Jannsen: Labor arbitrage is still really compelling when you're trying to make your budget for next year. It's a challenge when people go back into growth mode to hire someone for $75,000 [a year] when they can get someone for $25,000. The weak dollar does play a role; it decreases the spread. If there's a violent retraction [in the dollar] for multiple years, we could see an end to this conversation.
Today, I'm hiring people with MBAs for $5,000 per year. They're tier two MBAs, so that would be about $55,000 in the U.S. And I do have to move them to $8,000 or $10,000 in two years. There isn't as much of a delta on the management side. For people with 5 or 10 years of experience, there's not a five to ten-fold difference in price points.
CIO.com: But what about management overhead and other hidden costs that can erode those labor savings-have those diminished?
Jannsen: It's gotten a lot easier to manage in terms of basic fundamentals. There are two parts to that-problems on the U.S. side [of the offshore engagement] and problems on the Indian side. They are both more mature. But if someone tells you they're having problems with their team in India, it usually means the problems actually exist on the U.S. side. The ability to work on a global basis is more challenging for U.S. [IT organizations]. I have a lot of my research written in India today. They used to only provide charts or data.
Padron: It's becoming a moot point, because you are going to have to manage a global workforce anyway.
CIO.com: You write that captive offshore centers are the dominant model for the globalization of IT support. In recent years, a number of large companies sold their offshore IT centers. Is that trend reversing?
Jannsen: A few years ago, a number of offshore players and some domestic providers were looking to expand their global footprint and the easiest way to do that was to buy someone's [captive] operations. Proctor & Gamble's [sale of its captive centers] was a big one. But there's not a lot of selling going on right now because there aren't a lot of new entrants that need footprints.
Padron: Global shared services centers have accelerated beyond IT to other functional areas. According to our research, 65 percent of companies are leveraging the P&G model and putting it all together-IT, finance, HR, procurement-as a global business services center. Captives are still growing and companies that know how to do business offshore prefer it because they get to keep all the labor arbitrage benefits.
CIO.com: Who oversees these global service centers-the CIO?
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