In-Depth

Outsourcing: Red Storm Rising

China is fast rising up the rungs of the global outsourcing ladder.

• By Stephen Swoyer
• 07/10/2007

By all accounts, India is an outsourcing behemoth, the odds-on favorite to dominate the outsourcing business for the foreseeable future.

Recently, however, market watchers have started to raise questions about the inevitability of India’s dominance. It isn’t that India isn’t—and won’t continue to be—an outsourcing force to be reckoned with, it’s just that another Asia-Pacific competitor, China, is fast rising up the rungs of the global outsourcing ladder.

First there was Gartner; in April the analyst firm urged companies to start thinking about a “Chindia” strategy that balances outsourcing activity between both China and India. This week, market-watching rival International Data Corp. (IDC) took that ball and ran with it, predicting that a handful of Chinese cities would displace Bangalore, Manila, and Mumbai as the highest ranked global offshore delivery Centers by 2011.

IDC’s conclusions are based on its new Global Delivery Index (GDI), a metric that compares 35 cities in the Asia/Pacific region as potential offshore delivery centers. IDC’s GDI takes into account labor costs, rent, language skills, and turnover rate. Not surprisingly, Indian cities are highly ranked in IDC’s first-ever GDI—although Chinese cities are quickly rising.

“There are different risk factors to consider when evaluating outsourcing, offshoring, onshoring, and nearshoring. Some factors are obviously more critical than others and the GDI takes that into consideration," said Conrad Chang, research manager for IDC's Asia/ Pacific BPO Research, in a statement. “Oftentimes, what differentiates leading cities from the rest is their focus on deal-clinching factors, and the GDI weighs that more heavily than other factors.”

What sets a top-10 city apart from an also-ran city? According to IDC, it isn’t always technology or quality of service. In fact, the market watcher reports, the top-10 cities for global delivery tended to focus more on deal-clinching factors such as agent skills, political risk, cost of labor, and language skills.

Elsewhere, IDC reports, business decision-makers are still somewhat confused about global outsourcing, especially when it comes to parceling outsourcing activities among offshore, onshore, and near-shore providers. Decision-makers don’t yet have a grasp of how to objectively compare and quantify risks between different outsourcing locales, either. In addition, leaders are confused about the future of outsourcing activity—especially in light of the rise of second-tier locations such as Vietnam and Malaysia.

IDC’s GDI top 10 includes four Indian cities (#1 Bangalore, #3 New Delhi, #4 Mumbai, and #5 Dallan); two cities in China (#6 Shanghai and #7 Beijing), and three Australian cities (#8 Sydney, #9 Brisbane, and #10 Auckland). Coming in at #2 was Manila, capital of the Philippines.