6 Offshore Outsourcing Hot Spots for 2010

The headlines in offshore outsourcing in 2010 may focus less on the quantity of work organizations are sending overseas and more on where they're sending it.

By Stephanie Overby
Tue, December 22, 2009

CIO — Industry watchers predict an increase in offshore IT outsourcing in the new year. But 2010 is hardly expected to be a banner year for offshoring—better than 2009 but far from historic growth levels.

The headlines in offshore outsourcing in 2010 may focus less on the quantity of work organizations are sending overseas and more on where they're sending it. Leading companies will begin developing networks of offshore locations for outsourcing: They'll supplement contracts with vendors in more developed locales like India and the Philippines with new relationships in emerging markets in Latin America, Asia and Africa. Of course, "risk averse buyers will not venture too far afield in 2010," says Stan Lepeak, managing director of global research for EquaTerra.

Here are six offshore locations liable to loom large in IT services in 2010.

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China. Analysts and industry watchers have nattered for years about the nascent but promising IT services industry in the world's most populous nation. But issues including lack of English language skills, business immaturity, IP protection concerns, and lack of managerial talent has prevented China from moving ahead as a destination for offshoring in a major way. In 2010, China is likely to garner attention mostly as a near-shore outsourcing center. "Where China can demonstrate its language advantage, it will be the destination of choice for organizations in Japan and other Asian countries," says EquaTerra's Shanghai-based consultant Vibhash Ranjan.

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"One of the key factors that will determine whether the growth can continue into the future is if the government encourages structural change in state-owned enterprises (SOEs)," says Melany Williams, partner and managing director of IT service provider consultancy TPI Momentum. "A tipping point will be when the Chinese government encourages the outsourcing of selected functions of the SOEs to local and foreign service providers." That, says Williams, will be a key indicator that China is entering a new level of outsourcing maturity.

India. India's dominance as an offshore outsourcing destination will continue, notes EquaTerra's LePeak. But that may present disadvantages for the Indian providers and their customers. Outsourcing consultancy Everest predicts the country's IT services providers will experience a growth revival that, late next year, could lead to spikes in wage inflation and attrition. To balance those trends, Everest says that vendors will continue to move work to tier two cities, such as Pune and Chennai.

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In 2009, several Indian vendors went on shopping sprees and will now attempt to sell existing IT services to clients of the companies they've acquired. But that will require fundamental changes in their business models—most notably the need to do more local or onshore hiring, which could impact their bottom lines, notes Everest in recent research.

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