Trend Radar 2008: Offshoring

Did you know, China now offshores manufacturing to Vietnam? If Pakistan behaved itself, may be India would start offshoring some call-centers over!

In 2008, outsourcing, offshoring and globalization are likely to continue as major trends.

Rising wages in the most popular offshore centers (especially Bangalore), are eroding the cost advantage that drove this business to India in the first place. When the practice began, there was a 1:10 cost advantage. Today, this has dropped to 1:3. Over the next 5 years, perhaps, it won’t make sense to send work to India anymore. At least, not to the major Indian cities.

To some extent, the second and third tier cities in India can absorb the lower end work. For the higher end work that requires serious engineering background, the advantage will disappear altogether due to lack of trained engineers. Faculty shortage is acute. Today, there are about 1,700 engineering colleges and 1,300 polytechnics. The faculty shortage is 30 to 35 percent. In a few years, India, at least, will manage to kill the golden goose.

China’s situation is slightly different. Its core competency is manufacturing, a discipline in which it can easily broaden its geographical base to other parts of Asia, as well as throughout its own vast territory. The higher education requirements of manufacturing are not as serious, nor is China as unprepared for the educational system ramp needs as India.

Eastern Europe is rising as an offshore destination. Latin America can also be leveraged better, especially with the proximity and time zone advantages.

The most interesting development could be jobs returning to the US at some point, although that point is certainly not now.

In 2012, however, the cost structure of North Dakota and Hyderabad could become comparable!

This segment is a part in the series : Trend Radar 2008