive pressures faced by outsourcing centers (which a lot of you will be aware of):
1- Competition is driving down price-points.
The average rate charged by Pakistani companies for outsourced work for export varies from US $15 – $30/billed hour depending on how “specialized” the work is considered. This rate works in competition with Indian firms, who offer much higher quality and professionalism at about $45+.
However, with more and more options increasing for sourcing adequate software development work, including Vietnam, Bulgaria, Mexico and others that are cheaper, and also sites such as oDesk that provide reasonable quality, these price points will continue to lower unless companies choose the specialize.
2- Low-levels of professionalism and effective middle-management, high cost of business means high overheads.
The numbers are staggering actually. Rent in Islamabad is now 2nd highest in the world after Dubai — higher than London and L.A. Utilities and adequate backups require more operational expense.
On top of that, very high employee turnover rates in the industry in general (resulting chiefly from a VERY poor understanding of contracts by employees in this country) means much more added overhead in hiring and training replacements.
Finally, for calculation of cost / billed-hour you have to consider the quality of the resources in general as well. In Pakistan you typically have to have two managers for each individual person on your front-line, “guiding and teaching” that person on how to get the work done.
By the numbers, this means that if you hire someone with a salary of U.S. $4 / hour (Rs.40k) your overheads to keep that person working in your office will be about $18-20.
This the total cost of resources varies here between $15 – $24. Depending on the prices charged, then, the total margin is $4-6 / billed hour.
3- With a shortage of “good quality” employees, the salaries of the limited amount of good people is increasing
With more companies competing to get the few people in the industry who are actually worth the buck, salaries are rising rapidly.
This is thus shrinking that margin even further.
So what are companies doing about this?
The most obvious thing to do is reduce overheads — but conducting a thorough analysis of operational overheads and implementing an improvement process is large investment project, and could take more than 3 quarters to gain momentum.
The easier solution, then, is to move operations somewhere else that is cheaper.
Techlogix has been expanding its operations in China simply because they are unable to find the right people in Pakistan.
Si3 was rumored to be moving into the smaller cities in Pakistan (Multan or somewhere).
Even the giants like Tata Consulting are facing problems maintaining their margins with rising salaries — they are now setting up centers in Mexico!
Smaller companies are choosing to work with people from Vietnam or Venezuela — but not just because of cost but more importantly quality of work. One person said that you have to look outside of Pakistani resources “If you want to get some serious work done”.
This is perhaps the start of a “self-correction” phase for the industry – when industry professionals can no longer justify the salaries as a portion of the quality of their work, more and more Pakistani IT jobs will move out of the country to cheaper places until either (1) The salaries rebound and stabilize at a lower rate or (2) the quality of people increases enough to justify themselves.
My hope and bet is with quality increasing — but this is not a problem for universities alone to solve. The professionals entering the industry also have have a desire to improve themselves.