IDG News Service (Bangalore Bureau) — India's largest outsourcer Tata Consultancy Services Ltd. (TCS) has set up a global delivery center in Guadalajara, Mexico, with plans to hire up to 5,000 staff there over the next five years.

Having a center in Mexico helps TCS, of Mumbai, as it will be closer to U.S. customers and on a similar time zone, Pradipta Bagchi, a spokesman for TCS, said on Thursday.

The South American market also provides a significant opportunity for TCS because of a large number of regional companies investing in information technology and related services, Bagchi said. TCS currently has about 5,000 employees in South America, which service over 150 clients there. It operates global delivery centers in Brazil, Mexico and Uruguay, besides a business process outsourcing (BPO) services center in Chile.

Indian outsourcing companies are grappling with the appreciation of the Indian rupee against the U.S. dollar, and rising labor costs. India's National Association of Software and Service Companies (NASSCOM) has said that the 8 to 9 percent appreciation of the rupee over the last three months is worrisome. The U.S. is the largest market for Indian outsourcers.

TCS' expansion in Mexico led to speculation that the company may be looking for alternative locations to India. Staff in India is still cheaper than in Mexico, and the company has no plans to scale down its operations in India, Bagchi said.

A number of Indian companies have set up operations in South America and Eastern Europe to offer a near-shore option to their customers in the U.S. and Europe.

Indian companies are also expanding in other countries to look for new talent pools, as it gets tougher to hire staff in large numbers in India. Satyam Computer Services Ltd., an outsourcer in Hyderabad, said last year it was expanding in China, Malaysia and other locations to tap regional markets and supplement its Indian operations.

TCS and India's second largest outsourcer, Infosys Technologies Ltd., have also set up operations in China.

China has, however, fallen short of expectations as an offshore location, according to Forrester Research Inc. Two years ago, China was viewed as a key challenger to India because of its large number of engineering graduates and the support of the Chinese government to establish it as a key offshore location, Forrester said. But after an initial burst of momentum, there has been relatively little evidence of the country's success, the research firm added.

TCS's new center at Mexico will primarily offer software development, Bagchi said. The center will serve clients in Mexico and in the U.S., he added.