Monday, August 14, 2006

Retailing and Software

The New Economist reports that IBM is planning to expand massively in India, and that this scares Indian firms who will now face competition for their employees.
Wage inflation is real but not a problem.

Some commentators have expressed concern that wage inflation in India is blunting the country's competitive edge in software services. These fears are overstated. It isn't particularly worrisome from India's perspective that the country's software engineers are now only a sixth as cheap as their U.S. counterparts. In 1998, that wage difference was about twice as large. The skills gap between its computer programmers and those from developed countries is shrinking even faster.

However, supply side constraints remain

That doesn't mean that such jobs are open to everyone. "Only those individuals have been able to gain entry into this industry whose parents are both quite highly educated,'' says Anirudh Krishna, a professor of public policy at Duke University in Durham, North Carolina.

Krishna's research on three Bangalore-based software companies shows that undereducated parents, unaware of the potential in the software industry, fail to prepare their children for the available opportunities. Parental ignorance constrains the size of the talent pool.

Ricardo is alive and well, as other sectors of the Economy struggle as talented people opt for careers in IT. The Bangalore Bug is

term that International Monetary Fund Chief Economist Raghuram Rajan uses for the challenge India will face as rising software wages make engineers so expensive that other sectors of the economy, especially labor-intensive manufacturing, can't afford them.

The New Economist also describes Reliance's plans to become the 3rd largest retailer in the world, after Wal-mart and Carrefour.

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