India, China losing wage cost advantage: study
Sunday, December 16, 2007
NEW YORK: India and China are losing their competitive advantage on wages, and employers will increasingly look to even lower-cost countries for their operations, according to a study by the Towers Perrin consultancy.
In India and China, wages are expected to rise at a faster clip in 2008 than in 2007, even as inflation is expected to go up at a slower pace.
The labour markets in those countries are incredibly tight, said Ravin Jesuthasan, managing principal and practice leader at Towers Perrin in Chicago. Its reflective of the amount of work being poured into those markets, either from booming domestic economies or work being moved from developed economies to India and China.
Towers Perrin advises large organizations on human resources strategy and provides actuarial and management consulting to financial services.
In China, salaries are expected to rise 9 per cent on average next year, while the increase in India is forecast at 15 per cent. Both are 1 percentage point above the increases in 2007, and both are running at almost three times the pace of inflation.
By contrast, workers in Latin America are barely keeping up with inflation. In Venezuela, for example, salaries will go up 22 per cent in 2008, but inflation will be 22.5 per cent.
Salaries in India and China have been rising at a fast clip for several years, Jesuthasan said. You play that forward a few more years, and that cost disadvantage, particularly given the currency depreciation in the US, is significantly nullified.
Youll start to see a slowdown of work moving to India and China in areas like manufacturing and call centers, he said.
The Philippines and Thailand are among the potential beneficiaries.
The Philippines has a lot going for it, you have an educated work force, most people speak English, (and) are very comfortable with the US economy, given the presence weve had there for so long.
In Thailand, Japanese organizations have always good manufacturing bases, and I think youre starting to see that expand, Jesuthasan said.
India, China losing wage cost advantage: study
