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Does it make sense to offshore to India?

Infoworld published a piece this morning about how the economics of offshoring to India are becoming less enticing than they used to be.  Particularly interesting were Riya CEO Munjal Shah's comments.

Offshoring to India has been a good choice for Silicon Valley companies for years, because Silicon Valley wages have always been exceedingly high.  But outside the Valley, that choice has been much less compelling.  We certainly looked hard at Indian development teams a while ago, but the economics for a Canadian company to offshore really don't make sense.  Wages in Ottawa are already just 70% of Silicon Valley, because the cost of living here is dramatically lower.  With the generous tax incentives offered by the Government, net wages are in the range of 50% of the Valley.  So why outsource?

And in fact, there's a burgeoning "near-sourcing" industry in the Ottawa Valley as local companies market themselves as price competitive with South East Asia, but in the same time zone. 

{ 6 comments… add one }

  • Erik May 29, 2007, 6:00 am

    Similar is true down here in Maine. Add on top of that the layer of management and process you need to add to use a distant dev team and you're almost behind. In addition it's much harder to be nimble. One of the key attributes for any start up is the ability to modify course with minimal friction.

    Nonetheless, I still get several calls a week trying to sell me Indian or Russian development teams.

  • Randy Charles Morin May 29, 2007, 7:13 am

    The dev cost in India is

  • Randy Charles Morin May 29, 2007, 7:14 am

    Oops! Your comment form ate part of my comment.

    The dev cost in India is less than 10%. There's still a savings to be had.

  • Andrew May 29, 2007, 9:02 am

    The offshore dev companies are quite nimble with respect to business processes, if you can do the PM yourself great, but if not – I have managed to find good outsourced 'project managers' who can converse in native languages (they recognized the need for this and offered it) still at a fraction of what a good PM would cost here. It all starts with your use cases.

  • athir nuaimi May 29, 2007, 9:03 am

    My model is that real R&D in Canada as you can get the tax credits. For the general development (non research – no technical risk) is done in India as it does not qualify for tax credits.

  • Alec May 29, 2007, 10:06 am

    I don't think every project is the same, for sure. But certainly for what we do, it didn't make sense to go offshore. And Athir, you may be right that the best solution is to put general dev offshore.

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