This piece in the FT based on research by a UK consultant questions the benefits of offshore call centers (er, centres, mate) in India. Its simple really. With rapidly rising costs and lower quality service (on average, assuming same levels of education and experience for on-shore alternative labor) offshoring is no longer obviously the right thing to do.
It has been my view and continues to be my view that the fears of US industry being annihilated by offshoring (of both services and manufacturing) are way overblown. Anyone who spends time in India and China can see - in addition to the astonishing growth and opportunity of these countries - tremendous scarcity of skilled and semi-skilled labor, soaring wages, and a very long list of very real extra costs for off-shorers which are, nonetheless, very difficult to forecast and put into a budget (and so frequently aren't). Things like the extra time it takes to communicate and co-ordinate across different cultures, languages and locations. The cost of dealing with onerous government bureaucracies. Corruption and theft. The list goes on and on.
Then there are the costs which are easy to measure like property and electricity which are now or will be rising very rapidly. In China, energy is very cheap because of abundant coal - but the government has realized that 1. the cost of destroying the environment is not reflected today in its cost to the user and 2. the low cost encourages its use for industries which may not otherwise be competitive. Beijing is beginning to change its energy policies to somehow ensure that the real cost of energy use is born by its users (not clear exactly how - their first attempts are predictably of the administrative variety - i.e., lower export tax benefits for heavy industrial polluters. But they will eventually find a way to raise energy costs for all users who can pay) . Voila, one of China's big "competitive advantages" goes poof. Use of scare water supplies is another area where users can expect to pay for the real cost.
Appreciating currencies are an immediate hit to the cost/benefit equation. India has become 10% more expensive for US companies in just the last two months.
I don't mean to say that China and India won't be ultra-strong competitors - they are today and they will only get tougher. I am only saying that the easy cost advantages are rapidly disappearing such that it is unimaginable to me that massive additional chunks of US industry can or will or should be shifted to Chindia. Vietnam is another story for another time but my basic view is the same: these markets are not as deep as they may look when measured purely based on sustainable low-cost capacity. The bigger story in Chindia for the next 10 to 100 years are vast domestic markets, the very existence of which uses up cheap capacity for exporters/offshorers.
The off-shoring pendulum is beginning to swing back the other way... (or at least the speed at which it had been swinging one way is slowing). What is the term for when a US company brings operations back on-shore? Reverse off-shoring? How about "reonshoring".