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Passage to India?
Productivity at home will counter outsourcing.

As manufacturing workers worry about their jobs moving to China, service workers see India as the threat. With its large pool of educated, English-speaking workers available for wages 80 percent lower than here, many large companies, especially banks, have set up Indian operations or contracted with Indian companies to provide information-technology services.

A new report from Deloitte Research projects that outsourcing of IT jobs to India will accelerate in coming years. It estimates that $356 billion worth of global financial services will relocate to India in the next five years, producing a cost saving of $138 billion for the top 100 financial service firms. It further estimates that 2 million jobs will move to India — 850,000 from the United States, 730,000 from Europe, and 400,000 from other Asian countries.

However, another report from Deloitte Consulting throws cold water on these estimates. It notes that while direct wage costs may be 80 percent lower in India, total labor cost savings are much more modest — 10 percent to 15 percent for most companies. The reason is that there are important added costs to doing business in India that eat up much of the savings. Higher costs for travel, communications, equipment, and managerial oversight are some of these. But the largest costs are for lower productivity, cultural differences, and incompatible systems.

The Deloitte Consulting report goes on to detail several case studies where companies went into India thinking they would achieve significant savings only to find that it was not worth the effort. Other companies undoubtedly will make the same discovery....