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Electronics Production | March 19, 2007

Labor Cost Advantages of<br>Offshore Locations to Decline

The wage cost advantage of offshore locations for office services is set to last for another 20 years, says the latest annual survey by global management consulting firm A.T. Kearney.
Even though wages in offshore locations for services, such as IT, business processes and call centers, have started to rise, they will remain cheaper for the foreseeable future under the most aggressive projections of wage inflation and currency appreciation in developing countries.
The labor cost changes are partly the result of accelerating wages and currency appreciation in offshore hot-spots, as well as downward pressure on wages in impacted sectors in developed countries. At the same time, key emerging markets have continued to improve their attractiveness in terms of access to talent, industry experience, quality certifications and their regulatory environment.

"What is most striking about the results of this year's Global Services Location Index is how the relative cost advantage of the leading offshore destinations declined almost universally, while their scores for people skills and business environment rose significantly," said Paul Laudicina, managing officer and chairman of A.T. Kearney. "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."

The findings also send a message to policy-makers in both developed and developing countries: The key to maintaining and enhancing long-term competitiveness lies in skills development, infrastructure investment and the regulatory environment, not in attempts to control wages. Virtually every country in the Index, even those that fell in the rankings, improved their absolute score in the last year — confirming that competition is intensifying, and simply maintaining current performance levels is no longer sufficient to attract and retain the world's fast-growing remote services business.

Click here to read more from this study (A.T. Kearney).

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