Monday, September 10, 2012

Why rising fuel cost is good for India’s outsourcing business?

Fact:- Increase in fuel cost is making the global transportation costly.

Hypothesis:- Rise in global transportation cost combined with wage rise in China will make sourcing from china costly.

Implication:- Manufacturing outsourcing will reverse and manufacturing will shift back to US and European countries in coming years.

Evidence:- Signs are visible now as many Chinese manufacturers are scouting for land deals in US cities for manufacturing sites.

This rising fuel cost will impact manufacturing outsourcing as manufacturing outsourcing requires physical transportation of goods. It will not impact services outsourcing ( IT and BPO).

Possibility:- On the contrary, with reverse in manufacturing outsourcing the employment situation will improve in western countries and there will be less public pressure to stop services outsourcing, which will be good reprieve for India’s outsourcing business.

So rising fuel cost can be actually good for India’s outsourcing business provided India keep check on rising wages of IT and BPO manpower!