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Ultimate cost of outsourcing can be difficult to calculate

NEW YORK - How cheap is it to move jobs to India?

Skilled workers certainly cost far less there than in the United States. But the savings can be difficult to calculate, and the pay gap is narrowing marginally as wages in India rise.

Companies are increasingly competing for experienced, educated workers in India. Even with a population of more than 1-billion, there is still a limited pool of skilled labor. The demand for some types of workers is pushing up wages by 10 to 15 percent a year, said David Cooley of Evalueserve Inc., a Chappaqua, N.Y., company that assembles offshore research teams for U.S. businesses.

There's still a substantial pay gap. Information technology workers in the United States earn about $80 an hour, compared with $22 an hour in India, according to a report by Evalueserve and the National Association of Software and Service Companies, an Indian trade group.

The differences can be even greater for workers at specific skill levels. Hiring an experienced systems analyst will cost $53,000 a year in the United States, but just $11,000 in India, according to Mercer Human Resource Consulting.

But figuring out the bottom line is not that simple. There are travel, real estate, insurance and tax costs that vary considerably, and cultural and communications gaps that are difficult to measure.

In addition, nearly all offshoring requires that companies keep employees in the United States to coordinate the work being done on the other side of the globe.

"The true IT outsourcing or offshoring project needs good management on both ends, and the ones that fail are the ones who think they can throw it over the wall and it will work," Cooley said.

That results in a "blended rate" - the combined cost of having people in both places. Often, one IT worker is needed in the United States for every three or four working overseas. On that basis, the cost of a team of four programmers - three in India, one in the United States - might average $37 or $38 an hour.

Companies in the United States trying to cut costs in rural locations are betting that their prices are close enough to that blended rate to make them competitive.

CrossUSA, operating in rural North Dakota and Minnesota, says it bills at a blended rate of $45 to $55 an hour, with the lower end of that scale for larger teams of programmers.

[Last modified July 3, 2005, 02:00:20]