When you’re reading the results of research, it’s always wise, of course, to look at who’s putting it out and consider their motives for doing so. I was reminded of that while reading a press release from an organization I’d never heard of before: KLG.
The headline on the press release was this: “Research Report by KLG Details How Deploying Jobs to Domestic U.S. Locations Can Generate Savings That Rival Those Available from Offshoring to Developing Nations.”
The first paragraph states:
KLG, a consultancy that specializes in corporate location strategy, has released a report that compares the economics of offshoring and nearshoring. The report demonstrates that, when all of the critical economic factors such as wage inflation, productivity, and management overhead are considered, in many situations nearshoring to domestic U.S. locations can provide savings that are comparable to — or even better than — those available from offshoring to developing nations…
Well, that certainly sounded interesting — especially if it provided a rundown on economic variables to be considered when you’re doing a cost analysis of outsourcing.
So I clicked over here to read the actual report:
It started out with some background on outsourcing — both IT and business process. It quotes from McKinsey and NeoIT and a slew of other references to scope out the universe.
Then it shares stats showing the differences between average annual salaries for application developers with three to five years of experience in New York (above $70,000), US nearshore (about $50,000), and India (about $30,000).
The New York average sounds low to me and the India average sounds high. The report says its US number comes from a leading investment bank that did a “detailed examination of compensation levels” in “in a major U.S. IT center in the Eastern Time Zone.” Why not just say what city? Was it New York, where wages run high? Or was it Orlando, where wages run low?
The India baseline “represents actual payroll data from top tier firms in Mumbai employing the exact same skills required by this prospective employer.” Sounds reasonable. But why not use payroll data for the US workers as well? Surely, that exists if the investment bank is based in the US. I’m guessing those specific skills are rare and hard to find — whether you’re in Mumbai or New York.
Well, if you’re actually a consultancy that advises on corporate location and real estate portfolio strategy, you probably want your clients staying in the US or Canada, where you know something about the real estate. So the less the extreme between the US and India, the better your prospects of persuading companies to expand here rather than over there.
The report then tackles questions of wage inflation (it’s higher in India by a factor of three or four), productivity levels (it’s going to be lower when you take the work to India by some unknown percentage in the double digits), staff turnover (“In some sectors of the outsourcing market, attrition rates are 50 to 75 percent a year” — what the report doesn’t state is that that’s probably outbound telemarketing sales positions in call centers) and management overhead.
Exactly what senior VP at this company thought a whitepaper on this topic was a good idea?
This week, eWeek’s outsourcing columnist Stan Gibson asks, “Are we experiencing the ‘Indian bubble’ right now?” I tend to agree. Offshoring has its place, but it’s a long way from taking the rug out from under the American technology — or real estate — industry.
