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Broadband and outsourcing - Arvind Narayanan's journal [entries|archive|friends|userinfo]

Broadband and outsourcing [Jul. 2nd, 2004|08:50 pm]
Arvind Narayanan
Apparently Kerry thinks Bangalore is "completely wired". Wants universal broadband access in the U.S with India as inspiration. BWAHAHAHAHAHAHA. I wonder how he'd react if he was told that dialup penetration in India is less than 1% and broadband penetration is something like 0.02%. He probably read something about EVMs and jumped into conclusions. I guess the Bush-Cheney attack ads will be coming soon. I can see it already: "THIS IS KERRY'S VISION FOR THE FUTURE OF AMERICA" followed by stills of Indian slums :-) I'd die laughing watching that.

It's surprising that all the pundits who write about outsourcing fail to mention this. Some proclaim that with time, wages will start equalizing because there won't be enough supply. Others, drawing inspiration from the dot.bust, predict doom for the outsourcing industry in India with eschatological vigor; their thesis is that some other country will be able to undercut India with even lower prices. Well, neither of these things is going to happen. The point is that broadband availabilty is a key parameter that determines the size of the outsourcing market. The growth of internet connectivity will act as a buffer keeping the supply steady; secondly, as broadband becomes cheaper, outsourcing firms will be able to reduce costs, minimizing the chances of being undercut. I'll stick my neck out and say that outsourcing to India will continue to be healthy for the next 10 years. But long before that it'll stop being news.
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Comments:
From: rpratap
2004-07-14 07:08 am (UTC)
AFAIK, the sizable chunk of costs for outsourcing firms / software comes from the cost of human labour, hardly the cost of broadband. The truth is that the Phillipines and some Eastern European countries are already undercutting Indian companies on price (although, arguably, their quality of work is not as good).

Although I am optimistic about Indian companies maintaining their leadership for some time at least, I really think that growth will come from Indian companies (especially in the pure technology sector) moving up the value chain. And I think it is happening already. Infosys started their consulting division directly taking on heavyweights like Accenture and IBM. We live in interesting times :-)

(P.S Stumbled onto this from a posting on a mailing list by Ravi Rao)
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[User Picture]From: arvindn
2004-07-16 02:14 am (UTC)
Its not so much the cost of broadband that I had in mind as the availability. Currently, the IT (and outsourcing) boom is confined to a few major cities. Why is that? Largely because of the absence of infrastructure. While broadband isn't everything, it is both a critical component of and an index of the availability of infrastructure. That's why I feel that with the expansion of broadband, the outsourcing market will also expand.
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[User Picture]From: chumducky
2004-07-26 06:16 pm (UTC)

Energy availability?

It's interesting that you would note broadband penetration of India as the limitting factor for offshoring growth in India. I once hypothesized in 1998 that California's dot-com growth would be ultimately limitted by electricity supply. I never expected to be right, but the rolling blackouts and explosive energy prices ultimately did kill the boom. The same would hold true for India. Ultimately, further expansion requires energy in direct proportion to penetration.

Would India build more plants to supply energy for all those computers? I don't really know enough Indian politics to predict. Care to enlighten me?

Qvacks?
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