Outsourcing has been a boon for many third world countries. It changed Wealth creation in many fundamental ways in China and India. Many detractors of outsourcing point out that US is losing jobs fast, and is piling on debt due to this globalization of manufacturing. However recent events show that these trends might soon be reversing.
Recent jumps in Crude Oil prices have been pretty disturbing. The $4 oil is cutting into consumer pockets and hence some analysts are predicting that this will push manufacturing of more and more goods to low cost manufacturing destinations like China. But there is something missing in this whole theory. The cost of outsourcing is not constant. Manufactured goods from China have to come to the US in shipping containers, the cost of which have proportionally increased due to the oil price increase. Given a weak dollar, China's rising costs and this added transportation cost - the outsourcing of some class of products might soon be coming to an end. Business week reports that this is already happening with products like batteries etc, which cost a lot to transport.
Coming to the Indian story of IT and IT enabled services outsourcing we are seeing the rapidly increasing wage bill of the Indian outsourcing firms which is cutting into their profits. This is affecting India's ability as the destination of choice for the IT related outsourcing areas.
Although this is a blow to Outsourcing, there is no denying that outsourcing is here to stay. But the outsourcing industry as we know it might soon be gone. The outsourcing bubble would have burst.
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