India Report: The Not So Mighty Dollar
BIZSCI IN
BRIEF
With continued weakness in the U.S. dollar
and increases in India labor costs due to greater talent
competition and wage expectations, I expected to see changes in the
shift of U.S. service work to India. Indeed, during a recent trip
to India, I did see clear evidence of a slowdown in U.S.
outsourcing growth. But based upon confidential estimates from in
country contacts, the U.S. outsourcing market is still growing
(albeit at a slower rate), and any slowdown in U.S. growth will be
more than covered by anticipated growth from Europe, Asia, South
America and Africa.
In chatting with the car driver about
prices in India, he calculated that the dollar, approaching three
to a hundred rupee, buys just a kilogram of the cheap shorter grain
rice. Calculating further, he indicated the same dollar buys just a
few cups of the prized long grain balsamati used for many local
dishes.
To understand how India will adapt to currency changes and rising salary expectations, we should note how China has thus far dealt with the issue. Salary expectations in China have to some extent been mitigated by shifting labor from established industrial centers (where factory labor rates can exceed $1/hour) to lesser developed areas (still suffering from Mao era industrial and farm failures). Of course China has also kept its currency close to the dollar, allowing only small percentage point adjustments each year.
Within India, the China approach is already being followed. New offshore centers open increasingly in remote locations as skyrocketing real estate prices and consumer prices push labor rates higher in Bangalore, Hyderabad, Chennai and Mumbai.
Anticipate that even with increased labor shifting in India, US dollar costs for offshore Technology and Business Process Outsourcing resources will rise significantly over the next several years.