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Is Indian Outsourcing Finished Already? (CTSH, INFY, PSPT, SAY, WIT)

Aug. 25, 2005 7:27 AM ETSAY, WIT, CTSH, INFY, PSPT
The Stalwart profile picture
The Stalwart

Well, that was fun while it lasted, but now the experts proclaim that Indian outsourcing is getting too expensive, writes The Stalwart. Unit labor costs are getting higher so it's time to look elsewhere:

Number crunchers at Gartner are predicting doom and gloom for the Indian outsourcing biz. The Big G says that India’s wage bill for developers is sky rocketing and its share of the outsourcing market could fall by as much as 45 percent by 2007. Gartner says that the ancient land is having to face stiff competition from cheaper, or closer countries such as the Philippines, Malaysia, Vietnam and Eastern Europe and they will not cut the mustard.

The company PeopleSupport (NASD: PSPT) based in the Philippines might be an interesting outsourcing play.

But seriously, doesn't something seem a little off about this report from Gartner. If Indians are demanding higher wages, it's because their productivity is increasing, which makes them more able to do value added work, and thus more lucrative from the perspective of the U.S. company looking to outsource office-work. It would turn economics on its head to suggest that as a country become mores educated productive and wealthy they suddenly become an unappealing place to do business. I believe that the India story continues for some time.

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Joseph Weisenthal and Vincent Fernando are The Stalwart (http://seekingalpha.com/by/author/the-stalwart/). Joe currently works as an analyst for a small portfolio management company in the Northeast, and Vincent works for an investment bank in Asia. The Stalwart was created to satisfy what Joe and Vincent wanted to see in a blog: intelligent discussions of stocks, finance, business, and economics a well as links to interesting articles and information outside of the traditional financial press. These guys write terrific, differentiated analysis. They're particularly good on Internet stocks, housing, and just about anything that comes into their minds. Visit: The Stalwart (http://www.thestalwart.com/)

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