Business trends are fickle. They are difficult
to predict. But with the right data and analyses,
they can be foretold, just like everything else
that’s unpredictable. In case of a new area
such as offshoring, where equations are
constantly changing, such predictions are always
welcome.
Global Outsourcing looked at Everest Research
Institute’s Offshore Market Report, and in
particular at sustainability of labor arbitrage
in various offshore locations. The key finding
of the report reveals that if current conditions
persist, labor arbitrage will sustain in most
offshore destinations for 30 years or more. The
exceptions being Ireland where arbitrage with the
US will last for three to five years, and Canada,
and Czech Republic where it is expected to last
for 8-20 years. Considering the brouhaha around
wage inflation and dipping labor arbitrage, these
findings are bound to gather a great deal of
curiosity. And quite a few questions. But,
Everest is confident of their findings and very
much aware of the skepticism surrounding this
issue. It is one of the reasons why they chose to
study it further.
What
Customers Should Do?
-
Customers can
and should actively track expected relative changes between their
source and destination location(s) to better plan and manage the
sustainability of offshored services
-
Customers
should evaluate a multi-shore strategy for a variety of reasons, but
fear of wage inflation should not be one of them
What Service
Providers Should Do?
Providers should work in industry associations, with industry
associations, and with government to make sure that the entry level
shortfall is averted. They
can do so by:
-
Moving to
tier 2 and 3 cities
-
Recruiting
from colleges where they currently don’t look at-tier 2 and 3
colleges- and invest more in training
-
Considering
tapping sources of labor pool outside India, and also themselves go to
other destinations
-
Initiating
strong development within their organizations so that people can move
up the ranks to avoid mid-level and top-level labor shortfalls
|
laborating about the research report, Market
Research Analyst, Everest Research Institute,
Sheetal Bahl says, “Sustainability of labor
arbitrage depends on a multiple set of factors.
First of all, it depends on the existing wage
differential between the source city and
destination cities, which is different for
different processes, skills and so on. Secondly,
it depends on wage inflation in the source city
and wage inflation in the destination city.
Thirdly, it depends on the exchange rate
differential, and finally on what is called the
hurdle rate.”
Everest defines hurdle rate as the maximum
wage ratio of a destination country, beyond which
the single most important attribute of the
offshoring value proposition-cost savings-is
lost. For example, if Indian wages reach 70
percent of the US wages-right now they are only
15-20 percent-offshoring to India might no longer
be profitable for companies in the US. However,
one could easily argue that, given the dropping
cost of telecommunications and the increasing
efficacy of online collaboration tools, hurdle
rate may be much higher.
