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.
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