Labor-Cost Advantage of Offshoring Declines

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March 19, 2007 -- The labor-cost advantage that comes with offshoring IT, call centers, and other office services in emerging markets declined last year, according to a recent report by A.T. Kearney, a Washington-based management-consulting firm.

Total compensation costs for office services employees in India, China, the Philippines, and other offshore hotspots rose as much as 40 percent in 2006, compared to just 10 percent in most developed countries, the report said.

At the same time, many emerging markets boosted their skilled labor supply with double-digit growth in university enrolment and other high-tech training programs, the report said.

Still, offshoring office services will likely remain cheaper than hiring local employees for decades to come, the report said.

India, China, and Malaysia topped the firm's annual index of the 50 best worldwide office services locations based on labor costs, skills, and overall business environment, the report said. Ireland ranked No. 50.

"Continued improvements in infrastructure and policy-making in emerging markets will slowly erode the business-environment competitive advantage of developed countries," Paul Laudicina, the chairman of A.T. Kearney, said in a statement. "The key differentiator in the future will be the talent base and future projections of skilled labor supply will be imperative for companies making long-term location decisions."

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