Russian Byte May Pinch Indian Software Trade
India and the Philippines have been able to take advantage of the shortage of skilled software developers in the United States, but could soon face competition from countries like Russia.
The cost advantages of doing software development offshore are significant, said David Grossman, an analyst for NationsBanc Montgomery Securities. For instance, wages for software professionals in India are only one fifth of those for US professionals.
Factoring into overhead, software development performed in India still costs only one third of what it would cost in the US.
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This is allowing offshore development companies to lower prices to customers and still enjoy 50 per cent gross profit margins, he added.
To attract this business, countries need high speed telecommunications networks, reliable sources of electrical power and well developed systems of higher education, Grossman said.
Although India and the Phillipines currently had these attributes, they could soon face competition from other countries like Russia which are beginning to make investments in these areas, he said.
According to Grossmans analysis, rapidly changing technology, the explosion of the Internet and the demand for enterprise software have created a massive increase in the number of jobs in the US software development sector.
But since the mid-1980s, the US has seen a 40 per cent decline in the number of people with undergraduate degrees in computer and information sciences.
As a result, the estimates of the number of unfilled software jobs in the US range as high as 350,000 or 10 per cent of the entire professional software work force, he said.
The shortage represents an opportunity for companies that specialise in using non-US workers to meet the demand, Grossman said. Easily defined software projects such as systems migration and Year 2000 upgrades are the best candidates for offshore software development, he added.
Referring to the dependence of US industry on offshore development, Grossman said that major American companies such as Intel and Microsoft are backing lobbying efforts to expand US immigration quotas, which currently restrict the number of visas for software professionals from other countries.
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