The Hindu Business Line : India may lose its cost arbitrage advantage to China

There are warning signs in the air for the domestic software industry. That salary increments for software professionals escalate year on year is known. But this becomes more alarming when set side-by-side China.

Industry captains said that annual salary growth rates in China are 7 to 9 per cent.

Contrast this with India, whose corresponding figures, said Mr S. Padmanabhan, Executive Vice-President, and Head - Global Human Resources, TCS, is between 10 per cent and 15 per cent.

Mr T.V. Mohandas Pai, Director HR, Infosys, said that manpower costs in China are about 8 to 10 per cent higher than India, including social security costs.

Substantiating this, industry sources say that in India, a trainee engineer would receive on average $3,500 per month, as opposed to China's $4,500. Professionals with five years' experience would receive $6,500 in India, and $9,000 to $10,000 in China, and with 10 years' experience, $9,000 in India and $13,000 in China.

A Mercer report titled `Mercer Asia Intellect 2 - November 2005', states that the "year-on-year salary increase levels are expected to be in the range of 7.6 per cent to 7.9 per cent over the three years 2005 to 2007 (in China). This is well below salary growth forecasts for India, where increases are expected to be in the range of 11 per cent to 11.7 per cent over this same time period." The forecasts are based on a variety of factors, explains the report, including the annual salary growth rates over the last few years. Taking the comparison one step further, the compensation levels differ according to vertical.

Ms Prameela Halive, Global HR Resource, Zensar, said that the average software programmer in China is paid about 10-15 per cent less than a programmer in India unless he or she has English language skills in which case a premium for language skills comes in.

On the other hand, she added, the average project manager in China is paid 15-20 per cent higher than an Indian project manager because "process excellence is still a premium in the Chinese IT market".

The Mercer report observes that while China continues to have the highest costs, overall in IT, in 2007, India emerges as the second most expensive location in the Asian region by 2007.

In some levels, such as at the senior management level in application development, it is more expensive than China, with an average compensation of $69,000 per annum as opposed to China's $65,000.

In the IT support, administration and management level, the projections for 2007 show India almost on par with China in the senior positions, both in the professional as well as management streams.

All of this could mean that India would lose its cost arbitrage advantage to China over time — of course, as Ms Halive points out, the Indian software professionals are more productive and efficient due to the constant innovation at the technology and process levels.

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