North America As the Low Cost Offshoring Option?

Though it likely will not happen tomorrow, after years of wage inflation in India and other traditional offshore locations and the coincidental decline of the dollar against other currencies, at what point does the realized cost delta not cover the risk premium in offshoring?

At the same time, how much risk premium deflation will become manifest as the global delivery model is perceived to have been “tried and tested”?

As this Marketwatch story attests, the environment in India is getting more and more challenging.

Here's a unique twist: the high cost of doing business in India is pushing some smaller technology companies to relocate elsewhere in Asia.

Soaring wages and rentals there are having a significant impact on mid-sized companies, many of which blossomed for several years amid a vast pool of well-educated workers and comparatively lower operating costs.

Having more than tripled in size in just four years, the $52 billion software industry -- arguably India's best known overseas -- is now confronted with multiple challenges.

The economic slowdown in the U.S., the single largest market for outsourced orders, has cast a shadow over near-term business prospects.

It's being exacerbated by local issues such as an appreciating currency, rising fixed and operating costs, a growing shortage of skilled manpower and the prospect of a sharp tax increase.

While outsourcing has become truly a many-shores operating model, India obviously remains the epicenter of offshoring. If this trend continues, and the U.S. dollar continues to weaken, will U.S. companies begin to demand that outsourced services be provided indigenously? And might European companies begin looking at the U.S. as a low-priced offshoring destination?

Without question the services provided from India have benefited tremendously from process improvements and the value proposition is no longer solely about cost, but the combination of geo-political and macroeconomic dynamics has the potential to wreak havoc on the best laid plans of many providers and customers of offshoring.