For anybody following economic news, the US dollar is in shambles. Initially, I thought this would bring about a depression in the IT sector and possibly a bubble collapse. Don’t get me wrong: I believe there will be a softening in our industry due to things like the crashing housing market (think of all the Adwords purchases that will evaporate). However, another unintended consequence is that off-shoring (the practice of hiring foreign programmers), which was all the rage 2 years ago, is becoming impractical.
As evidence, check out the exchange rate between the Dollar and Rupee: it’s down 15%, and the vast majority only in the past few months. We can sit here and argue if the drop will continue, but we can probably agree that the dollar isn’t going to rise back up anytime soon.
This sort of exchange rate suicide means off-shoring practices are now 15% more expensive across the board compared to 24 months ago. Any company doing this has more and more reason to boot the practice, especially considering the added cost of managing remote, non-native English speaking employees. Considering things like term contracts and the threat of a further falling dollar, the practice actually becomes quite dangerous. Just think: you sign a $3M two year off-shoring agreement only to have the dollar drop 10% next year — suddenly you owe an extra $300K.
So aside from all the arguments that exist about money flowing from the housing market back into IT in the form of capital investment (rather than through ad purchases), we can also safely assume that in-house IT operations themselves will become more valauble in 2008. 🙂
Your interpretation or linking of falling dollar to sudden cost increase of contract is not valid. Reverse off shoring is possible but not in 2008 or 2009. Process is 10-15 yrs old may more but not less. I will say that things will change but not so soon.
My theory is once the contract is signed value doe not change due to currency fluctuations unless you have a MSA that says so. Contract value will remain same, what it will do is effectively eat up the profit that off shoring vendor. For now I see most of the vendors are willing to accept the cost.
Nice.