India still No. 1 destination for offshore services

MUMBAI, INDIA: Analyst firm Gartner, Inc. has identified the Top 30 countries for globally sourced activities in 2010-11, each one rated according to 10 criteria, and found that eight new countries have made their debut in the Top 30.

While India is still the topper in the chart, attractive cost structures in the Philippines, Vietnam and Indonesia create tough competition to the country, whereas China remains the most prominent challenger in terms of scale, according to Gartner.

The 10 criteria to identify the Top 30 countries were: language, government support, labour pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property security and privacy.

Many organizations that choose to move IT services to lower-cost countries are daunted by the task of determining which country (or countries) would best host their operations. Gartner said it has conducted an analysis of these countries to assess their capabilities and potential as offshore services locations.

Apart from India, the other leading emerging offshore locations evaluated by Gartner in the Asia/Pacific region are (in alphabetical order): Bangladesh, China, Indonesia, Malaysia, the Philippines, Sri Lanka, Thailand and Vietnam.

“Clients continue to seek a portfolio of offshore countries, and with India again experiencing increasing labor 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.

During the past 12 months, there has been significant activity in many countries to consolidate or grow their positions as leading locations for offshore services. Gartner has seen interest and steps taken by governments to improve their attractiveness to foreign companies setting up offshore operations in their countries.

These measures include initiatives to improve the English language capability in the education system, setting up policies to better protect data, intellectual property (IP) and privacy, and improving the country's infrastructure.

“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,” said Marriott.

While Bangladesh is rated “very good” in “costs”, China improved its scores for “political and economic environment” from “good” to “very good”, and “culture compatibility” from “fair” to “good”.

Contributing to the increased rating for China is its rising global political and economic leverage, especially during the recent global economic crisis, says Gartner.

India is already the most successful country amongst the offshore locations and continues to score very well across all 10 criteria. With the rising Rupee, its cost competitiveness is being challenged, but this is compensated by its strength in other areas.

Gartner's scores for the Philippines remain largely unchanged, although “global and legal maturity” slipped back from “good” to “fair”. What is attracting foreign companies to the country is the young, experienced labor pool specializing in contact centers and finance and accounting (F&A) business process outsourcing (BPO), complemented by good language and cultural compatibility with western economies.

In the recent times Sri Lanka has improved its scoring for “government support”, “infrastructure” and “political and economic environment”, says Gartner.

Countries like Indonesia, Malaysia and Vietnam also have improved their scores in various criteria.