At an aggregate level, the potential supply of suitable talent from the low-wage countries we studied exceeds the likely demand for it by two-fold.
In practice, companies hiring offshore tend to follow each other to locations that have a track record in providing offshore talent. The resulting agglomeration of companies in popular locations has some positive effects, such as accelerating improvements in infrastructure, communications and the business environment. But the pattern also leads to local wage inflation and high levels of attrition. MGI found that wages for engineers and generalists could double in the lowest wage countries, but will remain below 30 percent of the level of wages for engineers in the United States, or the current level of wages for these two occupations in Mexico and Brazil. In contrast, the effects of offshoring on employment and wages in developed countries will be negligible.
Companies can find more suitable locations offshore if they rationally analyze the factors that are most important to them, including their home market, their first language, what activity they want to outsource, the scale on which they want to offshore, and whether they want to outsource or set up a captive operation. That means different companies will assign different costs and benefits to the same location. Launch this chapter (PDF – 113 KB)
