China set to overtake India as offshore favourite

New IDC index finds India faces stiff competition in the global market for outsourcing services.

Research firm IDC is predicting that China will overtake India as the offshore outsourcing country of choice.

The analyst firm has developed a new Global Delivery Index (GDI), which compares 35 cities in the Asia Pacific region as potential offshore delivery centres, based on 30 criteria including cost of labour, cost of rent, language skills and turnover rate.

In its inaugural findings, Bangalore heads up the top ten business process outsourcing (BPO) destinations, closely followed by other Indian cities, Manila, Delhi, and Mumbai. But IDC said Chinese cities, like Dalian, Shanghai, and Beijing are on the rise and closely nipping at India's heels, ranking fifth, sixth and seventh.

It forecasts Chinese cities will overtake Indian cities by 2011 due to massive investments in infrastructure that are favourable towards offshoring, including common language skills like English, internet connections and technical skills, for example.

"There are different risk factors to consider when evaluating outsourcing, offshoring, onshoring, and nearshoring. Some factors are obviously more critical than others and the GDI takes that into consideration" said Conrad Chang, IDC Asia Pacific BPO research manager. He also said a focus on deal-clinching factors and the GDI ranking are what most often differentiate leading cities from the rest.

These extra factors, according to IDC, include agent skills, political risk, cost of labor, and language skills. Other area identified that are also important in global delivery, such as resources, infrastructure and government factors, are well balanced among the leading cities.

Graham Underwood, managing director of outsourcing consultancy, GFT UK told IT PRO that a few years ago China may have been seen as a manufacturing outsourcing destination, but India was the place for business and services projects.

"This seems to be changing as China, far from being a passive recipient of outsourcing work, is actively pursuing the business, adding technical infrastructure, and even whole cities, to accommodate demand," Underwood said. "Similarly to India, it has a well-educated workforce and English is widely spoken; all of which makes it well-placed to overtake India as an offshore outsourcing destination in the next five years."

But Underwood does not go so far as to fully back IDC's predictions. "Political and economic stability are also important for successful outsourcing, which is why other countries are emerging as offshore locations, particularly in South America," he said.

"As Google recently discovered, China has severe restrictions on accessing internet content. This lack of freedom to access information is a potential barrier and could prove problematic for companies looking to outsource. Ultimately it could prevent China from overtaking India and it could still lose out to Brazil."

He concludes: "With its rapid and enthusiastic growth, China is certainly one to watch, but India needs to look West, as well as East, if it wants to keep an eye on its competition."

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