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Offshoring losing its cost advantage: study

Offshoring losing its cost advantage: study
PTI
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First Published: Wed, Mar 21 2007. 12 04 AM IST
Updated: Wed, Mar 21 2007. 12 04 AM IST
Silicon Valley, California: India is still the best offshoring destination for IT services in the world, although China is catching up fast, according to consulting firm AT Kearney’s global services location index for 2007. Every year, the AT Kearney index lists the top-50 locations for offshoring services (largely IT and IT-enabled services). Each destination is measured on 41 parameters under three categories: cost, the availability of people and their expertise, and the business environment.
India and China still remained on top, although the study found that the labour cost advantages they enjoyed were declining. AT Kearney said that the total compensation costs for office services employees in India, China, the Philippines and other offshore hotspots rose as much as 40% in 2006, compared to just 10% in most developed countries.
“What is most striking about the results of this year’s Global Services Location Index is how the relative cost advantage of the leading offshore destinations declined almost universally, while their scores for people skills and business environment rose significantly,” Paul Laudicina, managing officer and chairman of the Washington-based firm, said. These findings reinforce the message that corporations making global location decisions should focus less on short-term cost considerations, and more on long-term projections of talent supply and operating conditions,” he added.
Southeast Asian countries reinforce their position as the primary alternates to India and China, with all six major Asean (Association of Southeast Asian Nations) markets—Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam—now ranking among the top 20 locations, the study said.
“Currency appreciation and demand growth in key locations will gradually erode their cost advantage. At the same time, continued improvements in infrastructure and policy-making in emerging markets will slowly erode the business-environment competitive advantage of developed countries,” said Laudicina.
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First Published: Wed, Mar 21 2007. 12 04 AM IST
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