Offshoring: The 25 Most Dangerous Cities for Outsourcing in 2010

What a difference a year makes.

In a few days, the Black Book of Outsourcing will release its annual ranking of the most dangerous outsourcing spots around the globe, as perceived by outsourcing buyers and corporate development leaders. The research, which also recognizes the most reliable offshore outsourcing hot spots, is chock full of changes in the rankings.

Not surprisingly, Karachi, Pakistan, Medellin, Colombia, and Juarez, Mexico earned the dubious distinction of most dangerous outsourcing hubs this year, given the growing geopolitical issues, crime and corruption, the threat of terrorism, and currency fluctuations associated with those cities. (See page 3 for the full list of the 25 most dangerous cities for offshore outsourcing.)

But Bogota, Colombia—2009’s most dangerous city for outsourcing—now sits somewhere in the middle of the 160 outsourcing destinations included in the survey. And five of the six Indian cities cited last year as risky bets now rank securely among the 25 safest. (See page 3 for the full list of the 25 safest cities for offshore outsourcing.)

The annual survey of offshore outsourcing location risk, conducted by the Datamonitor Group (formerly the Brown-Wilson Group), asked 3,100 corporate development leaders, including more than 400 outsourcing customers, to indicate their company’s inclination to consider specific offshore locations for outsourcing (including IT outsourcing and BPO). The survey also asked respondents to rank those cities on various perceived threats and weaknesses, including geopolitical risk, terrorist threats, climate concerns, legal maturity, environmental waste and pollution, IT and telecom infrastructure security, and crime rates.

For Bogota, whose scores in the areas of local strife, corruption and organized crime, unstable currency, and unprotected infrastructure improved in 2010, the rise in the rankings may be the result of a targeted public relations effort.

“Bogota conducted a message-focused media campaign to separate itself as a safer city from the rest of Colombia and as a location with decreasing risk potential,” explains Datamonitor Research Director Doug Brown, noting that the government commissioned reports from consultants, trumpeted improving crime statistics, and purchased advertising.

“[Looking at] actual statistics, Bogota has made some noted improvements in areas which threaten business operations, but it’s difficult to say if this perception increase is the result of marketing or actual progress,” Brown adds.

India’s gains may be more reality-based. Terrorist attacks, infrastructure problems, monsoons, and American protectionism in 2008 may have created a more negative image of the sub-continent last year, says Brown, but positive experiences helped to improve corporate leaders’ image of India’s outsourcing hubs. Tier two cities Chennai and Pune rose the most of any locations in perceived safety in this year’s survey.

“Clearly, Chennai and Pune made major strides at improving their local police organizations, positively affecting safety for vendor operations in those locations,” says Datamonitor Research Director Scott Wilson. “Vendors have passed news of these improvements along to their clients while maintaining cost advantages.”

Infrastructure stability in those two cities has also improved, with customers reporting fewer outages, Wilson adds.

Prague, Czech Republic, Warsaw, Poland, and Brno, Czech Republic ranked as the top three safest cities for outsourcing in 2010, while Singapore fell from the top spot to number seven. Both the Czech Republic and Poland boast skilled IT workforces, centers of excellence set up by major multinational corporations such as Accenture and Cap Gemini, and an influx of Indian vendors selling IT outsourcing and business process services to western Europe.

Manila in the Philippines and Kuala Lumpur in Malaysia both skated off the most dangerous list for the first time thanks to the success of some key vendors, which put a shine on each city’s standing, says Brown.

Brazil’s metropolises also made strides year-over-year with Rio de Janeiro and Brasilia (both named dangerous in the 2009 list) finally joining Sao Paolo as safe outsourcing spots. Brown credits Rio’s and Brasilia’s improved rankings largely to the “halo effect” of Rio’s winning bid to host the 2012 Summer Olympics. Efforts to reduce crime and corruption, increases in rural workforce training, and a maturing legal system also buffed Brazil’s image, he says.

Johannesburg, while still perceived as dicey, has fallen from third most dangerous city last year to 24th in 2010 as South Africa hosts the World Cup.

At the opposite end of the spectrum, cities that plummeted the most in the annual location risk survey and are now perceived as more risky included Montevideo, Uruguay, Mexico City, Budapest, Hungary, and San Jose, Costa Rica. “Mexico City was hurt by the crime and violence of the border cities,” says Wilson. “The further from the US/Mexico border, the better the perception of Mexican outsourcing locations.”

Meanwhile, Montevideo, Budapest and San Jose simply haven’t produced enough cost savings, skilled workers—or flashy ad campaigns—to increase their attractiveness to outsourcing buyers, says Wilson. He notes that no real changes occurred in each city’s actual risk year-over-year, which leads to an important point: The Datamonitor survey respondents’ take on particular outsourcing hubs aren’t always accurate. Brown and Wilson fact-checked several categories against actual data from such sources as the United Nations and the CIA Fact Book and uncovered several discrepancies.

For example, while those polled said Lagos, Nigeria, Lahore, Pakistan, and Medellin, Colombia were the least safe in terms of violent crime and police protection, in reality Costa Rica, India and Sri Lanka had the fewest police per capita, and the Dominican Republic, Colombia and Brazil had the highest violent crime rate, according to March 2010 statistics from the CIA World Factbook.

Also, Lagos, Lahore and Medellin were thought to have the least secure IT infrastructure, when in fact Bangladesh, Belarus and Ghana have the dubious distinction of the fewest secure internet servers per capita, also according to March figures from the CIA. Lagos, Lahore and Medellin also ranked high in poll taker’s minds when it came to terrorist threats, when Israel, Colombia and Thailand may in fact be more vulnerable, again according to March CIA data.

The survey results demonstrate that when it comes to outsourcing, assumptions often trump actuality. “Even the perception of risk factors such as high crime, corruption or terrorist threat can paralyze a region’s offshore business momentum,” says Brown. “That required sense of security can be destroyed, even in the most vibrant and progressive of communities, entirely on what is perceived by the corporate decision maker.”

The 25 Riskiest Cities for Offshore Outsourcing in 2010

1. Karachi, Pakistan

2. Medellin, Colombia

3. Juarez, Mexico

4. Cali, Columbia

5. Tijuana, Mexico

6. Lahore, Pakistan

7. Jakarta, Indonesia

8. Lagos, Nigeria

9. Dhaka, Bangladesh

10. Chittagong, Bangladesh

11. Amman, Jordan

12. Khulna, Bangladesh

13. Faisalabad, Pakistan

14. Rawalpindi, Pakistan

15. Port-au-Prince Haiti

16. Managua, Nicaragua

17. Chihuahua, Mexico

18. Ljubljana, Slovenia

19. Tashkent, Uzbekistan

20. Bandung, Indonesia

21. Kingston, Jamaica

22. Tel Aviv, Israel

23. Colombo, Sri Lanka

24. Johannesburg, South Africa

25. Accra, Ghana

The 25 Safest Cities for Offshore Outsourcing in 2010

1. Prague, Czech Republic

2. Warsaw, Poland

3. Brno, Czech Republic

4. Krakow, Poland

5. Toronto, Canada

6. Halifax, Canada

7. Singapore, Singapore

8. Dublin, Ireland

9. Kiev, Ukraine

10. Chennai, India

11. Pune, India

12. Wuxi, China

13. Monterrey, Mexico

14. Sao Paolo, Brazil

15. Bangalore, India

16. Beijing, China

17. Santiago, Chile

18. Brasilia, Brazil

19. Mumbai, India

20. Dalian, China

21. Chandigarh, India

22. Rio de Janeiro, Brazil

23. Cebu City, Philippines

24. Kuala Lumpur, Malaysia

25. Kolkata, India