Ok, so I am dating myself, but when I joined PwC, a partner told me - $ 1 for you, $ 1 for training, rents and other overhead, $ 1 for the partners. Billing rates at 3X base salary.
So now I read, a graduate joining TCS (the biggest Indian vendor) starts at Rupees 2.5 Lakh a year. Lakh is Indian for 100,000. The Dollar to Rupee Exchange rate is roughly 41 to 1. Over 2,000 billable hours a year that is $ 3 an hour. After 3 years, say $ 4.50 an hour.
But the average billing - 6X - $ 17 to 28 an hour for a programmer (the typical college fresher assignment). On-site rates in the US and Europe are much higher - $60 to 100 an hour (for more senior staff). Clearly the overhead part is higher these days - more training (8 to 10 weeks at entry level, 1-2 weeks every year after), infrastructure, more travel etc. And that overhead is worsened with the significant staff turnover. Cannot blame young Indians seeing themselves billed at 6X to 20X, for trying and get a piece of that for themselves.
But the margins are also significantly higher now. Most Indian vendors are enamored with the huge valuations Infosys, Wipro, Cognizant enjoy. But Wall Street is only generous if you can deliver 40% top line growth and 45% gross margins consistently. And net margins in the high 20s.
In fact in this survey, customers think after-tax outsourcing margins should only be 5 to 12%. You can see why some customers feel they can do better with their own captives. You can see why Chinese and E. European and S. American competition is growing. Why IBM is able to beat Indian vendors as at least some contracts come up for renewal.
In the flat world, customers, competition and employees are not far behind Wall Street in visibility to economics. Something's gotta give.
