India's flourishing IT outsourcing sector is looking forward to posting yet another 50% market growth figure, but is there an early end to the success story of this economic fairy tale?

Many economic experts predicted an abnormal growth in India's average salary but not quite this early. Is this the beginning of the end as the infant sector suffers prematurely with attrition! Ernst and Young examine how this gremlin of economic growth could be the start of things to come.

Ernst and Young's global report identifies a real need to take rapid steps to retain employees to ensure future steady growth.

The Indian outsourcing industry grew by a further £2.5 Billion this year and according to Ernst and Young partner, Ranjan Biswan it’s forecasted to expand at an even faster pace for 2006. The rapid market growth has been driven forward further by the attraction of new clients wanting to cash in on the savings and productivity gains. Whilst existing clients are migrating even more infrastructure to India. Organisations have even begun to outsource their recruitment departments to India.

But the 200,000 strong call-centre work force is nervous, with the market showing a constant 10-12% absenteeism rate that is due in part to the monotonous nature of some of the work.

Employers are forced to keep extra employees on their payroll to fill in for absentee workers and those who quit suddenly, this increases costs. To add further stress to the problem, U.S and U.K organisations have spotted an ideal business opportunity and are cashing in by setting up outsourcing companies. Market competition is healthy, however with this comes an increase in demand for call centre staff and in turn an increase in average salaries!

Could it get any worse? Well yes, More importantly, a host of emerging countries such as the Philippines, Malaysia, Vietnam and Eastern European nations including Hungary and Poland, are also starting to challenge India's leadership in offshore business process outsourcing.

The pressure is mounting further with a recent fall in the dollar which has also squeezed earning margins, making it tough to be above water if costs aren't controlled. Also with the majority of India's outsourcing market being in the U.S, staff are working generally at night to cater for day time trade. This adds further pressure to an already stressed market.

This by no means indicates a market collapse, however it does show a number of small problems. Once analysed together, it doesn't take an economist to see there could well be problems ahead. Even with India currently holding a huge chunk of the outsourcing pie, at 85% it’s predicted this could dwindle to 45% within 2 years!

Unless India devises a long-term solution to the problems and consistently grow its skilled labour force, India will see some of its offshore clients shift business elsewhere.

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