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Rise in offshore labour costs in 2006 - report

21 May 2007  |  4600 views  |  0 Rise in offshore labour costs in 2006 - report

The cost advantages of employing staff in cheap offshore locations declined in 2006, mainly due to accelerating wage levels, according to a study by consulting firm AT Kearney.

But even though wages in offshore centres for services - such as IT, business processes and call centres - have started to creep up, the cost advantages of using these locations is set to last for another 20 years, says the report.

The recent labour cost changes are due partly to accelerating wages and currency appreciation in offshore locations, as well as "downward pressure on wages in impacted sectors in developed countries", says the report.

While total compensation costs for sample positions like IT programmers or call centre staff rose by 5-10% in most Western countries, average wages for similar positions in India, China, the Philippines and parts of Eastern Europe and Latin America grew from 20% to 40%.

Paul Laudicina, managing officer and chairman of AT Kearney, says the research found that the relative cost advantage of the leading offshore destinations declined almost universally, while scores for people skills and business environment rose significantly.

"These findings reinforce the message that corporations making global location decisions should focus less on short-term cost considerations, and more on long-term projections of talent supply and operating conditions," he says.

Telecom costs in many emerging markets dropped by 25% or more, says AT Kearney, as competition and volumes in the telecom market increased. Furthermore, the number of firms with endorsements like the ISO 27001 data-security certification almost doubled in several emerging markets.

AT Kearney's Global Services Location Index comprises more than 40 metrics comparing the financial attractiveness, people skills and business environment of 50 countries worldwide. India and China lead the index by a wide margin, with declines in cost advantage offset by improvements in talent supply and business environment. However South East Asian countries reinforced their position as the primary alternatives, with the major ASEAN markets - Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam - now ranked among the top 20 offshore locations.

All five Latin America contenders - Argentina, Brazil, Chile, Mexico and Uruguay - also rose in the rankings, while newer contenders in Central and Eastern Europe such as Bulgaria, Slovakia and the Baltic States are outshining more established players like Poland, the Czech Republic and Hungary.

The Middle East and Africa also continued to attract offshore work, with Egypt, Jordan, the United Arab Emirates, Tunisia, Ghana, South Africa, Israel and Turkey all maintaining or improving their position in AT Kearney's rankings, which now includes Mauritius, Morocco and Senegal.

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