More equilibrating mechanisms at work
One of the mantras of critics of offshore outsourcing is that countries like China and India have such large pools of low-cost, high-skilled labor that their wages will never rise enough to stop the flow of outsourced activity to those locales. Siddharth Srivastava files a story that suggests otherwise: India has shown the highest average ...
One of the mantras of critics of offshore outsourcing is that countries like China and India have such large pools of low-cost, high-skilled labor that their wages will never rise enough to stop the flow of outsourced activity to those locales. Siddharth Srivastava files a story that suggests otherwise:
One of the mantras of critics of offshore outsourcing is that countries like China and India have such large pools of low-cost, high-skilled labor that their wages will never rise enough to stop the flow of outsourced activity to those locales. Siddharth Srivastava files a story that suggests otherwise:
India has shown the highest average salary increase in the Asia-Pacific region during 2004, beating China, Korea and Japan, according to a survey by global human resources firm Hewitt Associates. Analysts are worried, however, that such high increases in wage costs may result in the exit of business that is sought in this country for the very same reason — low overheads. What is particularly worrying is that the highest rise in wages has occurred in the Information Technology sector where India bids to be the number one player in the world due to a combined advantage of low cost and high quality manpower at its disposal. Combined with the news that the rupee has appreciated in the face of a depreciating dollar, IT firms that rely heavily on export revenue fear a resource crunch. According to the report, India showed the highest average salary increase in Asia followed by China, Philippines and Korea. While India reported an 11.6 percent overall pay hike, in China salaries grew by 6.4-8.4 percent, 7.4-7.7 percent in Philippines and 6.4-6.8 percent in Korea for the year 2004, the survey said…. What is worrying analysts in India is that the IT industry in India witnessed the highest average salary increase at 14.5 percent though as many as 89 percent of participating companies linked salary hike to performance ratings. The rising wages coupled with an appreciating rupee in the face of high U.S. fiscal deficit and the no-tax promise by President George Bush to plug it, will end up eroding the basic comparative advantage that India enjoys vis-à-vis other low cost centers of the world such a Vietnam, China and the Philippines, which are beginning to focus on the software sector. In an interview, Vivek Paul, vice-chairman and president at Wipro’s global IT arm, has warned of an end to the low-wage culture that has been at the heart of India’s software boom.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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