India still No. 1 destination for outsourcing

India is still the world's favourite destination for offshore outsourcing, but attractive cost structures in the Philippines, Vietnam and Indonesia and the rapid growth of the business in China are posing tough competition, according to a new study by Gartner Inc.

In the study, the IT research and advisory firm identified the Top 30 countries around the world for globally sourced activities in 2010-11, rating them on the basis of 10 criteria.

Many organisations that choose to move IT services to lower-cost countries are daunted by the task of determining which country, or countries, would best suit their requirement. Gartner conducted an analysis of these countries to assess their capabilities and potential as offshore services locations, it said.

India retained its position as the most successful country among global offshore locations, as per the Gartner study. It scored well across all 10 criteria. While its cost-competitiveness is being challenged due to the rising rupee, this is compensated by its strength in other areas, as per Gartner's study.

"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 Gartner Research Vice-President Ian Marriott.

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 in the wake of the recent global economic crisis.

China experienced a steady positive growth rate, spurred by a $583.9 billion stimulus package, in 2009. The Shanghai 2010 World Expo has helped increase cultural awareness within China, which has helped the growth of the business in the country, according to the study.

Gartner's scores for the Philippines remain largely unchanged, although its rating for "global and legal maturity" fell from "good" to "fair".

Gartner continues to see foreign companies being attracted to the Philippine's young, experienced labour pool specialising in contact centres and finance and accounting (F&A) business process outsourcing (BPO), complemented by its good language and cultural compatibility with western economies.