Over the last 10 years, I’ve had close visibility to the rate cards of many IT outsourcing providers through my Procurement role of managing India’s offshore providers and in my role as a Strategic Sourcing consultant.
There are a few analyses on the web comparing wages between India and Vietnam. All these analyses are based on the minimum wages or the cost of living differences across the two countries. I found these analyses highly inadequate for a few reasons:
- Minimum wages reflect governmental policies more than economic environment.
- Minimum wages do not reflect the high skills required in IT services.
- Cost of living adjustments do not reflect the supply and demand of the work force or the general economics of the countries.
Therefore, I will attempt to do my own comparison of rates/prices for IT services between India and Vietnam.
India, with its population of 1.3 billion people, has a highly diverse labor market with regional differences. Hence, we need to look at the particular cities in India for our comparison. It is generally accepted to separate India cities for IT outsourcing into multiple tiers:
Tier 1: Mumbai, Bangalore, Delhi, Gurgaon, and Noida.
Tier 2: Pune, Kolkata, Indore, Ahmedabad, Cochin, Chennai, Hyderabad, Jaipur, Rajkot, and Nagpur.
Tier 3: Cities where, specifically for ITO, it would be difficult to set up sizable operations due to poor infrastructure and inadequate talent pool. I see tier 3 cities more as potential options for rule-based BPO services.
The cost differences between Tier 1 and Tier 2 are between 15-20%. In general, the lower costs between Tier 1 and Tier 2 are due to lower real estate prices, lower attrition (leading to lower recruitment and training costs) and lower wages.
Vietnam, with its population of under 100 million people is 13 times smaller than India. There are two major cities for IT outsourcing – Hanoi and Ho Chi Minh City. The rates between Hanoi and Ho Chi Minh City are pretty comparable.
The following analysis was done by a boutique consulting firm, JK Advisory LLC, that specializes in offshore services to Vietnam. The analysis was based on five job types: Project Manager, Technical Lead, Senior Software Engineer, Software Engineer and Test Engineer for offshore work.
Note: The rate data from India is an average from both Tier 1 (Bangalore, Delhi) & Tier 2 (Pune, Hyderabad) based on at least 7 different companies. The Vietnam rate is based on at least 5 companies.
As you can see from the rates shown in the Table above, a typical development team will have more developers and testers so the average cost difference between two comparable India and Vietnam teams is approximately 40-50%. This is consistent with a recent RFP that Russell conducted for Microsoft Certified Resources. We were able to realize a 40% cost savings.
To be fair, for any IT outsourcing engagement, we need to look at multiple dimensions beyond price such as skills, service level, security, pool of knowledge etc. My purpose in sharing the analysis above is for two reasons. There is a lack of an equivalent analysis and it is a good starting point to have a conversation about your India +1 strategy.
Feel free to check out www.jkadvisory.us for additional information.