With the dollar depreciating quite heavily against the rupee (now to a nine year low), it is quite natural for questions to be posed around the profitability of the offshore model and whether if any jobs will move back stateside.
‘The Economic Times’, India’s largest business daily, and India Knowledge@Wharton interviewed executives in Silicon Valley and other high-tech centers in the U.S., venture capitalists, consulting firms and Wharton faculty to determine the answer to these questions.
The answer was that even at current exchange rate levels, the cost differential still exists and the offshoring trend will not be reversed any time soon.
The study is summarized in an article which highlights an aspect of outsourcing which does not usually receive the same amount of coverage / attention. This has to do with economies of scale that are involved in outsourcing which leads to third party outfits faring better when compared to captive units of the outsourcing companies.
Third party outfits like Infosys or Wipro have a large employee base and a lower salary structure compared to the Global companies which set up captive units in India. This gives them a cost advantage that lets them survive economic shocks better.
So, in effect, the exchange rate situation instead of reducing outsourcing may rather lead to a consolidation of the outsourcers.
