When I was on C-SPAN the weekend before last, I got a call I didn’t quite know how to field. It was from someone who by his accent was obviously Indian. He claimed that Indians represented 35% of the managers in American companies, and that American visa restrictions meant that they were all going to send those jobs to India. I stumbled around a bit, and took issue with his claim (it certainly isn’t true at the senior levels of major companies), and also pointed out I didn’t think he argument about managerial jobs being sent to India held up, since new MBAs in India are now making more than their counterparts in the US.
In general, simple labor cost comparisons are vastly overrated in manufacturing. Factory labor is only 10% of the product cost of most manufactured goods, so the savings of having the work done in China is not all that large, and is often offset by other factors (shipping and inventory funding costs, greater management costs due to more coordination, plus greater risk, since longer lead times reduce responsiveness and produce greater risk of taking losses due to inability to cancel orders if customer demand falls).
But in those cases like call centers, where the logistical issues are irrelevant, the issue I mentioned on air is coming to apply more broadly: India is no longer offering a cost advantage (and on top of that, most US customers resent dealing with foreign operators, not that what customers prefer matters any more). From the Financial Times:
Call centre workers are becoming as cheap to hire in the US as they are in India…
High unemployment levels have driven down wages for some low-skilled outsourcing services in some parts of the US, particularly among the Hispanic population.
At the same time, wages in India’s outsourcing sector have risen by 10 per cent this year and senior outsourcing managers based in the country command salaries above global averages.
Pramod Bhasin, the chief executive of Genpact, said his company expected to treble its workforce in the US over the next two years, from about 1,500 employees now…
Observers say that while the cost of some senior positions may have equalised with the US and certain call centre services may be more cost-effective to set up in depressed areas of the US, this phenomenon may not outlast the US downturn.
Even after a tripling in numbers, Genpact’s US workforce would still be only about a ninth of its total staff.