Kuala Lumpur: India remains the world’s top outsourcing hub but is facing increasing threat from rival China due to India’s high attrition rate, poor infrastructure and rising wages, a global research group said on 11 July.
According to its 2006 global outsourcing survey, Frost & Sullivan said India was the favourite hub followed by China, Ireland, Singapore, Malaysia, Mexico, the Czech Republic, Poland, the Philippines and Canada.
The survey covered some 300 multinational firms in seven sectors: financial services, technology, health care, fast-growing consumer goods, transportation, energy, and media and entertainment.
When respondents were asked to choose their top three outsourcing hubs, India scored 2.25, China 1.76 and Ireland 0.77.
However, India’s lead in the industry is being challenged by China’s ability to cover lower-end functions such as back office processing to high value services and its wide talent pool. Also, Beijing’s hosting of key events such as the 2008 Olympics make it a strong contender.
“India is faced with increasing threat from China which is emerging fast as an attractive location for information technology, research and development, and procurement services,” the study said.
Despite churning out 3 million graduates each year, demand for experienced professionals in India is outpacing supply, leading to attrition levels of up to 40% or higher, especially in the technology sector, said Aroop Zutshi, the group’s president for Asia-Pacific and Europe.
“Attrition rate is creating a big challenge in India. Clearly costs are going up and efficiency is coming down. It’s unsustainable,” he told reporters.
Zutshi said Malaysia, Singapore and Dubai are emerging as key contenders for outsourcing services and will benefit from India’s consolidating market.
The survey said new locations are also sprouting for specialized functions such as Russia for high-end software development and Dubai for banking and financial services.
It predicted the global outsourcing market for the seven sectors to grow an average 15% a year to surge to US$1.43 trillion (euro1.05 trillion) by 2009, from US$930 billion (euro680.52 billion) last year.
Financial services and technology accounted for more than half of outsourcing spending in 2006 and will remain key drivers over the next few years, together with health care and consumer goods, it added.