My colleague, Aaron Katsman, and I have been discussing a web project recently. We decided to farm it out for bids on the web to a firm called Elance. Elance is an outsourcing marketplace bringing together people who need work done with service providers around the world. Participants are engaged in labor arbitrage, a practice of sending work where work is cheapest. We received one bid back from an Indian partner that was outrageous. It would have been cheaper to do the work locally in the U.S.Which brings me to my point. With the dollar's decline and the growing affluence abroad, it's getting cheaper and cheaper to do the work domestically -- which might spell the end of Indian outsourcing.
Professor Mark Perry had an interesting post recently entitled just that, The Coming Death of Indian Outsourcing? While the title of the post ended in a question mark, Perry sounds pretty dour on the future of the disparity between Indian labor and that in the U.S.
The money line: "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?"
While there will always be international labor arbitrage, the U.S. may be in the early stages of seeing some of the business it's lost to overseas providers the past couple of years come back to it.
Can you imagine Silicon Valley cheaper than Bangalore?
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.











Reader Comments (Page 1 of 5)
3-03-2008 @ 3:08PM
william lindblad said...
One thing missing from this equation - where and who is going to be the consumer????? There is no sense making things if there are no buyers. I know of "0" in the way of clothing labels that say "made in the U.S.A" - it's all made elsewhere in the world. As one example (and clothing is a basic) of an item that is not coming back any time soon it's because the labor that made it here and the factories that they worked in are long gone. It would cost too much to resurrect.
3-03-2008 @ 7:12PM
sgentilejr said...
I agree 100% with William Lindbalt's post. The factories are gone and will not return. The customer service job will not return either. The cost of doing business inside the USA also includes the costs of complying with all federal and state employment laws and the costs of worker lawsuits against employers. It will always remain cheaper to employ workers in nations like India and China because of all the taxes, rules and regulations in the USA. Our forefathers wrote Tarrifs into the US Constitution because even way back in 1776 those wise gentlemen realized that tariffs are the only way to balance things out. Too bad our politicians today are far to ignorant to understand what was so very obvious to our nations founding fathers.
3-03-2008 @ 7:46PM
Political Pup said...
So what thier predicting is that the value of the dollar will drop so low is that we will finaly become a 3rd world country because of the republican agendas in our government. When it happens there wont be anyone to buy these products as they wont be able to afford them from the low paying jobs. Only Bush's and the republicans upper 3% will gain from this.
3-04-2008 @ 6:38PM
Fixhist said...
Cold in south causes flue in north, Two different countries,separate currencies and defense.
One is cultural melting pot other thrives on individual communities.
Canada is fail safe retreat for USA, it will just take diverting our troops to be pulled back from Afghanistan and scantly deployed with along with our US unmaned border.
3-04-2008 @ 9:17AM
mike gunter said...
Hey Political Pup did you know taxes where double for $30,000 - $45,000 a yr workers during the Clinton Years compared to the Bush years. Maybe you should work 2 jobs to get eveything you want like the rest of us.
3-03-2008 @ 8:44PM
Tim Bevil said...
Some of these comments were made with a pretty broad brush. Clothing and customer service not coming back? Why? Each of these come back to the U.S. one factory or call center at a time. Don't look for the federal government for anything--look towards the states to make the business climate attractive again. There are areas in the U.S. that are ideal for growth.
3-03-2008 @ 8:51PM
tom said...
there is only one big problem with this idea the chinese are not effected at all with the dollar situation as they have a fixed currency peg on ours. it is the biggest problem that we have not addressed. the politicians were happy to talk to about nafda but now the canadian dollar is the same as the us dollar which only makes there oil more expensive for us all imports of manufactured goods have basically stopped. yet china keeps shipping away.
3-03-2008 @ 9:14PM
BHD said...
Sounds like we need some help from the DR----Ron Paul. You really should read his new book that is coming out soon and go to www.ronpaul2008.com He understands the constitution and economy very well !
Vote Ron Paul for President 2008
3-03-2008 @ 9:22PM
Michael said...
"....liberalism becomes the protection for the far-sighted conservative...
F. D. Roosevelt
3-03-2008 @ 9:25PM
Tex Watson said...
Bush ia part of a big Evildoer Criminal Family, One World Order.
1st the ruination of the USA then the North American Union to be take over by the One World Order; step by step, inch by inch, slowly the turn then one day we wale up and hey it the Globalist World Monetary System; all at the USA citizens exspense!
We are in dander as a country and wat of soventry with life under soventry and not Gloabal Control by the Billions who out number us 300 fold.
Wake Up my fellow US Citizens, please; stand up and be brave. Do not be the pack and drones who follow, lead be strong; resist to placis and common, strength over passive.
We The People, For The People, By The People, of The People.... WE must, We can, Believe in Us!
3-03-2008 @ 9:28PM
jac said...
speaking of Ron Paul . Dr Paul knows what he's talking about and would make a great Pres. It's the Hollywood media and third world folks here that want to cover the Negro , and the woman that makes big headlines for them , you know what I mean they have their hand out for MONEY , FREE MONEY , your money , the working stiff!
3-03-2008 @ 9:31PM
salomon tejada said...
california has a lot of factories and craft
good clothing quality clothing thank to this
factury owners a lot of people have a job in the usa specificatly in los Angeles, it migth cost a litle more but better quality if we want our dollar
to revalue we should stop buying chinese products
and start buying made inthe USA brands, i lived
in Cal and cost of living there is cheaper becouse
many things are manufature there and are imported from mexico which is good becouse
mexico is our major commercial partner while china and take ours dollars away and is weakening our economy and at the end they will be our major
enemies together with ussr.
3-03-2008 @ 9:32PM
matt said...
Anybody see that picture in the New York Times a few months ago that showed workers in India pouring molten metal into molds to make manhole covers for New York City. The men were barefoot and wearing nothing more than loincloths. No safety regulations to comply with over there, which allows them to manufacture the goods much more cheaply than in the U.S.
3-03-2008 @ 9:32PM
jim said...
Oh goody more low paying jobs. Just what we need, sweat shops in the USA.
3-03-2008 @ 9:36PM
Tut said...
Our Goverment is to blame for letting all of this happend. Our American corporation are consumed with GREED and are showing the whole world HOW to outsource and get rid of people. America started this mess and everybody is complaining silently. ONLY ONE candidate has spoken up for keeping job's in America and it is Hillary. To bad I am not a fan of her's BUT she has mentioned it more than others.
America is deaf to the problem of loosing millions of jobs to INDIA,MEXICO, and other's.
3-03-2008 @ 9:40PM
Tut said...
The death of Outsourcing will NEVER happend in my lifetime. We need to stop it NOW and not in 2015 when most of our job's have left and they will NEVER return.
AMERICA IS MUCH TO GREEDY TO EVER LET THEM COME BACK.
we deserve everything we get for NOT demonstrating and going out to fight all of this.
3-03-2008 @ 9:45PM
Tut said...
How can we buy made in america product's if NOTHING out there has the label on it anymore?
Nothing I pick up in any store's has the made
in USA left.
We need special stores for MADE IN USA goods
and get broadcasted on TV
3-03-2008 @ 9:52PM
John said...
If India's wages get to high , we'll just go somewhere else for outsourcing...the Philippines would be a good place., they earn under $3.00 a day....and speak English! Our corporations have unlimited sources of slave labor in the underdeveloped countries. The jobs will never come back.
3-03-2008 @ 10:06PM
pjcadotte said...
Americans, keep on buying goods made in China and Japan. Keep on degrading America, her products, and her workers. You complain about all the problems with the dollar and made in USA not being available, America has done this to herself. You by Japanese cars, you support Japanese economy, not USA. You buy Chinese products, you support China. You don't buy AMERICAN, you cut your own throat! Better start learning Chinese and Japanese languages, you're gonna need it when they take over! They are well under way of controlling our economy. They couldn't beat us militarily, but they are out smarting us and taking us over economically! WAKE UP AMERICA!!
3-03-2008 @ 10:07PM
emily said...
The problem is the government as a whole.
Bill Clinton signed the free trade agreement keeping his investments secure, thus, 'Made In China' and George Bush is deaf and dumb.
Both men are filthy rich and come from wealthy families. Neither one, from either party, have ever lived in the real world. For the rich, it is a recession. For the poor, It's a down right depression which is only going to get worse. We are fastly becoming a 3rd world counrty.