Wednesday, May 31, 2006

India's Offshore Advantage to Last for 30 Years

A recent 2006 Global Sourcing Market Update by Everest has brought to light that India will maintain its low-cost IT skills advantage in the offshoring market for at least another 30 years.
The update claims that fears of rapid wage inflation and skills shortage quickly reducing India’s offshore cost advantage are “greatly exaggerated.”

verest Research Institute conducted the sustainability analysis using a three-step approach.

1. In-depth Illustration: analyzed the sustainability of labor arbitrage for offshoring of select processes from UK to India
2. Generic analyses: explored expected labor arbitrage sustainability among a comprehensive list of source-destination country pairs

Source countries: US, UK, France, Germany, Japan

Destination countries: Indian, China, Philippines, Czech Republic, Poland, Mexico

3. Sensitivity to variations in key factors

Methodology takes into account that there are multiple factors affecting the longevity of labor arbitrage.
1. Current wage Diffential

2. Compensation increase in SOURCE Country

3. Compensation increase in DESTINATION Country

4. Exchange rate movements

5. Wage differential hurdle rate

Low-cost offshore locations such as India and the Philippines are aggressively making moves to minimize the impact of wage inflation by encouraging the expansion of the quality and size of the relevant workforce and by developing more low-cost offshore locations, states the report.

IT suppliers in India, for example, are lowering their costs by moving to Tier 2 cities — away from traditional high-tech centers such as Bangalore — and opening delivery centers in other countries.

for more information and full report visit

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