Saturday, May 27, 2006

Three cheers to the flatter world

Not long ago, I had a huge debate with one of my friends about the advantages and disadvantages of our country increasingly being dependant on one sector - IT/ITES. Almost all of the good Engineering college passout land up in IT, and other conventional fields such as mechanical engineering, civil engineering are left with very little people.

Our main point of contention was whether this phenomenon would stay for long term - beyond 2015 and 2020. We had different views but one point we both agreed was that most of the growth that we seeing now has been fueled directly or indirectly by the IT sector. Of course, some of the other sectors - auto parts etc are doing equally good, but a lot of other sectors like retail, auto etc get directly benefited out of the boom in IT sector. The numero-uno factor for so many multinational and other companies flooding India is the cost advantage. These days, nobody is surprised when Infosys or Wipro or TCS or even IBM says they are going to recruit thousands and thousands of people in the coming years. But with the salaries rising year after year, how long would this cost advantage last?

If Thomas Friedman is to be believed, the world is completely flat, and work – he means, any type of work - can be done anywhere and sent anywhere. [Which is the essence of his famous book 'World is flat'] If that were the case, what would happen say after 2020 when Indian salaries are almost on par with Western scales? [Salaries would increase because of two reasons - Wage inflation that we are seeing year after year, and people becoming more and more experienced, which means cost of employing them would be more] Would we have acquired enough knowledge so as to force the world to be dependant on us? Or would the ‘flatness’ of the world mean that jobs would go elsewhere? Would some other country produce a good number of talented people at low cost forcing further movement?

Nobody really has answers to these questions, but the off-shoring trend looks very real for the next 10-15 years. Companies are investing millions and millions of dollars, which indirectly forms an insulation layer that would prevent them from moving out easily. But, of course, this type of insulation wouldn't last in the long term. Simply coz the world is flat.

On a similar note - very, very interestingly, a Silicon services article says that India's offshore advantage is to last for 30 years.

India will maintain its low-cost IT skills advantage in the offshore outsourcing market for at least another 30 years, according to a new study.

The labour arbitrage advantage India has over the UK will last for at least another 30 years, while India will also retain its low-cost wage advantage over the US for at least another 18 years, according to the report.

A separate study out this week also found that more than three-quarters of research and development facilities opened by western companies over the next three years will be located in China and India.

That's like a lifetime. Does that mean we could party now? I'm not sure, but three-cheers to the flat world in the mean time.


At Monday, May 29, 2006 12:06:00 PM, Blogger Jam said...

Hey Govar,

Looking at this issue from a purely selfish viewpoint, 18 yrs is pretty much the amount of time that you and me will need to complete our careers by and therefore, we need not worry about getting laid off from any IT/ITES companies.

But then, this issue is something which had been bugging my mind for some time now and it kind of got to the top of my mind when I read your post. But then, I m sure Indian companies in 18 yrs would have built up enough competencies that they would not have to compete purely on the basis of costs alone. Or at least, I m hoping this is what companies are striving to achieve.


At Tuesday, May 30, 2006 5:30:00 PM, Blogger Jammy said...

Accepted that India will hold its cost-arbitrage advantage over the US and UK for many years to come. But how long can we hold China behind? I don't think it'll take them that long to learn proper English.

At Wednesday, May 31, 2006 9:15:00 PM, Blogger Krishna said...

Hey govar,
This particular issue you raised is a serious one. My friend too wrote about this some time back in his blog -

Check may find a companion for your thought.


At Friday, June 02, 2006 5:35:00 PM, Blogger Iday said...

hi go,
though the stuff u had mentioned does guarantee that work will be around, i dont see why it shud stay only with india. As Jammy has mentioned, the minute chines speak proper english, we have a competitor. This is already being proved by the indian companies setting up shops in china :)

Even if the world is flat, US wudnt really wanna give work to anyplace - as india is in a convenient time zone for them too. But again, china is almost in the same time zone :)

So the real party pooper cud be china, but i guess our companies are already aware of the fact and planning stuff. While some are being really competitive in quoting prices for projects, other are moving into China to get a share of the pie.


At Tuesday, June 06, 2006 12:51:00 AM, Blogger M B Mahesh said...

two trivial issues

did some small calculation...if the idea is 18 can expect a growth of salary at around 10-12%...however, i do not know if one would be satisfied with this kind of growth in salary coz ur spending is going to increase and so is your yearly hike expectation...and this i am taking as a general across the levels of management. also this will start increasing the cost of living elsewhere today the cost of house/land has increased manifold creating a need for more money..we will start spending more on future incomes making us more dependent on salaries...

china is going to start getting competitive and my worry is that you will see indian companies doing well even at that time, however it will come at the cost of indians what IBM is doing in India, shifting jobs from those countries to ours. so HAIL the companies and invest in them rather than the ppl :D

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