Offshore cost-advantage to last for 20 years

India and China to dominate...

By Andy McCue

Published: Monday 19 March 2007

India and China will retain their low-cost labour advantage and dominate the offshore IT and business process outsourcing services market for another 20 years.

The annual Global Services Location List, by management consultancy AT Kearney, says that while wages in offshore locations have started to rise they will remain cheaper than 'onshore' alternatives for the "foreseeable future" - even taking into account the most aggressive projections of wage inflation in developing economies.

The Top 5 offshore outsourcing locations

1. India
2. China
3. Malaysia
4. Thailand
5. Brazil

Click here for the full Top 50

The AT Kearney study lists the top 50 global outsourcing destinations based on cost, people skills and availability, and business environment.

In this year's list India again comes top, with a diminishing but still large lead over China in second place.

The report says India's dominance is due to an "unbeatable mix" of low costs, deep technical and language skills, mature vendors and supportive government policies. It adds that wage inflation has been matched by corresponding increases in the supply and quality of skills.

Other southeast Asian countries also remain the primary alternative to India and China, with Indonesia, the Philippines, Singapore, Thailand and Vietnam all in the top 20. Significant declines in telecoms costs are cited as being one of the key drivers for the rise of those countries.

Brazil, Chile and Mexico in Latin America have also grown in importance as 'near-shore' outsourcing locations to North America.

Bulgaria and Romania are the rising stars of the Eastern European 'near-shore' bloc of countries but a weak business environment is responsible for Russia and the Ukraine featuring low down in the rankings of outsourcing locations.

African countries such as Mauritius, Morocco, Senegal and Tunisia are also rising up the ranks, utilising their French-speaking population to provide services for Francophone markets.

Paul Laudicina, managing officer and chairman of AT Kearney, said in the study: "These findings reinforce the message that corporations making global location decisions should focus less on short-term cost considerations, and more on long-term projections of talent supply and operating conditions."