Myth #2: Increased wages in India translate directly to increased costs for U.S. buyers of IT services

A common critique of offshore outsourcing is that wage inflation in India is quickly shrinking the value of labor arbitrage.   However, this analysis is based on three myths:

• Myth #1: All Indian IT Wage Levels are Going Up at a Dramatic Pace
• Myth #2: Increased wages in India translate directly to increased costs for U.S. buyers of IT services
• Myth #3: The cost savings from labor arbitrage in India will be lost in the very near future

This post exposes the flaws in Myth #2 and explains how outsourcing professionals can leverage the truth to improve decision making and negotiations.  We explained Myth #1 here, and will explore Myth #3 in a future post.

Understanding Concentration Risk in Offshore Operations

Offshoring analyses routinely incorporate comprehensive risk evaluations of economic, political and other well-known risks, but often fail to consider how these intensify as offshore operations scale. This probability of magnifying other risks as operations become geographically clustered is called “Concentration Risk.”  The remainder of this post illustrates the concept of Concentration Risk by applying a simplified offshoring risk management architecture to the operations of a hypothetical U.S. company as it evolves through an offshoring lifecycle.

Beyond India – Optimizing the Locations of Offshore Operations

As the volume and maturity of offshore outsourcing continues to grow, companies are developing sophisticated location strategies to balance the cost and efficiency of leading offshore locations against their economic, political, and operational risks.  During a recent analysis of global delivery center locations, my firm, Red Bridge Strategy, compared locations based on economic factors (i.e., GDP, prices, wages, and growth rates) and differences in the availability of business, technology, language, and management skills.  We then evaluated each location’s strategic suitability within our client’s optimal portfolio of offshore locations.