Is India threatened at the top?

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Gartner has been on an outsourcing research spree this week as it settled its great magnifying glass over the Asia pacific region. In two interesting bits of research we’ve learned that India and China are still top-dogs in the global offshore-services game – though they are being chased down by newer South-Asian competitors – and that India’s domestic BPO is growing at a rather impressive 25 per cent. Better than global growth of around 19%.

Delve deeper into the research and we find that there are some interesting things driving this forward and, as usual, some implications for the industry.

One of the key drivers for the newer sourcing nation’s successes appears to be the fact that India is doing all that domestic work. This change of focus and decreasing ability to deliver on its traditional labour arbitrage role, is allowing these new competitors come to the fore. Countries such as Thailand, Vietnam, and Indonesia have seen the opportunities to step in the low-cost space and are increasingly peddling their wares to the US and UK.

While it is a good thing that newer locations are having more success, it does mean that there are still a lot of organisations out there still chasing the cheapest cost per head. The recession has clearly bolstered this focus and it will continue to play an important factor for some time yet. However, it’s important risk and service-wise that, that end-users aren’t always swayed by cost alone.

As Jim Longwood, research vice president at Gartner, says, “As organisations increasingly look at global delivery as a means to reduce cost, they will need to focus on important areas such as security, data and IP protection and compliance. However, the link between lower risk and higher cost holds true.”

For this reason it is also important that the ‘new kids on the block’ don’t try to sell themselves on cost only. There is always going to be someone cheaper, so specialisation is key. According to the report, Indonesia is already doing this using its mining and manufacturing background. I see this specialisation as central to newer location’s long-term viability. This progression often happens in the end anyway as higher-educated workers look for better pay and more interesting jobs. Specialising early on a niche could see some locations carve out a lucrative and sustainable proposition.

The other interesting factor from the research is China’s continued position with India at the top of the Asia-Pacific rankings. With the recent Google wrangling highlighting once again the difficulties with free trade in the country, it will be interesting to see just how far this success can go. These issues make it less attractive for some organisations to source from the country but also for existing global outsourcers to set up shop there.

So it is clear there is no real danger to India and China’s sourcing dominance in the near term, especially as it looks like both will be feeding off internal growth. But this will give other counties a chance to establish themselves in the interim and as time goes on offer real sustainable competition to them.

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