The Coming Death of Indian Outsourcing?
From Forbes Magazine:
Forbes recently published some scary statistics on wage inflation in India. (See "Indian Employees Enjoying Swift Pay Hikes.") Salaries rose 15.1% in 2007, up from 14.4% the previous year. The 2008 forecast: 15.2%. This would be the fifth consecutive year of salary growth above 10%.
Add to that the appreciation of the rupee against the weakening dollar (11.5% in 2007), and its impact on the labor arbitrage market.
Is the death of Indian outsourcing all that far off?
Assuming a 15% year-to-year salary hike rate, and a 2007 cost advantage of 1:3 in favor of India, if U.S. wages remain constant, India’s cost advantage disappears by 2015. Then what?
(HT: Mad Toothfish)
17 Comments:
I was taliking to a computer consultant the other day. It was his opinion that outsourcing to India has already slowed. His exact words were "when you paid $40 a day for a programmer you accepted a certain level of incompetence." India, it appears, is raising its prices faster than it's improving it product.
Then what?
Top of the S curve tranquility?
From my experience (I work for a large multinational) and have personal working relationships with technical people in Ireland, Denmark, Brazil, Argentina, Mexico, China, Slovakia and India, the Indians are by far the worst in my experience.
The skills aren't there - maybe the top 10% are good, but skills drop precipitously thereafter.
Turnover on our project is over 25% per year - way too high.
Cost is escalating at least 25% a year. Factor in the decline in the strength of the dollar and the cost difference in more like 50%.
Quality and productivity is awful and is not improving over time.
Infrastructure and political stability is poor there. They have a lot of transportation strikes and political protests, which tend to shut operations down.
Considering the value (what you get for what you pay), Indian outsourcing doesn't work.
My suggestions for the Indians is they need to improve their productivity, quality and skill level or their litlle "IT party" will rapidly come to an end.
Bottom line they are getting richer and Americans are getting poorer.
re: the bottom line
Why is trade a zero sum game? Time to take a look at the record of history. Trade creates greater opportunities for everyone not merely the lowest wage earners.
Frankly, that anyone can fail to perceive the increase in economic opportunity due to the technological advances in communication that have lead to globalization is mind boggling. Just where do you plant your head while the world continues to generate opportunity?
http://vitalaccuratethinking.blogspot.com/2008/03/media-behind-curve-on-india-outsourcing.html
"Is the death of Indian outsourcing all that far off?
Assuming a 15% year-to-year salary hike rate, and a 2007 cost advantage of 1:3 in favor of India, if U.S. wages remain constant, India’s cost advantage disappears by 2015. Then what?"
Too late. It is already happening. High tech work outsourced to India is being third-sourced to China or other places with lower wages.
jim vat said...
High tech work outsourced to India is being third-sourced to China or other places with lower wages.
And now because China is becoming too expensive things are being outsourced to the fastest growing economy in Asia...Vietnam.
then we get to help another country grow. I'm excited about it. :) Foreign aid that actually does something.
This comment has been removed by the author.
I am the CEO of a company established in India in 2000. We went from 4 people then to nearly 70 now. I am also Indian, I came to the US after finishing high school nearly 20 years ago. So I am "at home" in both countries. I am seriously contemplating shutting our India operations.
- Wage inflation is insane. 20% raises twice a year, is just plain wrong.
- Quality of workers has gotten worse over the years. Ability to follow instructions is just not there.
- Despite the above two factors, if there was still an iota of loyalty, it would be bearable. Everyone continues to find higher-paying opportunities across the street.
Time to fold and bring it back here where things may be expensive but they are sane.
Once Vietnam is prosperous, I assume there'll be another country to provide cheaper labor than Vietnam, and so on.
But I'm curious: What happens when we run out of (capable) poor countries to exploit? Will worldwide labor costs go through the roof?
I have a great idea, lets bring all this work back from all these foreing countries and put the American people to work, in case no one noticed there are people here that need the work.
Oh, too easy of a solution, sorry, I don't know what I was thinking.
I have an idea, lets bring all this work back from all these foreing countries and put Americans to work, in case no one has noticed we need the work here to help OUR economy.
Oh, what was I thinking, too easy of a solution. Sorry
how are we going to put people to work here if we pay them not to work , in order to keep paying taxes for what we BELEIVE is an institution that assist others when they are out of work. If everybody was working in the USA there would be poeple put out of work before everybody in the USA held a job.
The point I am trying to make is problems make people money so why try to fix all them. As far as India going away for a country for out sourcing , THAT'S THEIR PROBLEM! the USA were I was born and raised has millions of things to worry about other than India.
I'm confused....a week ago you rebuffed David Ranson in his WSJ article for making an argument about underestimating inflation...you said he was wrong because wages do not remain constant...now, to make your case on India outsourcing, you are suggesting in this commentary that US wages DO remain constant.....which is it?
if this will continue companies that chooses India to outsource their work would have to think twice coz they will have to pay much higher than before. or they can look for other country that provides outsourcing like the Philippines, China, etc. they offers an affordable and quality service.
Yeah, I agree it's ridiculous to raise Indian expertise by 20% annually.
Try China but the best is Philippines because they can understand English very well.
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