bangalore
skilled, technical professionals every year. While the technical colleges and universities are top of the line in terms of preparing their students with the basic skills, they have not concentrated on applied sciences. Furthermore, it is said that the educational institutions have been unable to keep up with the advancements in technology and therefore are unable to train their students with the latest software or hardware. Therefore, although the graduates are rapidly absorbed by the software industry, they need between 4-6 months technical and on-the-job training before they are useful and productive members of a team. Because of the very high turnover rate, firms are increasingly reluctant to invest in training, as there is no guarantee that the investment will pay off. The top firms take the view that it is a risk that they have to take, and try to compensate the staff both financially and in other ways, such as providing a stimulating and challenging work environment, bonuses, recognition for a job well done etc. Many human resource managers in the top firms are also concentrating on recruiting not just the best students but the second tier of graduates. It is widely held that the best graduates tend to be harder to hold on to, therefore, the wiser investment in human resource management is recruiting and training the second-best, who, it is hoped, will be more loyal. What emerges however, is a somewhat segmented labour market, where the larger firms are in a position to harness commitment on the part of their work force as they have the resources to provide a more stimulating working environment. The smaller firms, on the other hand, are unable to invest as much in their employees, with the result that they experience more unstable working conditions.
Wages
One of the effects of the high demand for skilled and experienced staff and of the high turnover rates is the pressure on salaries. When industry salaries are analysed in purchasing power parity terms (as shown in table 3), which takes into account the cost of living in India, it becomes evident that firms located in Bangalore have to offer compensation packages that cover the cost of living as well. This costs them much more than it costs their foreign clients, for whom the exchange rate makes doing business in Bangalore very attractive. For these reasons, the salaries in the software industry in Bangalore have been rising at between 20-30 per cent a year. While they are still low relative to California standards (see table 4), industry analysts can envision a time in the not too distant future, the next 10 years, when India will no longer be considered a low labour cost location. When the multinationals arrived in Bangalore, to attract the cream of the crop, they immediately raised salaries in the industry, offering salaries approximately 20 per cent over the going wage. Indian firms, in order to still be attractive to the best software engineers, have had to offer if not the same salaries, [next page]