There will always be disparities.
There will always be differences in the cost of personnel. Someone in an overcrowded city in a developing country will always be willing to work for less than someone with similar skills in Manhattan or D.C. or San Francisco. The costs of living will differ greatly, but so will the non-personnel costs.
Some things cannot be offshored: Auto repair, roofer, plumber, dentist, FBI agent, retail sales, IT installation, road construction, etc. If a local person needs to be there, that job will stay local. If not, and if there's compelling value in reducing the personnel cost and accepting all the downsides (not understanding the local culture, lack of control of information and business processes, etc.), then the job may go overseas. All of IT can't be farmed out to Bangalore and Shanghai either.
Prices are rising in Bangalore for IT people. The city is going through tremendous growing pains as well.
From the April 21, 2005 issue of the Economist - "The Bangalore Paradox":
[...]
Elections last May in the state of Karnataka, of which Bangalore is the capital, were taken as a rebuff for the urban elite from the poor rural majority. After a series of failed monsoons, farmers were suffering. Driven into the grip of usurious money-lenders, more than 700 had killed themselves in the year before the elections. So the new administration, under its chief minister, Dharam Singh, a portly grass-roots politician who prides himself on his common touch, forswore the \ufffdurban bias\ufffd of its predecessor.
The city soon felt the pain of the government's inattention. \ufffdAs companies we have scaled up,\ufffd says Bob Hoekstra, boss of a big Bangalore software centre for Philips, a Dutch consumer-electronics giant. \ufffdBut the government has scaled down.\ufffd Bangalore's infrastructure was already creaking after years of breakneck expansion. Yet foreign firms were continuing to pour in at the rate of three a week. Newly prosperous residents have kept buying motorcycles and cars, adding, say officials, 900 vehicles a day to the already overloaded streets.
[...]
Mr Spohr says that in financial services it will in a few years be nothing unusual for big multinationals to have 20-25% of their staff in India. Already many big banks have moved large parts of their back offices here. Most have done so through \ufffdcaptive\ufffd operations, offering large one-off savings. The trend is likely to be towards outsourcing to \ufffdthird-party\ufffd BPO [business process outsourcing] firms. Deutsche Bank, for example, uses HCL Technologies in Bangalore, with which it used to have a joint-venture, to process many \ufffdlive\ufffd trading transactions as well as perform some research and analysis. Similarly, General Electric last year sold 60% of its back-office services arm, GE Capital International Services, an India-based outsourcing giant and pioneer.
External constraints seem less likely than they did a year ago to stem the growth of outsourcing. As a political issue, the alleged job losses it brings have less prominence in America and Britain than they did last year. That may change, in the event of a sharp downturn in the global economy. But a more immediate risk is an increasing concern about data security. One or two minor lapses aside, the Indian BPO industry had until recently been remarkably immune from scandal. But in early April, a fraud was uncovered at the Pune office of the outsourcing arm of MphasiS, a big IT-services firm. Present and former MphasiS employees had used information acquired at work to hack into American bank accounts and steal some $350,000.
Forrester, a research outfit, forecast that the incident, combined with the high rates of staff attrition in Indian call-centres, would dent call-centre expansion by as much as 30%. That seems too gloomy. Such crimes can happen anywhere. India's record is still a good one, and the thieves in Pune were detected and caught. Security at the best Indian call-centres is tight. Computers have no disk drives; hardly any data are downloaded; mobile phones and cameras are banned.
Ironically, MphasiS's boss, Jerry Rao, chairs NASSCOM's security forum, and has campaigned for standards to be raised higher than those prevailing in Britain and America, in order to make data protection a selling-point for India. Protectionist scares aside, the commercial logic behind the outsourcing trend is such that it seems more likely to accelerate than hit a speed-bump. India remains well placed to win a big share of the business. Its biggest regional competitors are China and, for English-language voice work, the Philippines. Both compete with India on price, but neither can match its annual supply of more than 2m English-speaking graduates.
Higher degrees
The qualities of those graduates give India its biggest competitive advantage and, in the long run, the one that gives most cause for concern. Partha Iyengar of Gartner forecasts that in 5-7 years' time, many of the software processes at present performed manually in offices in Bangalore will be automated. India will have to move upmarket and \ufffdwho is going to convert the army of programmers into businessmen?\ufffd
The biggest constraint on the growth of India's service industries may be the available talent pool. Nevertheless, the bullish projections for Indian IT and \ufffdIT-enabled services\ufffd produced in 2002 by NASSCOM and McKinsey seem within reach. They forecast that the combined industries would, by 2008, employ 4m people (up from fewer than 900,000 in 2004), earn $57 billion-65 billion from exports (compared with $17 billion in 2004), and account for 7% of GDP (compared with 4%).
The challenge this poses for the firms leading the boom is how to expand fast enough to meet demand without jeopardising quality. For quality, as much as cost, is what is driving the demand. It is in this context that Bangalore's troubles have to be seen: as the acute growing pains of a still-infant industry. It is a worry not because the difficulties are insuperable, but because some can be solved only by the government. India's IT industry has thrived in part because, unlike most other sectors of the economy, it has largely kept the government out of its business. That period is coming to an end. Neglect, the industry is learning, is not always benign.
Eventually computers will be fast and cheap enough and business processes will be regulated so much that the armies of people who do business IT (data entry, etc.) won't be needed. Businesses in the developing will continue to move up-market, putting more pressure on 1st world businesses who haven't created new products and services. India's looking good in many respects, but it's still fragile. China looks like a behemoth now, but it's very fragile as well. A serious recession in either country could quickly reverse the offshoring trend.
Keep an eye on things, but don't think it's a lost cause. There are always niches that do well when the ecosystem changes.
If you're convinced that IT or similar jobs are doomed in the US, then consider working in some national security field. Those won't be going overseas any time soon.
Cheers,
Scott.