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Purchasing Power Parity (PPP) in a Global Economy...

The Great G-Bazaar

Benefit From Gray Arrow A Kaytek Offsourcing Consulting Insight






An earlier version of this article was originally written as a weblog on an external website on 23rd April 2004.


The Great G-Bazaar.


The Great G-Bazaar (Global Marketplace) may perhaps see us shopping for our Breakfast in Bombay, Lunch in London and Dinner at Detroit.

My earlier Articles have mentioned the importance of Global Currency Exchange Rates for Offshore Outsourcing Decisions.

What I did not mention was the concept of 'Purchasing Power Parity' or 'PPP'.

What does it mean in simple terms ?

Imagine you are in a Walmart in either Mumbai (maybe in the future since Walmart is not in India currently?) or London or Detroit with exactly the same units of local currency.

In Mumbai, Rupees 50.




In London, 50 Pounds.

In Detroit, US $ 50.

Assuming that you like eating Peanut Butter Sandwitch throughout the day.

Armed with 50 units of the local currency (either Rupees, Pounds or Dollars) you have to buy only Peanut Butter and Bread. Nothing else.

In an ideal world, when you finish shopping, you would expect the basket to have exactly the same quantum of Bread and Peanut Butter at each of the above 3 cities in different countries.

Right ?

Wrong.

Why ?

Goods and Services Stuff in India worth Indian Rupees 2200 (US $ 50 multiplied by 44 the Approximate USD-Rupee Conversion Rate) is NOT the same as that worth either US $ 50 in the US or 50 Pounds in UK.

Roughly, (as per my limited knowledge on this subject) between US and India, the PPP conversion factor is between 6 to 8.

A US $ 50 in the US is perhaps worth only Rs 300 - 400 in India in terms of it's local purchasing power here, not Rs 2200 as some might expect.

For instance, perhaps you can hire a fresh MBA for US $ 5000 per month in the US.

Would you expect to get a MBA for US $ 114 (5000 divided by 44) per month in India ?

Not really. Maybe 6-8 times more.

Purchasing Power Parity or PPP explains the reason.

Smart Great - G Global Multinational Players understand PPP well enough.

To Thrive in The Great - G Bazaar.

Talking of Great-G, moves me on to 2 other Great-G's of yesterday.

One Great-G is our Precious Globe.

Yesterday, (22nd April 2004), was World Earth Day.

Take care of the Earth.

It needs it. As much as IT.




For Indians, yesterday was also a Great-G(od) Day.

It was 'Akshay Tritiya'.

As per the Hindu Calendar, it was the most auspicious day of 2004.

Perhaps of the last 70 years.

To either to start a new venture or a new relationship.

As millions in India did hopefully.

It was also the day this Website launched a New focussed Outsourcing Series.

'Shubh Mahurat' in Hindi means An Auspicious Opening !

Happy Tidings from India !

For all your existing / new ventures and relationships !!


Gray Arrow Email Us : Can we help in your Offshoring Strategies ?




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Updated on 4th March 2009
Posted on 12th February 2005

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