"The target is achievable (but) where the growth is going to be is the big question," said Avinash Vashistha, managing director of neoIT, a global outsourcing firm with clients such as Exult and Lucent Technologies.

India's National Association of Software and Service Companies (Nasscom) has projected 50 percent growth for the outsourcing sector over the next four to five years.

"Most of the growth will be in the contact or call centres handling voice calls as these are the processes which take less time in hiring and training people," Vashistha told AFP on the sidelines of an outsourcing conference.

However, the call centre business was transient and could move overnight to other countries where the cost of labour would be cheaper.

"Tomorrow, China or Vietnam may have a pair of advantages and then they will be the place to switch work to," Vashistha said.

Add to that the fact global firms would prefer to set up their own facilities to do complex outsourcing work involving specific skill sets or a deep knowledge of the domain, he said.

"So the (Indian) suppliers' growth will be far less than the industry growth," he said.

India's outsourcing sector logged about 60 percent growth in the year ended March 2003 and is forecast to grow by 55 percent to 3.6 billion dollars in the current fiscal year.

The country's software exports, mainly to the United States and European markets, which grew 26.4 percent last fiscal year to 9.5 billion dollars, were mainly driven by call centre and business process outsourcing.

"There is a hurdle now. If you look at transaction processing work which is also very seriously looking (for places to be done) offshore, there are (Indian) suppliers who do not have entrenched process knowledge at all," neoIT's Vashistha said.

"Yes, work will come to India but it will not come to suppliers (such as Wipro Ltd, Infosys Technologies or Satyam Computers). Very few are looking for third party suppliers," he said.

India's outsourcing boom has been fueled by an army of low-cost English-speaking software engineers. More than 75,000 engineers graduate from Indian universities each year compared to 25,000 in the United States.

Martin Conboy, chief executive officer of Callcentres.net Pty Ltd, based in Australia, said the early entrants into the market will quit as salaries go up and technology develops.

"Specifically looking at India, the attrition rate (for employees) in the industry is 22 percent. Due to explosive growth, what we are seeing is that people are pinching each other's staff and so most of the call centres in India are facing difficulty in recruiting staff," Conboy said.

"What we will see is that in terms of supply and demand the cost of labour will start to rise. Going forward, most of the current applications being done by call centres will move out of that domain," he said.

Other industry analysts said the Nasscom projections were exaggerated by "almost 50 percent" as pricing pressure was intense in the industry and because India's key market, the United States, was looking down.

"There are a lot of deals which are done for less than 10 dollars an hour now, down from an earlier 12 dollars. Most of the small firms are closing up shop and as competition increases, margins will be squeezed further," said Manoj Kumar, vice-president of Call Junction, which gets outsourcing work for its clients.

"Increasing human resources costs (rise in salaries) is also another reason," Kumar said.

Vashistha of neoIT echoed Kumar's views and said medium- and small-sized companies with 40 to 50 employees would find it hard going to survive.

"Smaller companies who create a niche will be (overtaken) by bigger companies. The market is very immature right now. If the players do not work on their domain knowledge then we will have a big challenge," he said.

SPACE.WIRE