I attended a networking event yesterday night in Mountain View. You know about these events. You bring your pile of business cards and chat with people trying to find the hidden gem. More seriously, I enjoy attending these events. There is always a lot to learn from listening to others’ challenges and accomplishments.

While there, I asked a CEO about his strategy regarding IT outsourcing. He immediately gave me this condescending look, while assuring me that he already had the best employees and was anyway not to consider outsourcing.

While I can appreciate the philosophy of keeping development in-house, I would like to elaborate on his attitude.

It reminded me of myself 12 years ago. At that time I was running an engineering team of over 100, based in several European cities, and we were desperately trying to attract and retain the best talents. At that time the buzzwords were OO, C++, etc. (time flies!).

A friend of mine told me to look at India. I gave him the same look this CEO gave me yesterday. How could I ever possibly find in India something I could not find in Western Europe?

To make a long story short, a few days later, I was at TCS (Tata Consulting Services), visiting their facilities in Mumbai and Pune. What a shock! They already had literally hundreds of well-trained C++ programmers, smart, disciplined, dedicated. I changed my mind instantly. How could have it been otherwise?

Do not assume that rock star development teams cannot be assembled in India, China, Russia, etc. If you cannot find enough talented Ajax developers, then widen your search, you might be surprised.

My attitude was naive 10 years ago (to say the least), but today underestimating the power of outsourcing is inacceptable, to say the least again.

We westerners better change our mind about this, and rapidly, or the toll will be even higher.

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“The Global Outsourcing Report 2005”, a special issue of “CIO Insight” magazine, which ranks countries based on their opportunities, costs, and risks in relation to IT offshoring, predicts that by 2015, China will have taken leadership over India.

In their quest to close the gap to India, and possibly outpace it, China has the following strengths:

- An incredible domestic market of 1.3 billion people that is much more appealing to US/EU companies than the Indian one; and the media are contributing dramatically by giving China the maximum exposure

- China’s infrastructure (telecoms, roads, banking, etc.) outpaces from far India’s or any other outsourcing country’s

- Manpower prices are definitely in favor of China. Prices are usually at least 50% higher in India than in China. Moreover the gap is widening since average salary increase is higher in India than in China

- The attrition rate is significantly higher in India than it is in China

- China has already shown its outstanding ability to become the destination of excellence for the offshoring of manufacturing

- My observation is that, since Indian leaders (TCS, Infosys, etc.) are so much ahead than their Chinese counterparts, China has taken a very smart road to catch up with India; the country itself, as a whole, has embarked into challenging India. Political decisions, like allowing Wholly Owned Foreign Entities, the creation of over 500 science parks, tax breaks, etc. have already convinced giant companies like Google, Microsoft or Apple to massively redirect their outsourcing focus from India to China.

In the Silicon Valley — where I focus my efforts, I am noticing that a growing number of small to mid size software companies are now considering switching their outsourcing source from India to China. As the Silicon Valley is usually setting the trend in the Sw/Hw industry, I would expect companies from other regions/countries to start following this path soon.

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