Bloomberg tells us, “India’s Tata Consultancy Plans to Hire 5,000 Workers in Mexico.” The rise of the rupee is making India less attractive for outsourcing.
This development begs a couple of questions. First, will US companies have to go through disruption and risk as they chase cheaper labor to various countries as currency relationships change? We have been skeptical about outsourcing, since we think many companies overestimate the cost savings (the immediate labor reduction is offset by increased administration and coordination costs) and underestimating business risks. Note that even though programmers in Mexico are more costly than those in India, for US companies, they are a good alternative due to greater ease of coordination and lower travel costs. Second, will the dollar fall low enough that the benefits of outsourcing are eroded?
Tata Consultancy Services Ltd., India’s largest computer-services provider, plans to hire 5,000 workers in Mexico in the next five years as labor costs climb in its home market because of a rising rupee.
Tata Consultancy last week opened a software-development center in Guadalajara, northern Mexico and that facility will start with about 300 employees doing tasks currently completed in India, said Gabriel Rozman, head of the company’s operations in the Americas, Spain and Portugal, in a June 4 phone interview.
India’s currency gained 9.2 percent against the dollar this year, eroding Tata Consultancy’s earnings from the U.S., its biggest market, and increasing Indian costs relative to other nations. Tata Consultancy gets about half of its sales from North America. The Mexican peso was little changed this year against the dollar.
“We see costs rising in India and people becoming less available,” Rozman said in the interview from Montevideo, the capital of Uruguay. “That’s why we’re going to places like Latin America, which has professionals and reasonable costs.”
Salaries in Mexico are about 30 percent higher than in India, Rozman said. Having software programmers in Mexico allows Tata Consultancy to serve U.S. customers more quickly because they work in the same time zone, making travel to clients for support less time-consuming, he said.
Mexican salaries are about 40 percent to 50 percent lower than in the U.S., where Tata Consultancy employs about 12,000 people, he said.
“Nobody knows the long-term costs in India or in China,” Rozman said. “If you’d asked me two years ago, I would have never said the rupee would strengthen this much. Nobody was smart enough to predict it.’