Last week, we met with our new partners from India. One thing that surprised us was the Indian labour market:
“Yes…there are more than a billion people in India…” said our partner, “but just go and try to find someone. The labor market is very tight. People who have been to business school – if they’ve been to a good one – can get a job anywhere. Not just in India, but almost anywhere in the world. So their salaries are up at world levels. If you want someone to sweep your driveway…yes, that will be very cheap. But if you want someone to do the kind of work we do…well, you will pay almost as much as you would in America. Salaries are rising fast.”
This from Associated Press:
“An annual survey by Hewitt Associates revealed that Indian salaries are likely to rise an average 14.5 percent in 2007, with banks and financial services companies offering the biggest hikes.
“The Philippines is expected to come a distant second with salary increases averaging 8.3 percent, and in China, salaries are likely to rise 8.1 percent, the survey showed.
“While pay hikes are expected to moderate in most Asian countries during 2007, India will see an acceleration from last year’s average increase of 14 percent.
“‘The war for talent is becoming increasingly fierce in India,’ said Sharad Vishvanath, a Hewitt executive involved with the survey. ‘As a result, compensation plays an increasingly fundamental role in attracting talent and ensuring ongoing employee engagement.’
“Indian paychecks are expected to eventually reach the same levels as developed Asian economies like Japan and Singapore, said the survey which looked at 1,500 Asian companies of which 580 are in India.”
Why should this trend come to an end? Why, in a globalised world, should a man’s labour in Chennai be worth less than a man’s labour in Detroit? Is the man in Detroit smarter? There is no reason to think so. Has he better tools? More information? More capital? Maybe in the past he did. But now no country has a locked-in advantage. The same Internet that makes it possible for us to write to thousands of Daily Reckoning readers all over the world also eliminates much of the local advantage that the West used to have. That and shipping containers…and trade agreements…and low-cost air travel…and the rise of English as a world trade language.
Our guess is that this trend is likely to continue. Asia is probably going to get rich. China already has the biggest single pile of money put together since Midas – more than USD$1 trillion.
Naturally, as the Asians get rich, it is going to push the other trends along – they’re going to use vastly more energy. And they’re going to want to eat more meat…and drive more cars on more highways…
…and they’re probably also going to want to throw their weight around militarily. Nations mind their own business until they are big enough to begin minding other peoples’ business. Eventually, the Asians will begin spending their money on weapons…and start to flex their muscles. Our advice to U.S. leaders: Be nice to the Asians.
The Daily Reckoning Australia