NEW YORK and DALLAS, May 23, 2006 (PRIMEZONE) -- Wages for IT outsourcing (ITO) and Business Process Outsourcing (BPO) services providers in key offshore markets, including India, China and Poland, are increasing on average by 8 to 11 percent per year, which is nearly half of what has been commonly reported, according to new findings by Everest Research Institute. The lower figures reflect in part the efforts that offshore outsourcing suppliers have been making to control rising labor costs, including the expansion of their operations into second-tier, lower-cost cities and countries, as well as exchange rate movements and other factors.
"The labor arbitrage opportunity -- created by the significant wage gap between industrialized and developing nations -- will continue to drive offshore outsourcing for many years," said Joe Fernandes, Managing Research Director at Everest Research Institute. "Despite salary increases in key offshore markets, the idea that India and other key markets will price themselves out of the outsourcing business in the near-term is unfounded."
In the report, Sustainability of Labor Arbitrage, Everest estimates that the labor arbitrage benefit that U.S. companies can achieve by outsourcing IT Application, Development and Maintenance services, which account for a large share of offshore activity, can be sustained for:
-- 18-25 years with Asian markets, such as India, China and
the Philippines
-- 3-6 years with Central European markets, such as Poland and
the Czech Republic
-- 30+ years with Mexico
These projections are based on an analysis of starting positions, wage inflation in source and destination countries, exchange rates and other factors. Fernandes pointed out that labor arbitrage sustainability for Asia and Mexico exceeds current expectations because wage inflation in these regions is significantly lower than widely believed. Labor arbitrage projections for Central Europe, by contrast, are lower than commonly reported primarily because of the rapid deflation of the U.S. dollar against the euro, according to Everest's calculations.
About Everest Research Institute
Everest Research Institute (www.everestresearchinstitute.com) serves as a central source of strategic intelligence, analysis and actionable insight for corporate buyers, service providers and investors in the global business process outsourcing and information technology outsourcing marketplace. The Institute is dedicated to providing the global outsourcing community with the information it needs to build highly productive outsourcing relationships and programs, focusing on the drivers that are continually reshaping the industry landscape and analyzing how they impact member organizations and the success of their outsourcing strategies. The Institute's distinguished Board of Advisors, all senior executives and thought leaders in global outsourcing, oversee the Institute's research agenda to ensure that it fully supports the business information needs of corporate buyers, service providers and investors.
Everest Research Institute was established by the Everest Group, which provides strategic advisory services that help companies harness the power of outsourcing. Since its formation in 1991, Everest Group has served as business advisors for hundreds of IT and business process outsourcing transactions worldwide.