India remains top offshoring destination for IT firms: report

New Delhi: India remains the top offshoring destination for information technology (IT) companies, followed by China and Malaysia, said a study by A.T. Kearney on Monday.

The study, Global Services Location Index, assessed 51 countries based on metrics under three categories including financial attractiveness, people skills and availability, and business environment.

"Despite expectations regarding #2 ranked China, India maintains and even increases its lead over China," the study said. "The country (India) is unrivaled in both scale and people skills."

"Leading IT services firms are expanding their traditional offerings (in India) to include R&D (research and development), product development, and other niche services," it said. "The line between IT and BPO (business process outsourcing) is blurring as players offer bundles and specialized services to their clients and develop skills in niche domains."

Although China offers an alternative to Eastern Europe for high-end IT and analytics, rising wages are limiting its cost competitiveness in lower-end functions compared with India and other Asian destinations.

Asia continued to dominate the global market, with six of its countries among the index's top 10 offshore destinations.

However, there are some challenges for the region.

Global IT firms aggressively started outsourced back office operations in the mid-2000s, but today multinationals are reassessing their outsourcing strategies. There is a course correction where some functions are being repatriated from vendors back to the companies' own service centres and employees, the study found.

"What was once a decision based primarily on cost-effectiveness, has now started to incorporate other considerations, for example, whether the function is core to the business, and therefore needs to be brought back in-house, as well as external regulatory factors impacting business relationships, accountability and the ability to protect intellectual property and customer privacy," said Erik Peterson, study co-author and partner, and managing director of A.T. Kearney's Global Business Policy Council think-tank.

These regions also face challenges from increasing digitization and automation, which could negate cost competitiveness. Greater automation and freelance-based outsourcers are eventually making physical location less relevant.

"Automation, wherein robots are programmed to perform for even less than low-cost labour, is becoming increasingly accessible and could dent the region's low-cost advantage," the study said.

"Over the past several decades, we've gone from a world where organizations that once had just one location now have dozens. In the future, however, as quick and easy deployment makes automation feasible for whole new categories of jobs, we may move to a world of 'no location'," said Peterson.

Johan Gott, co-author and senior manager at A.T. Kearney's Global Business Policy Council, said: "With the rise of 'no location', countries in the low-value-add niche may see their opportunities erode, so they'll need a strategy to aggressively move up the value chain to stay relevant."

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.