I don’t want to talk about the financial crisis or whether that and the new President will cause a growth or a failure of the outsourcing market in India. It’s all been discussed and dissected every which way possible and all we can do is wait until the 1st quarter of next year to see what actually happens.

But, what continues to be a great topic for discussions amongst friends and colleagues is the eroding offshore advantage of India. I recently chatted with a friend who said “so what if the prices are going up in India, if a US business is paying $60 an hour locally and can still get the work done for $40 dollars offshore, it’s still a winning argument for offshoring the work”.

I tried to explain to her the folly of that argument. I pointed out to her that although an experienced resource may be retained at $60 per hour, that a recent graduate may not demand a $60 per hour rate and that if a company were to get a local resource for $40 or even $45 per hour, they would be less likely to explore offshore options.

We had a long heated debate because my friend felt that businesses should be thinking about saving every dollar and if costs could be lowered by even $5, that’s an argument for going offshore.

What do you think? 
  
I think that although cost reduction is one of the primary reasons for offshoring work, as the gap between the resource rates of the two countries shrinks, the offshoring advantage is also diminished. If a company cannot find significant reduction of operational costs, why should they bother to go offshore.

I wonder how India will manage the wage hikes and inflation in India and still be a strong contender for offshore work in the future?