Indians tipped to stay on top, for now

Monday, May 02, 2005

Angus Kidman INDIA may be the dominant player in offshoring IT and business activities, but other countries are seeking to curry favour with executives and grab a share of an increasingly busy market.
There’s a lot at stake. Analysts at Gartner estimate that global spending on offshoring will reach $65 billion by 2007. Analysts say India is unlikely to be be toppled from its position as offshoring champion in the near future.

Its position at the top of the offshoring ladder is supported by English language skills; a well-established legal system; low labour costs; and a large pool of offshoring specialists with representation in client markets such as the US and Australia.

Gartner vice-president Bob Hayward says there’s no evidence of any big Australian companies examining offshoring in markets outside of India, in part because no organisations from other countries have set up offices here.

“The most successful offshore providers have invested heavily in front offices,” he says.
India has had a focus on overseas markets from the very beginning of its IT industry, he says.
However, in the longer term, China is emerging as a threat to India’s dominance. Some eastern European countries may also tarnish its technology crown.

The top-five offshoring destinations this year are India, China, Costa Rica, the Czech Republic and Hungary, according to the Global Outsourcing Report by Horasis and Going Global Ventures.

The Economist Intelligence Unit has a slightly different take on the market. It lists the main players as: India, China, the Czech Republic, Singapore and Poland.

The Global Outsourcing Report says the situation will change by 2015.

China will have demoted India to second place, and larger nations, the US, Brazil and Russia, will have used scale to reassert their dominance in the global marketplace, it says.

Skills shortages and other factors are beginning to influence offshoring decisions.

A survey by Hewitt Associates found that a lack of skilled staff was forcing some companies into offshoring regardless of cost.

Gartner analyst Partha Iyengar says cost is not the only factor. “While cost savings is the most frequently cited reason for the decision to rely on offshore sourcing, it is not the only driving force between teaming offshore and local development groups.”

However, cheaper labour is the main reason companies are shifting IT activities across borders.
In that field, while India remains competitive compared with Western nations, it is facing stiff competition by players such as China.

At the lowest end, Vietnamese programmer salaries are typically half of those in India, and less than a tenth of the comparable salary in Australia.

Gartner predicts Indian labour costs may rise by as much as 60 per cent by 2008.

Indian outsourcing providers are keen to downplay the threat.

“Areas such as China, Eastern Europe and the Philippines are becoming major players in IT offshoring but India still has an overwhelming advantage because of the support of the government and the country’s huge talent pool,” Wipro chairman Azim Premji said in a recent interview.

One commonly-touted scenario suggests India will dilute the threat from China by using Chinese labour to do basic tasks, but retain the overall management of offshoring contracts.

Many of the emerging offshoring players are concentrating their skills in particular fields.

The Philippines has developed a solid reputation for call-centre and data-entry outsourcing, while a number of eastern European countries specialise in high-end coding tasks and security applications.

One potential advantage for Soviet countries may be their legacy of a well-developed education system compared to their Asian counterparts, providing a solid pool of staff for more technically oriented activities.
Conversely, they are perceived as lacking political stability and legal sophistication.

Political stability is less of an issue for centrally-managed China, but a lack of English language skills may restrict its ability to grow.

Hayward says most Chinese IT companies can get plenty of business from the growing domestic market and don’t yet need to look offshore for revenue.

The emergence of these new players does not spell good news for Australian IT workers.
The Global Outsourcing Report says that while only 32 per cent of companies are offshoring, half of those that do cut positions in their home countries.

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