India is king for offshore as Asian nations dominate latest list

• AT Kearney study says shifting global business environment reshuffles the deck for global offshoring destinations
• While India, China and Malaysia remain top offshoring destinations, wage changes and currency flux lead to major changes in the rankings

While a sluggish recovery continues to create the kind of pressure for economies that drive business outsourcing, an increasingly complex global economic environment has led to major changes in the ranking of the most attractive offshoring destinations, according to the most recent edition of global management consulting firm A.T. Kearney’s Global Services Location Index.

Once again, a combination of human resources and low cost have placed India, China and Malaysia in the top three spots—positions they’ve occupied since the inaugural Global Services Location Index in 2003. At the same time, currency movements has helped boost states whose costs had formerly kept them far down on the list, including the Baltic States, United Kingdom, Mexico, and the United Arab Emirates.  The Global Services Location Index analyses and ranks the top 50 countries worldwide for locating outsourcing activities, including IT services and support, contact centres and back-office support. Each country’s score is composed of a weighted combination of relative scores on 39 measurements, which are grouped into three categories: financial attractiveness, people and skills availability and business environment.

In addition to economic changes, the nature of outsourcing itself is in transition. The old model involving multi-year contracts, custom code, and on-site systems integration workers is beginning to give way to a new model in which outsourcers provide standardised software solutions on a per-use basis. The past two years have seen a number of outsourcers building and/or acquiring the capabilities required to survive this shift, in the opening salvo of a coming revolution in outsourcing.

“Regardless of changes in the outsourcing industry business model and other temporary setbacks, we believe the era of globalisation of services production has only just begun,” said Erik Peterson, managing director of A.T. Kearney’s Global Business Policy Council. “IT and BPO offshoring are early manifestations of a larger trend that, in the long run, means that more functions can and will be considered for localisation in countries outside of which end-customers reside.”

“We have already witnessed a shift in the footprint of manufacturing across the globe to a point where emerging markets have become manufacturing powerhouses, and we can expect to see a dramatic shift in the relative balance of service production among the developed and emerging markets in the future,” said Johan Gott, manager of research for the Index.

The complete results of this year’s Index are provided below. A more detailed analysis and information on regional performance can be found at www.atkearney.com.

Highlights from this year’s Index include:

n Asia dominates the top 10 positions on the Global Services Location Index, with the leaders once again India (1), China (2) and Malaysia (3), as well as Indonesia (5), Thailand (7), Vietnam(8) and the Philippines (9). The different strengths of these countries vary from India, with a deep and broad skill base, to Vietnam, which ranks as the most financially competitive country in the index.

n The Middle East and North Africa have become increasingly attractive because of their proximity to Europe and vast talent pool. Egypt is the leader in the region and 4th worldwide, however, the rankings were made before the recent political unrest began. As a result, the political uncertainty and country risk associated with Egypt have dramatically increased and the situation needs to be closely monitored to gauge whether the long-term risk profile will change. The United Arab Emirates climbed to 15th overall, serving as a regional services hub.

nWhile many European countries were badly hurt by the financial crisis, Estonia (11), Latvia (13) and Lithuania (14) saw their ratings climb as a result. While hit as severely as many Eurozone countries, they engaged in a process of “internal devaluation,” cutting wages and expenditures, and as a result were able to offer highly competitive cost structures. The UK as well was able to benefit from a sharp drop in wages, and climbed to 16th in the ratings from 31st in 2009.

n While the United States is the top customer for outsourcing services, accounting for 63 percent of global IT outsourcing spending, its Tier II locations rank 18th as outsourcing locations, thanks to a combination of talent and accessibility. Meanwhile, Canada has seen its cost advantage diminish, and it has fallen in the ranking to 39th.

nLatin America continues to serve the US market well, and is expected to grow in importance. This year, Mexico, in 6th place worldwide, leads the region, due to a sharp drop in wages over the year, the increased attractiveness of “near-shoring,” and a well-developed talent pool. Chile dropped to 10th place from 8th, while Brazil was number 12 for the second straight year.

“The headlines about persistent economic volatility may be here for some time, and for the global services industry, the short term will remain rocky as worries about sovereign debt, currencies and joblessness continue to roil the global economy,” said Paul A. Laudicina, A.T. Kearney chairman and managing officer. “But the long-term prospects appear little changed from our first Global Services Location Index. An increasingly interconnected world and increasing demand mean that the global services industry remains on the rise.”

A.T. Kearney is a global management consulting firm that uses strategic insight, tailored solutions and a collaborative working style to help clients achieve sustainable results. Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading corporations across all major industries. A.T. Kearney’s offices are located in major business centers in 36 countries.

Wipro reorganises core IT outsourcing business

Reuters: India’s No.3 software services firm Wipro Ltd. said on Monday it had reorganised its key IT outsourcing business, less than three weeks after it named a new chief executive as it seeks to win more clients.

Wipro has been struggling to keep up with sector leaders Tata Consultancy Services and Infosys Technologies, with its earnings and volume growth in the December quarter lagging that of its larger rivals.

Last month, Bangalore-based Wipro named company veteran T.K. Kurien as Chief Executive Officer, overhauling its joint chief executive structure.

“The fact that they announced the reorganisation so quickly is a positive sign, but we will need to see how this goes,” said Arun Kejriwal, Director at KRIS, a research firm.

Wipro has organised its IT business into six business units by industry, and managed by different people.

“With the change in environment, there is a need for a bolder, simpler and more agile organizational structure,” Kurien said in a statement.

Last month, India’s top engineering and construction company, Larsen & Toubro said it will reorganise its operations into nine business verticals as the conglomerate seeks to simplify its structure to better manage growth.