Friday, December 10, 2004

The Big International "Sucking Sound"

Today's Pacific New Service includes a story that India's tech sectors, which has benefited greatly from outsources the past few years, is now itself a victim of outsourcing to China:

The one most important reason for IT business being driven to China is the cost advantage — China at the moment has an excess supply of well-trained engineers willing to work at wages lower than in India. Revenue from India’s IT exports was $12.5 billion in the year 2003-4 (March ended), up 30 percent from the previous year, which in turn has resulted in a 10-15 percent annual rise in wages in India’s software and back-office services industry. In turn, software export revenue for China in the year 2003 was just $700 million which leaves an over-eager and hungry-for-work, skilled workforce willing to work at a lower cost than India. This means that on an average an engineer with some experience in Shanghai can to be paid a monthly salary of less than $500 compared to over $700 in India and upwards of $5,000 in the Silicon Valley.

What goes around, comes around. But this big picture of IT outsourcing, and others, is still this: Firms invest in new technologies that require highly educated, skilled employees. The public (i.e., students) reacts and makes long term investments in the job market through delayed employment (education) and costly financial outlays (tuition), expecting compensation for their investment over the long term. In the past, firms rewarded this labor and knowledge input with increasing pay for services rendered. Now, however, they simply move their labor base to that market with the lowest costs, meaning more returns for the firm which are not passed along to workers. We saw it here first, and now it appears that India will also experience the "big sucking sound" that greeted NAFTA.

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