Global Outsourcing Guide 2006 CIO/ A T Kearney

The CIO's global outsourcing guide, prepared by A T Kearney, brings out how the offshoring world has changed.

The Executive Summary

India remains the leading offshore destination by a wide margin, particularly for U.S. and U.K. companies. "Every year, the risks of moving work to India get lower," says Dean Davison, VP of strategic outsourcing for Nautilus Advisors. "India is increasingly more adept at IP protection, providing resilient infrastructure and managing global relationships effectively." Although Gartner estimates that India currently holds 80 percent to 90 percent of the offshoring market, wage inflation and the increasing maturity of other low-cost areas threaten its future dominance. And as India's star has risen, so have its turnover rates—a growing concern for CIOs. Consequently, Davison expects India's market share to shrink 20 percent by 2010.

Today, less than 10 percent of American companies outsource to more than one country but "most are evaluating multiple locations," says Davison. China, for example. Experts say it could be a powerful rival to India in the next three to five years, even though it currently can't match India's large English-speaking workforce, its level of compliance with international law or its number of IT grads.

Labor and operational costs in Central European countries such as Poland, Hungary and the Czech Republic—attractive outsourcing options for Western European businesses—continue to rise, approaching the level of their customers. So penny-pinching European CIOs are looking deeper into the former Soviet bloc, to countries like Romania, Bulgaria and the Ukraine. Latin American destinations such as Costa Rica, Mexico and Brazil are beginning to attract U.S. back-office and call center work as the need to service Spanish-speaking markets grows. And A.T. Kearney suggests that the Middle East and Africa may be the next frontier for offshore operations—if the politics of the area stabilize.

Although labor costs will continue to be the driving factor behind offshoring, CIOs must internalize the "cost-versus-risk equation," says Ian Marriott, research vice president at Gartner. When going offshore, common risks (infrastructure stability, process maturity, security) become more conspicuous, and uncommon risks (human resource predictability, political stability, rule of law or lack thereof) emerge. Increased competition for the offshore outsourcing dollar promises to raise standards around the globe, but more opportunity equals more risk, and choosing a location is an increasingly complex decision—one we're hoping the "2006 Global Outsourcing Guide" will help you make.