Re: The depreciating dollar may prove lethal to outsourcing.

Hi Niall, Tim, Ethan, all,
Our margins were definitely squeezed painfully from April 07 until late last
year. So it hasn't been really that much fun adjusting to our new currency
realities. That being said, I think there is a meaningful difference between
offshorers and outsourcers and that these different ideas get conflated a
lot, including in this case.

If your company's entire business model is simply shifting work from a
country where wages are high to a country where wages are lower, you have
two problems. First, you are very vulnerable to this type of currency shift
because it is at the core of your profit model. Second, as time marches on
and we continue our trend to a global rate for any given IT service, your
company will cease to have any reason to exist.

However, outsourcing properly conceived can be highly successful even when
the resources are hired locally to the market being targeted; meaning
without relying on exchange rate differences nor differences in global
payscales. These companies are successful because by concentrating
expertise, adopting best practices, innovating and reusing work they have
found efficiencies that add up to more than their direct costs of services
delivery + overhead (meaning, that profit model has nothing to do with
currency or wage geography).

I would count Pythian among companies conceived along those lines, we are
far from alone, certainly our direct competitors dbadirect, contemporary and
dcc (hi guys! well done!) do not rely to any degree that I am aware of on
wage differences or exchange rates as parts of their profit models.

So anyway, we've successfully adjusted over here and I think offshoring will
lose a lot from it but these companies will be forced to morph into
something better. :-)

Cheers

Paul

On Tue, Mar 18, 2008 at 11:12 AM, Tim Gorman <tim@xxxxxxxxx> wrote:

> I heard exactly this from a Canadian friend working in the US over the
> past 12 months.  During that time, he's seen his paycheck decrease by
> almost 40%...
>
>
>
> Quoting Ethan Post <post.ethan@xxxxxxxxx>:
>
> > Interesting article on the effects of the dollar's fall on
> > outsourcing. Would be interesting to hear a few of you who are perhaps
> > feeling these effects to comment.
> >
> > http://www.mises.org/story/2883
> >
> > "The depreciating dollar may prove lethal to outsourcing. Employees
> > hired by US companies based in foreign countries usually convert
> > earned US dollars into their national currencies. A worker based in a
> > country with an appreciating currency will get less money when paid
> > the same amount of dollars."
> > --
> > http://www.freelists.org/webpage/oracle-l
> --
> http://www.freelists.org/webpage/oracle-l
>
>
>


-- 
Paul Vallee
President, The Pythian Group, Inc.
http://www.pythian.com
I blog at http://www.pythian.com/blogs/

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