According to a report released yesterday, India has retained its coveted position as the number-one offshoring destination in the world—not only maintaining, but increasing, its lead over number-two ranked China.
The report, the 10th annual Global Services Location Index (GSLI), is a ranking of top destinations for global outsourcing prepared by A.T. Kearney, a global management consulting firm. I had the opportunity to speak with Johan Gott, senior manager at A.T. Kearney and co-author of the GSLI, and I opened the conversation by asking him how India has managed to retain the number-one spot, ahead of China. He attributed it to what he sees as an “unbeatable combination” of factors:
We found the increase very interesting, especially when you look at the debate that was going on about five years ago, when people were talking about India perhaps losing its competitive edge, and China building up as a major threat. What we’re seeing, though, is India is still the predominant location for a couple of reasons—it is an unbeatable combination of a huge labor force; lots of great educational systems; and English-speaking, of course. And there is a consistent move to innovate and move up the value chain. I think India offshoring isn’t today what it was 15 or 20 years ago—it has evolved immensely, now spanning the full value chain from low-end BPOs [business process outsourcers] to high-end KPOs [knowledge process outsourcers]. At the same time, across the board in China, as China has developed economically, the cost profiles have increased at a pace that people really weren’t expecting, say, 10 years ago. This has implications in manufacturing, as well as in services.
I found it interesting that Poland was number 11 on the list this year, up from the number 24 spot last year, so I asked Gott if he had any sense of what had driven such a big jump. His response:
Poland is an interesting country, and Central Europe is an interesting region, in that it has been, and still is, one of the big destinations for European companies—it’s a great near-shoring option for them, to have locations within a two-hour flight, where there’s a significant cost advantage over their home countries. And now, most of these countries are in the EU, including Poland, of course, so there’s a harmonious regulatory framework.
The report also found that a lot of IT functions are being brought back in-house. I asked Gott what’s driving this change, and he said there are a couple of things:
One is IT’s increasing role as being core to the business, as opposed to a supporting role—that’s the most important factor. Secondly, after the large-scale move to outsourcing in the mid-2000s, companies are now starting to realize that some of their skills are starting to atrophy. They are losing critical capabilities in certain areas—companies want a little more control. I’m not saying they want to bring back everything, but they want to bring back enough to maintain a level of competency within the company.
Another interesting finding in the report is what A.T. Kearney describes as the emergence of “no location” as a destination category—work that might be performed anywhere by individual or groups of freelancers, and work that’s being automated. Gott explained the automation component this way:
The type of work here is performing routine tasks that heretofore have been outside the reach of automation because of the cost of creating that program. In the past, you would have to have several hundred people working to create a software program to be able to automate these functions. Now, what is new is that the ease of programming these systems is at a level where it can be accomplished within the business unit.
I asked Gott how he would characterize U.S. companies’ reliance on offshoring overall, and where the trend is heading. He said it’s moving steadily toward more offshoring:
It has evolved a lot since it started in the late 90s, and companies have found more and more areas in which they can move [the work] offshore. The number of companies that [send work] offshore has increased, as well. In the beginning, it was mostly the big financial services companies and the big telecoms, and of course the IT companies. And that spread to more and more sectors, and to smaller and smaller companies. So now you’re seeing more medium-size enterprises utilizing offshore; and with new technologies, you’re even seeing small companies being able to utilize offshore resources.
Finally, here’s A.T. Kearney’s list of the top 12 offshoring locations for 2014:
A contributing writer on IT management and career topics with IT Business Edge since 2009, Don Tennant began his technology journalism career in 1990 in Hong Kong, where he served as editor of the Hong Kong edition of Computerworld. After returning to the U.S. in 2000, he became Editor in Chief of the U.S. edition of Computerworld, and later assumed the editorial directorship of Computerworld and InfoWorld. Don was presented with the 2007 Timothy White Award for Editorial Integrity by American Business Media, and he is a recipient of the Jesse H. Neal National Business Journalism Award for editorial excellence in news coverage. Follow him on Twitter @dontennant.