Not as much as many might expect, once productivity costs are factored in.
Despite New York Times columnist Thomas Friedman’s widely embraced thesis that the world is flat because technology makes outsourcing and therefore globalization a breeze, a new Conference Board study shows otherwise.
The report released this week by the well-respected research organization best known for its consumer confidence index and the index of leading economic indicators, says the competitive advantages of outsourcing are in some cases completely wiped out due to low productivity.
“One critical lesson for businesses that benefit from one-time labor-cost benefits when investing in ‘low wage’ countries is that productivity gains from new technology and innovation have to keep pace with often fast-rising wages of skilled and semi-skilled workers or the ‘cost advantage’ begins to erode,” says Bart van Ark, Director of the Conference Board international economic research program.
In other words, the comparative cost advantage of taking a business to low-wage countries such as China or India, where manufacturing costs are lower than in the U.S., are often not the giant bargain they seem when wages are adjusted for low productivity, according to the report.
