Falling dollar pushing up India outsourcing costs

Interesting article in the San Francisco Chronicle:

Around the globe, the falling dollar is touching everyone in the business world, from Saudi oil princes to U.S. computer-makers, making American goods and services cheaper while raising the cost of foreign products.

One effect that hasn’t received much attention is how the dollar’s relentless drop is throwing a bit of sand into the gears of India’s vaunted technology machine. That movement of technology operations to India is a trend that has emerged as a prime symbol of globalization in recent years.

The reason U.S. companies went to India for technology in the first place was to save money. Workers there in the outsourcing sector earn roughly one-eighth as much as their American counterparts, according to experts on India business. And software development services that might cost $200 to $275 per person per hour in the United States can be purchased from an Indian company for $25 an hour or less, those experts note.

The past year, the dollar has fallen from about 45 rupees to about 39. That 13 percent drop, on top of significant pay increases there, has shaved part of the Indian cost advantage, forcing both buyers and sellers of technology services to adapt. And economists expect the rupee to strengthen over the long term as India’s economy matures.

“We are facing some tough questions. It’s not an easy process,” said GK Murthy, senior vice president with Sierra Atlantic, a Fremont business software services company that does most of its programming in India.

One ironic bit of fallout from the falling dollar: Big Indian software companies are stepping up their hiring of American tech workers, who have suddenly become a lot cheaper to employ. For example, Bangalore technology giant Wipro Technologies recently unveiled a plan for a software development center in the Atlanta area that ultimately could hire 500 programmers.

Full article: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/10/01/BU6USGDH9.DTL&feed=rss.business