A recent eWeek article (July 24th, 2006) reports on how escalating wages are squeezing profit margins for Indian outsourcers. The current compounded annual growth rate for salaries is 12 percent in India versus 4 percent in the United States. There’s also a high turnover rate as local outsourcers compete for talent, both with each other and with companies like IBM who have set up shop there. Further, training costs are high, with many Indian outsourcers saying that Indian universities must do a better job of educating the workforce so that they can avoid exorbitant sums spent on training. One customer mentioned in the article brought their product development operations back to the United States from India, citing little to no cost savings when all was said and done.

I came across an excellent piece in the journal Scientific American (April 2006 issue), by a certain Pranab Bardahn, economics professor at the University of California, that takes a comprehensive look at the forces of economic globalization and how it affects the world’s poor — does it help them or hurt them?

Bardahn’s closing sentences really put the article in context:

Simplistic antiglobalization slogans or sermons on the unqualified benefits of free trade do not serve the cause of alleviating world poverty. An appreciation of the complexity of the issues and an active interweaving of domestic and international policies would be decidedly more fruitful.

The practice of outsourcing, the doling out of certain business processes often to low-cost labor in developing nations (commonly referred to as offshoring here in America) has been known to stir heated debate centered around the notion that Americans are losing their jobs to other countries. It’s been a hot-button political issue in recent election cycles, and has received intense media coverage.

All said, I believe the world is coping with transition as it deal with the realities of our time. As the world is increasingly connected and our lives interdependent, a global free market must prevail. Sure, that’s oversimplified, and the debate on all sides of the issue is healthy as we struggle to understand these new realities. Woven, with its focus on tools to support global collaboration, is of course right in the middle of this issue, and we’ll continue to analyze and to learn.

Time magazine devoted a recent cover to India. A series of articles hilite its rise as an economic superpower, painting a picture of a country fueled by hope and ambition and at the same time plagued by daunting challenges.

There is a feature article on Mumbai (also known as Bombay), the country’s sprawling metropolis and site of the recent bombings (the magazine hit the stands just weeks before the bombing), as the city that really embodies India’s ambition.

The residents of the thriving metropolis of Mumbai are pushing on in the wake of the eight explosions that rocked its transportation lifeline, killing some 200 people and maiming hundreds more.

From an Associated Press story:

“Life must go on,” 32-year-old commuter Sachin Kotian said as he resolutely prepared to board a train at the Matunga station, one of the worst-hit sites.

Mumbai, formerly known as Bombay, is the commercial and entertainment capitol of India, and is the country’s most populous city. It used to be the home of textile mills, but its economy has since grown to include a vibrant services industry rich in engineering, and it is a major outsourcing hub and corporate destination.

Despite the ongoing controversy over outsourcing, the trend is growing. eWeek published a bunch of numbers recently. Of note, 59% of respondents are outsourcing application and web development, the highest on the list. Only 26% of those are very satisfied, suggesting there is plenty room for ways to improve outsourced relationships. India was by far the country most outsourced to, with 75% outsourcing their IT activities there.

Research and development is increasingly becoming a global commodity, according to eWeek (June 26, July 3 2006). Typically, research and design has been held close, with engineering outsourced and following explicit directives. However, companies large and small are finding that there’s plenty of talent to be found and they can bring products to market faster by tapping skilled researchers from around the globe. “It’s not body shopping, but brain shopping.”, said an analyst. It’s important to look at outsourcing as an extension of what you’re doing, not as turning over responsibility completely, said a CEO that was quoted.

A CIO Insight (March) supplemental called Innovations surveyed 1,440 information technology managers, nearly half of whom worked for companies with greater than 1,000 people, about the top ten projects in 2006.

Outsourcing was number 2 on the list, with an average of $8.22 million being spent on services for managing the company’s information technology or business process functions. In a similar vein, collaboration was number 5, with an average of $4.26 million spent on software to let people share files and other information. See the article for the full results.

Offshore strategy is not just about near-term operating savings. The truth is there are a number of factors at play, and these must be considered when crafting a successful offshoring strategy.

Wage arbitrage

The wage for a specialized web developer in India is a fraction of what it would cost to acquire those same skills in the U.S. The ratio of wage rates between the United States and mainland China for product engineers is about ten to one, while for software engineers in India it’s about twelve to one. Labor is less expensive in developing economies, including in skilled job categories. Yet stopping there is severely limiting.

I was forwarded this “joke” today, and thought I’d share it.

Question: What is the truest definition of Globalization?
Answer: Princess Diana’s death.

Question: How come?
Answer: An English princess with an Egyptian boyfriend crashes in a French tunnel, driving a German car with a Dutch engine, driven by a Belgian who was drunk on Scottish whisky (check the bottle before you change the spelling), followed closely by Italian Paparazzi, on Japanese motorcycles; treated by an American doctor, using Brazilian medicines.

This is sent to you by an Englishman, using Bill Gates’s technology, and you’re probably reading this on your computer, that use Taiwanese chips, and a Korean monitor, assembled by Bangladeshi workers in a Singapore plant, transported by Indian lorry-drivers, hijacked by Indonesians, unloaded by Sicilian longshoremen, and trucked to you by Mexican illegals.