Rising Costs In India Fail To Dim Offshore Attraction

India  is still hanging on as the top destination for services contracts, despite the increasing cost of outsourcing services there, says Gartner.

“Clients continue to seek a portfolio of offshore countries and, with India again experiencing increasing labour costs and attrition, this is creating opportunities for other offshore locations to target the services needs of more-mature Asian clients,” said Ian Marriott research vice president at Gartner, in Gartner’s 30 Leading Locations for Offshore Services, 2010-2011.

Language And Legal Improvements

The annual report notes that there has been significant activity in many countries to consolidate or grow their positions as leading locations for offshore services. This has prompted the author to look at emerging offshore markets rather than the more mature markets in Australia, New Zealand and Singapore. In their place, Marriott added Bangladesh and Sri Lanka to China, India, Indonesia, Malaysia, the Philippines, Thailand and Vietnam.

Gartner notes the steps taken to improve each country’s standing with increased emphasis on English language teaching in their education systems and improved regulation to protect data, intellectual property (IP) and privacy.

“Enforcement of laws with regard to data/IP and  privacy protection, and legal maturity continues to be an adoption barrier for using a number of low-cost countries despite country governments taking action to improve the policies and regulations in these areas,” Marriott observed.

The reports found that Indonesia offers among the cheapest labour costs for IT and business process skills in the region but Bangladesh was also rated well in the costs category.

In Malaysia’s 2010 budget, the introduction of government-driven green IT initiatives and its investment in high speed broadband (HSBB), with the aim of bringing this to 1.3 million homes and premises by 2012, has improved the region’s standing. This adds to Gartner’s acclaim for its growing reputation in service desk provision, plus remote infrastructure monitoring and support.

Changes in the political and economic environment in China resulted in its rating moving up from “good” to “very good” and its Culture Compatibility being upgraded from “fair” to “good”. The Shanghai 2010 World Expo helped to increase cultural awareness within China, Marriott said.

Thailand and the Philippines remain as options but their standings did not show much change from last year. The report does note that Thailand’s desire to improve its policies around the areas of data/IP/security and privacy, and education bode well for next year.

New options emerging

Though Sri Lanka has been omitted from reports since 2007, it has improved its scoring for government support, infrastructure as well as its political and economic environment.

Vietnam appears to be the rising star. In the past year it has improved its labour pool and culture compatibility ratings from “fair” to “good” through its expatriate communities drawn from Japan, South Korea, Taiwan, Malaysia, Singapore, Thailand and France. However, its cost rating slipped back from “excellent” to “very good”.

The Vietnamese government plans to train 40 percent of its workforce in selected fields, including IT.

It is India that continues to be the most successful country among the offshore locations. It continues to score very well across all 10 of the criteria that Gartner has set. Despite the rising value of the Rupee eroding the cost-competitiveness of the region, its strength in all other categories acts as a compensatory influence.