Summary
Key labor cost changes in India imply that other nations such as the Phillipines, Argentina, Cost Rica, and Puerto Rico will compete more favorably for international business. The increasing cost of talent and a constrained pool of talent will cause companies to hesitate when considering India as a long-term solution. The combination of these two fundamental changes will cause executives to look harder at outsourcing versus building the talent and solution "in-house". Executives at outsourcing providers such as TeleTech, Convergys, WiPro, IBM and Tata will look to other nations to continue to build capacity and find talent.
Analysis
Although the rise of the rupee against the dollar is a contributing factor fundamental shifts in the cost of labor and the labor market in India are the foundation of why this back-office operation is closing.
The annual increase in wage cost of 15% has been frequently referenced, most recently by the Financial Times in today's paper (http://www.ft.com/cms/s/0/11a39a08-8810-11dc-9464-0000779fd2ac.html?nclick_check=1). Company executives cannot ignore this fact and will recognize that long-term operating objectives will make it more difficult to take advantage of a labor cost gap that narrows by 15% each year.
As the cost for talent increases the ability to retain employees becomes increasingly difficult. The cost of attrition makes every outsourcing operation difficult because the ability to keep expertise in the operation is such a key factor in keeping clients satisfied. A lower cost of operation is simply one factor in the decision to outsource - expertise in the process or industry is a second critical decision point.
It should also be recognized that Accenture recently lured a hire profile executive from the U.S. to return home to India and lead their operations. This is another indication to me that opportunities for highly compensated executives, middle manages and knowledge workers are in demand in the Indian marketplace.
It appears that the simple labour arbitrage play has run its course in India and that new economic factors are arising that demonstrate that India is not necessarily a simple low cost solution, where excess labor and talent are readily available.
