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A company's or country's competitive advantages--whether in skills, salary levels, costs, expertise, infrastructure, or processes--don't last forever. Other companies and countries adjust and catch up under a crude, often painful form of arbitrage on both a microeconomic and macroeconomic scale.
The global tech industry, suppliers and customers alike, must deal with this arbitrage as a matter of survival. One example is Dell. It rode its direct sales model and supply chain management efficiency to the top of the global PC market, only to fall back as customer priorities changed and rivals copied and extended what it does best. Today, Dell is acquiring providers of higher-end services and selling its established products through channel partners, moves that seemed inconceivable five years ago. Adapt or get left behind.
One market where international arbitrage is particularly frenetic is in tech labor. U.S. and European employers, looking to fill jobs at lower wages, have claimed to face a talent shortage at home. Enter Indian and other offshore providers, as well as visa-carrying foreign nationals, sometimes promising cheaper tech labor at comparable skill levels. "Shortage" averted. Advantage: foreign tech worker.
But wait: As tech salaries in India and other developing countries climb amid the boom in their services industries, and U.S. and European customers demand more local workers amid concerns about communications, business culture, and security, the pendulum swings in the other direction. Witness Wipro, Tata, and other offshore providers acquiring and hiring in the United States, Czech Republic, and other countries off their shores. U.S. tech wages are near an all-time high, according to a report released last week by staffing firm Yoh, based on data compiled from 75 field offices and 5,000 tech professionals.
Currency fluctuations, another area for tech industry arbitrage, are contributing to this swing. The U.S. dollar is falling in value against other currencies, making foreign-sourced goods more expensive and U.S.-produced goods more attractive for U.S. consumers and businesses. This ongoing phenomenon affects everything from PCs imported from Taiwan to IT services rendered from India and Ireland.
In the past year, the U.S. dollar has depreciated against most of the major currencies: roughly 13% against the rupee, 5% against the Chinese yuan, 12% against the euro, 8% against the British pound, and 16% against the Canadian dollar. Over the past five years, the dollar's slide has been even greater: about 19% against the rupee, 9% against the yuan, 31% against the euro, 24% against the pound, and 39% against the Canadian dollar. To put the matter into better perspective, today the U.S. dollar is worth half a pound, 70% of a euro, and less than a full Canadian buck. Michael Hyatt, co-founder of Toronto-based BlueCat Networks, relates how it was cheaper for him to buy a car in Texas and ship it home, even though the manufacturing is done in Ontario. Crazy world.
For business technology execs, think of what that U.S. dollar devaluation means for your IT purchasing. Suppliers in China, India, and elsewhere aren't as attractive as they once were, as they adjust the dollar prices of their products to ensure that they sell at the correct value. A colleague of mine who contracts for India-based Web programming services is finding that hiring U.S. talent is now cheaper, as Indian firms no longer can offset the rupee's appreciation against the dollar just by boosting their productivity.
Like Dell and others on the supply side, if you don't adapt (and adapt again) to these ever-changing global dynamics, you'll be at a distinct competitive disadvantage--and those tend to last longer than competitive advantages. As one retiring software engineer put it in a recent e-mail to me: "The new 'Flat World' tilts back and forth and does not stay horizontal for long!" Strap on your seat belts.
To find out more about Rob Preston, please visit his page.