Outsourcing to India is nearly limitless in potential, both boosters and opponents alike claim. As evidence, they point to the proliferation of services that are currently being performed in India. No longer limited to programmers and call centers, outsourcing has grown to encompass BPO, medical transcription, tax return preparation, and concierge services. The latest frontier is the legal profession
In the past three years, the legal outsourcing industry here has grown about 60 percent annually. According to a report by research firm ValueNotes, the industry will employ about 24,000 people and earn revenue of $640 million by 2010. Indian workers who once helped with legal transcription now offer services that include research, litigation support, document discovery and review, drafting of contracts and patent writing. The industry offers an attractive career path for many of the 300,000 Indians who enroll in law schools every year. [Link]
This perspective is based on a vision of India as having a nearly limitless pool of cheap labor, which isn’t true. While there are a lot of Indians, those actually qualified to hold these jobs are fewer in number and competition for these workers is increasing:
Young people say it is no longer worthwhile going through sleepless nights serving customers halfway around the world. They have better job opportunities in other fields… The complaints come at a time when the Indian information technology sector, which includes companies that run call centers and do other outsourced work like medical transcription and claims processing, is facing a dearth of skilled labor… India faces a potential shortage of 500,000 professional employees in the information technology sector by 2010… [Link]
And wages in India for the most qualified workers has increased to the point where there are little to no cost savings for companies:
India’s software-and-service association puts wage inflation in its industry at 10% to 15% a year. Some tech executives say it’s closer to 50%. In the U.S., wage inflation in the software sector is under 3%, according to Moody’s Economy.com…while most Indian technology workers’ wages remain low — an average $5,000 a year for a new engineer with little experience — the experienced engineers Silicon Valley companies covet can now cost $60,000 to $100,000 a year. “For the top-level talent, there’s an equalization,” [Link]
Contrary to the outsourcing extremists (pro and con), we’re already seeing the limits of the labor pool. This isn’t limited to just outsourced jobs, either. India’s seeing a shortage of skilled construction workers because the economy is growing so fast and the supply of skilled workers is so low:
So many projects are now under way in India that the pool of workers with even the most basic skills is running dangerously dry. The shortage of bricklayers, rod benders, welders, wall painters and other skilled and semiskilled laborers is threatening to slow the construction of projects that are key to the nation’s economic growth. [Link]
Workers typically are trained on the job because India’s education system offers limited vocational training. Many construction workers have little schooling of any sort; most are illiterate. Rajesh Gerard Joseph, who runs a company that trains construction workers in Bangalore, says his organization has to teach new recruits not only how to use a ruler, lay bricks, paint walls and mix cement, but also how to use an elevator and even a toilet. [Link]
Nor is this limited to India. Even some Chinese companies are moving manufacturing operations to the US because between rising labor costs and other transaction costs, it actually works out cheaper for them to produce in America:
Liu is investing $10 million in the Palmetto State, building a printing-plate factory that will open this fall and hire 120 workers. His main aim is to tap the large American market, but when his finance staff penciled out the costs, he was stunned to learn how they compared with those in China.
Liu spent about $500,000 for seven acres in Spartanburg — less than one-fourth what it would cost to buy the same amount of land in Dongguan, a city in southeast China where he runs three plants. U.S. electricity rates are about 75% lower, and in South Carolina, Liu doesn’t have to put up with frequent blackouts. [Link]
Nothing is limitless, not even labor in the two largest countries in the world. And as soon as something is finite, the laws of economics apply. This wont stop the shills and the mongers from telling you otherwise, but it’s a useful thing to keep in mind when the topic comes up.