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How the Pandemic has impacted the Offshore IT Labor market

India is the world’s leading supplier of skilled IT human resources and has captured 55% of the market for all IT sourcing. But in the past 12 months, staffing shortages due to the ravages of COVID-19 have resulted in sky-high attrition rates from providers like Cognizant, which has struggled to fulfill service requests and has been forced to void some contracts.

In parallel to these events, IT service providers such as Accenture, EY, KPMG, and Oracle have hiked billing for India-based resources to previously unthinkable rates -- upwards of $100 per hour, representing 2X or 3X increases.

Buyers of offshore IT staffing services need to include and examine the protections within their Service Level Agreements against critical failures, review the Cost-of-Living-Adjustment (COLA) terms, and explore more flexible staffing options to mitigate some of these severe price increases.

Service Level Agreements (SLAs)

Not all agreements are created equal. Some SLAs include a measure of accountability through a credit or rebate system, but these are often capped to not exceed 30% or 50% of the monthly fees, regardless of the service levels achieved. To protect against poor service levels, the rebates or credits must scale with any lapse in service and relieve the customer of cost obligation if/when the services become unavailable.

Cost of Living Adjustments (COLAs)

These should only increase relative to the applicable Consumer Price Index (CPI) inflation rate in a given location. In the US, CPI inflation tends to hover around 1.5% - 3%, but in developing economies, monthly annualized inflation can run as high as 8%. All staffing agreements should outline specific increases to secure favorable long-term pricing.

Flexible Staffing Options

India is the largest supplier of IT sourcing for a reason: its labor rates are highly affordable, and the country has the necessary infrastructure to support large IT outsourcing. Areas such as Latin America and Eastern Europe have been developing their capacity for IT outsourcing and are gaining traction as a result of COVID-19, which increased offshore demand and made remote work the standard. At present, Eastern Europe bills 30% more than India for IT resources, and it lacks to meet the huge demand of experts due to aging and declining population.

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