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Globalization and Flatness

Just in case some people in the US are losing objectivity on the issue of outsourcing, here’s a refresher that the laws of labor supply and demand apply to those other countries they accuse of hoovering up jobs from the US. A WSJ article ($$$ link) takes a look at how the Indian labor market is adjusting to the huge economic boom – big surprise here – wage inflation!

“There are huge numbers of fresh [university] graduates who are just not hirable,” says Anand Saraf, managing director of Iqura Technologies, a software firm in Bangalore, India. Mr. Saraf says he has lost contract work to other countries including the Philippines and Poland due to rising local wages. India, he adds, is becoming “an expensive place to do business.”

I read “The World is Flat” last summer while on business in Asia and thought it did a good job of capturing the issues of globalization. While I recommend the book, some of the domestic political solutions proposed didn’t strike a chord with me -your mileage may vary.

The book misses the concept that in the long run, in a truly flat world, talented people will command the same salaries, with some variance due to local cost of living adjustments (even that may slip away). If someone in India making $20k a year can make $120k a year working in the US – the person will get a raise or she’ll get in line for a Visa at the American embassy. This opinion doesn’t apply to “non-flat” jobs that are tied to location, like a plumber or dockworker, just “flat” jobs that have a truly global labor market. The non-flat job wages will be set locally.

Competition for talent is fierce. Larsen & Toubro Ltd., the subcontinent’s largest construction company, loses 800 experienced engineers a year to software firms and multinational engineering companies, despite having doubled salaries over the past couple of years.

In response, the company has launched a global head-hunting campaign to woo back staffers lost to foreign rivals by offering salaries of as much as $100,000 — a huge sum in India, where average annual income is just $620. As a hedge against losing more engineers, it started an in-house IT-solutions division, L&T Infotech, chiefly to give employees who want to expand their skills an option rather than resignation.

It’s fantastic to see that globalization is beginning bring just rewards to smart people regardless of ethnicity and location. It’s also refreshing to see some in the USA wake up and realize that they just might be overpaid for the services they offer.

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