By Mark Atterby, Senior Writer

There are a number of reports and indexes produced each year highlighting the top countries as outsourcing destinations for IT and BPO. As one would expect India tops all of these lists. The runner-ups tend to include China, Malaysia and Philippines. In fact Asia Pacific countries, where even North Korea has been trying to get in on the act, dominate most of the lists.

After that there are quite a number of countries jostling for their position in the sun. Some such as Egypt and Pakistan, who were positioned as threats to India, have to tended to fade off the outsourcing radar due to instability.

In its report 10 Leading Locations for Offshore Services in Asia Pacific and Japan for 2010, Gartner analysed countries as offshore services locations using criteria such as language, infrastructure, education, cost, cultural compatibility, legal maturity, and security. The ranking of each country in the AT Kearney Global Services Location Index (GSLI) is composed of a weighted combination of relative scores on 43 measurements, which are grouped into three categories: financial attractiveness, people skills and availability, and business environment.

Sourcingline scores each country across dozens of key statistics that fall into three broad areas of Cost Competiveness, Resources & Skills, and Business & Economic Environment. India continues to grow its IT services exports, but its share of the worldwide total has declined, and wage pressures, geopolitical troubles and financial scandals are creating opportunities for other countries.

The Americas and Europe are the largest customers for the Indian outsourcing industry and account for 60% and 31% respectively of IT and BPO exports. The largest vertical sectors are financial services (41%), high-tech/telecom (20%), manufacturing (17%) and retail (8%). In 2009, the IT and BPO export industries employed about 2.2 million people.

Over the last few years, numerous locations have emerged in South America, Africa, Eastern Europe and the Middle East to challenge India’s dominance. Countries like Brazil, Egypt, and Vietnam have emerged as viable destinations. For a while, Egypt was touted as a new India. In 2009, Egypt was ranked fourth by the AT Kearney list before the troubles began. The recent government overthrow has certainly put the clamps down on the level of outsourcing opportunity.

Lead analyst at Ovum, Peter Ryan, said the unrest is putting the country’s outsourcing credentials at risk. “Following recent border violence in Mexico and the 2009 terror attacks in Mumbai, the events in Egypt are certain to make outsourcers and their clients much more risk-averse than any time in recent memory, and are likely to push many companies to choose the more secure, albeit costlier, option of keeping third-party work onshore”.

The Middle East and North Africa have emerged as major off shoring locations due to their large, well-educated population and their closeness to Europe. Likewise countries such as Bulgaria, Hungary and Serbia provide low cost centres for West European enterprises. There are also onshoring trends to lower cost cities within the US, UK, France and Germany — big western democracies facing political pressure to keep jobs at home.

Countries in Latin America and the Caribbean continue to capitalise on their closeness to the United States as nearshore destinations. In addition to cost savings, Latin America offers US companies time zone alignment and geographic proximity, though there are some drawbacks to consider, including language barriers and lack of vendor maturity.

Egypt’s crisis: where social media threatens global outsourcing
by Phil Fersht

Egypt’s crisis: The sticky topic of political risk with outsourcing is firmly back on the table
Like everyone else, I’ve been glued to the news in the past few days trying to comprehend the enormity of the Egyptian crisis and the possible repercussions across the global sourcing industry.

Without dragging us into a political debate, what’s alarming is the dependence global sourcing has on the Internet and political stability. When the first response of the government, in times of political crisis, is to shut down the Web, this has a massive impact on the nation’s global sourcing infrastructure to support global businesses.  While China clearly has the capability to regulate its Internet, you have to ask the question whether smaller, less affluent nations have that level of sophistication.

This is a major concern for businesses when they invest in critical support services in the region. While top-tier providers, such as IBM, Verizon and TCS rely on Egyptian resources, largely for call center work and software support and development, it’s hazardous when the government shuts off the Internet and all hell is breaking loose. What really concerns people is the unpredictability of problems like this surfacing, that can seriously impact the security and availability of key support services in areas such as IT services, finance and accounting, payroll, customer services etc.

Egypt, as an example, has proven capable as a good quality resource location for the Middle East, Africa and European regions in areas such as IT, BPO and call center services, and has invested significantly in promoting its capabilities worldwide. For example, Egypt’s Information Technology Industry Development Agency, ITIDA (website currently down) had planned to have a delegation at the forthcoming NASSCOM conference in India, and has invested heavily with McKinsey to support and help develop its capabilities. The country has invested millions to promote its sourcing capabilities – and now, that investment is looking under threat.

The rampant, viral proliferation of social media is clearly fueling unrest in many nations that have high unemployment and undercurrents of dissatisfaction among their younger people. If situations, such as what is currently happening in Egypt, proliferate to other countries with sourcing support services, the first reaction of governments now seems to be to “shut off the Internet”. You have to question how this impacts ITO / BPO services that are hugely reliant on a robust Internet to succeed – not to mention a stable political environment. The Egypt situation is a serious blow to many of the developing nations seeking to take their share of global services, which have potentially questionable political stability.

Source: HorsesforSources.com

According to report released by an industry research and advisory firm in Canada named XMG Global, by the end of this year, Beijing will have US$ 35.76 billion of  the world’s outsourcing industry, which amounts for 23 per cent of the total. India holds top spot for now at US$ 54.33 billion or 43.7 per cent of the total. The XMG’s major expert, namely Lauro Vives, notes that China is climbing up to the top based on an impressive 30 per cent growth rate which far surpasses the 14 per cent seen in India. The latter’s “weakening…is due to the substantial efforts of China, the Philippines, and other offshoring destinations in building their capacity to attract significant amount of investment,” he explained.

In fact, Manila now ranks a respectable third at US$ 8.85 billion in total revenue, which is 7.1 per cent of the world total, as 2010 ends. Its 23 per cent rate of advance is three points better than 2009′s. “While India continues to remain the leader, the rest of the offshore countries are now beginning to mature,” Vives said of the trend towards a more diverse outsourcing scene.

He added that the global outsourcing market will end this year at an estimated net worth of US$ 425 billion. This is just under 14 per cent higher than 2009. But this year’s level is less than last year’s 14.4 per cent because of slow investment expansion.

Vives said, however that “This is expected as most of the outsourcing opportunities, pending due to recession, are just starting to obtain green lights this year.” It indicates that 2010 will be a robust year. For the last 10 to 20 years, outsourcing to India has long dominated the outsourcing landscape. But that appears to be changing with recent emerging players raising their heads to take advantage of the outsourcing game.

Although there are some good options for outsourcing to Latin America, Eastern Europe and Russia, Mexico and other Asian counterparts like Vietnam and the Philippines, China is touted take the lead in the next few years as the leading outsourcing country. Despite worries that the Philippines might become the biggest business process outsourcer in a decade or so, China is closing in on the gap within the industry.

The clear advantage that China brings to the table is the three billion people or more that populate the mainland. With more and more engineers graduating from Chinese universities, there is scope for more work to come their way.

One criticism that points to China is that despite the fact that the country boasts its Internet skills among its population, the English speaking capacity is significantly lower than those of workers found in countries where Internet skills are far less. This discrepancy will cost China but only to a certain extent because everything is so cheap in China.

Talking about cheap, companies will want to consult several vendors before deciding to hire one in China. Cheaper does not necessarily mean better. Just as the euphemism, ‘You get what you paid for,’ is an apt description of quality all around the world, the same is true in China. There will be several points where point of contacts of outsourcing firms will have to define and spell out clearly what kind of product or service is desirable for the company.

China has traditionally been good at process development when it comes to manufacturing and that tradition continues to grow. We buy everything from TV sets to cellphones from China. They have a way of bringing the basics to life and for a price that is fraction of its rivals – patent infringement aside, of course.

Just a few years ago, there were controversies over Chinese products coming into the U.S. that was tainted, for example seafood that had salmonella in it. Another big scare was lead found in paint in children’s toys manufactured in China by Mattel. And there was a domestic scare about the ubiquitous ‘Chinese pork bun’ being made out of inedible materials.

All this goes to show that if you’re going to outsource to China, you will have to engage in frequent monitoring of products and also engage in constant communication with vendors so that standards are not misinterpreted. If that can be achieved, China outsourcing offers value for the money.

Victor Fic

http://www.biztechreport.com/source/victor-fic