Web Forefront

I came across the concept of the Big Mac index a few months ago in an investing magazine, and it immediately struck a chord with me, especially with talks I've had related to the IT out-sourcing craze, which are pretty common to someone living and working in IT outside the U.S.

The most recent buzz I overheard here -- Mexico to be exact -- is a game development company setting up shop to create leading edge games, their source of labor: Java/Java EE/C++ developers to the tune of $13,000 Dlls a year, a bargain by U.S standards, where perhaps the lower end of the spectrum is $60,000 Dlls a year.

What's the price of a Big Mac in Mexico you say ? Around $2.80 Dlls vs $3.00 Dlls in the U.S, which means that using such an index, you would only need to spend $2.80 in Mexico to get the same $3.00 value in the U.S -- a 7-8% savings -- but how come the savings ratio for high tech-labor is even more ? It may seem more, but I can tell you from experience that anything beyond this savings rate, ain't gonna be no Big Mac!.

I don't want to go into the economic, social or political reasons of why a recent C.S college graduate in Mexico would even consider a $13K yearly salary -- income disparities are all over the spectrum like any developing country, Mexico even nurtured and still boasts the 3rd richest person on the planet Carlos Slim Helu at $41 billion, only behind Gates and Buffett [ UPDATE Summer 2007 : Well now this guy is THE richest person on the planet Mexican tycoon Slim world's richest man: Fortune ] -- but someone who is on par delivering the same results as a U.S counterpart will command the same cost -- if not more due to scarcity -- in a free market. ( A similar argument to those in the medical field in developing countries is made by Philip Greenspun here The End of Poverty by Jeffrey Sachs ).

Of course we are talking about burgers you might say, but I can give you various tech and non-tech price examples across countries, that while apparently less expensive, suffer when it comes to getting the same end result. So is out-sourcing dead on account of this quality disparity ? Probably not, for the same reason out of the way and high-end burger places will still exist alongside the Big Mac.

In the case of IT, there are many places across the globe offering out-sourcing services, but will you able to get something better than a Big Mac for a lesser price ? Perhaps, because those fitting these last requirements will surely be few and far between, not to mention they will also have a higher search cost associated with them.

High-end places are easier to find of course, and in IT they will continue to exist, there will always be organizations and people willing to pay a premium for getting something fancier than a Big Mac.

The obvious rub for all of us in IT of course, is that the concept of a Big Mac is an ever evolving process, nevertheless, given a same point in time and technology, producing an identical result in different geographical regions should be no different cost wise, than that to purchasing something as mundane as a Big Mac.