India's offshore advantage to last for 30 years

India will maintain its low-cost IT skills advantage in the offshore outsourcing market for at least another 30 years, according to a new study.

The 2006 Global Sourcing Market Update, by research company Everest, claims fears that rapid wage inflation and skills shortages will quickly reduce India's offshore cost advantage are "greatly exaggerated".

The labour arbitrage advantage India has over the UK will last for at least another 30 years, while India will also retain its low-cost wage advantage over the US for at least another 18 years, according to the report.

Low-cost offshore locations such as India and the Philippines are aggressively making moves to minimise the impact of wage inflation by encouraging the expansion of the quality and size of the relevant workforces and by developing more low-cost offshore locations, the report says.

IT suppliers in India, for example, are lowering their costs by moving to 'tier two' cities - away from traditional high-tech centres such as Bangalore - and opening delivery centres in other countries.

Stephen Dunn, managing principal at Everest, said in the report: "Offshoring will retain a substantial labour arbitrage for the next 30 years between the UK and key low-cost destinations such as India and the Philippines. While current inflationary pressures exist, reports of 18 per cent salary growth in key destinations are overstated."

A separate study out this week also found that more than three-quarters of research and development facilities opened by western companies over the next three years will be located in China and India.