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Outsourcing to India and China is getting more expensive.

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October 21, 2005

Outsourcing to India and China is getting more expensive.

Bruce Nussbaum

Latest reports from India show a labor shortage. Can you imagine that? Yes, a labor shortage is growing among both white collar and even blue collar workers. Amazing what growth can do. The same thing is happening in China. What does this mean? Wages are rising for Indian software writers, engineers, etc., narrowing the gap between American/European and Indian knowledge workers.

For companies involved in outsourcing, the rise of Indian and Chinese knowledge worker salaries is both bad and good news. Of course, it makes outsourcing more expensive. That's the bad news. But rising white collar wages abroad ( I bet they are rising in Eastern Europe as well) also means that teams working globally on projects will not be as divided as they have in the past. Indian and Chinese and Hungarian software writers and engineers are no fools. They know the going rate for Western knowledge workers. While they may be thankful for the work and the salary, they can't be too happy working for a fraction of the compensation of their other team members. Closing the wage gap worldwide, I would guess, makes for happier team members.

Remember, we are entering the post-global economy, where geography doesn't matter. Only the project, the team and time. And if geography doesn't matter, why should wages be differentiated on the basis of geography for the same work? Hmm.... That's a big thought.

05:56 PM


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You are right that only the project, the team and time matters. But I don't agree with you that there should be same wages everywhere. The fact is wages differentiate on the basis of cost of living and purchasing power in their respective currency.

Posted by: Sledgehammer at October 22, 2005 01:48 AM

This article on outsourcing does have a link to your own article down below with headline: "With India and China, can we manage innovation in a post-geographic way?"

Product development, especially in technology, is so expensive that it still makes sense to spread the risk & cost across geographies. It is a given that wage cost parity will be an issue but that doesn't mean there will be no wage

differentiation. It is this, however little it is, that is going to make the difference. I see 3-7 levels salary differentials across the globe that will ultimately prevail. That is the essence of knowledge mining! I guess companies will have to become extremely adept in choosing the best and the most cost effective knowledge mine for a given task. Technology has made this wonderful thing possible. It will ultimately benefit customers and companies bottomlines. Welcome to KNOWLEDGE MINING. The new question to technology companies: How many Knowledge Mines do you own or have?

Posted by: Vish at October 22, 2005 07:52 AM

Great to see you have a blog! You have a unique and valuable perspective on design and business.

Dave --

User Experience Designer / California

Posted by: David Hoard at October 22, 2005 07:52 PM

The news about rising costs of labor in China & India should come as no surprise to us Americans. Our neighbors overseas are simply evolving into the American capitalistic system. This trend should thus warn those floating ventures in foreign lands to moderate their activities. Ringo sang it best : "We all live in a yellow submarine"!

Posted by: Robert Cavalier at October 29, 2005 07:32 PM

As costs rise in places like Shanghai and Beijing, savvy outsourcers just increase their activities in places like Qingdao and Dalian. There are still plenty of inexpensive places to go in China for outsourcing.

Posted by: Dan Harris at January 21, 2006 03:39 PM

Costs for outsourcing to India and China are getting pricy, but then its still far lesser than what companies would need to pay in the US itself. Also to get the right kind of employees and to achieve their targets these markets are most promising. So a lot of advantage bundled with costs. For outsourcing voice, chat, email or back-office support, visit the website

Posted by: Order taking at October 16, 2006 07:40 AM

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