6 Hot Offshore IT Outsourcing Markets Offer New Options

When you think of offshore IT outsourcing, you think of India.

Of course, “having all of your IT work done in one location is akin to having your entire retirement portfolio in a single stock–it’s an unnecessary risk,” says Esteban Herrera, partner with outsourcing consultancy Information Services Group (ISG).

[Related: IT Robots May Mean the End of Offshore Outsourcing]

Smart IT leaders seek to complement their India-based operations for risk management and business continuity purposes, but they also may be looking for specific language fluency, proximity, lower attrition or wage inflation or an attractive domestic market.

[Related: Offshore Outsourcing Can Boost Agility]

Certain skills–like automation testing, for example, come at a premium in a hot market like India, says H. Karthik, vice president at outsourcing consultancy Everest Group. And many emerging countries are getting aggressive with perks like new software parks and welcoming tax or regulatory environments to win new IT outsourcing business, says Herrera.

Below are six IT and business process outsourcing (BPO) destinations that may be worth a look in 2013. “They are not for everyone,” says Alan Hanson, senior vice president with outsourcing consultancy Neo Group..

“Their scalability risk is much higher, typically because they are not yet graduating the numbers of IT and engineering students to support huge growth, Hanson says. “[But] we see clients who love their results in these locales [even] with limited numbers of resources.”

1. Colombia

Several Indian IT services companies have set up shop here. “Colombia is positively hot right now,” says Herrera. “It also is large enough to have multiple cities that offer credible, educated workforces.” Neutrally accented Spanish makes Colombia attractive for enterprises looking for regional customer support or IT help desks.

“Like other Latin American countries, [Colombia] offers same time zone coverage for increasingly important IT considerations like agile development and Web support,” says Hanson. Costs may be 20 percent higher than India, but that may be offset by management savings due to proximity, Hanson adds.

Pros: Large labor pool, low operational costs, attractive domestic market

Cons: Low IT services maturity, limited English skills

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2. Peru

Latin America’s up and comer is garnering a lot of attention for its incredible domestic growth in recent years. “Companies that want early-mover advantage might be able to capture a loyal, long-term workforce if they set up shop right now,” says Herrera.

Pros: Low operational costs, rapidly growing domestic economy

Cons: Nascent market, lower quality education system, limited English skills

3. Vietnam

Some IT leaders may be surprised to find that when you take into account factors such as wage inflation, real estate costs, taxes and salaries, Vietnam ranks best in class among outsourcing destinations–even better than India, says Hanson. Vietnam is also a favorite outsourcing location for Japanese companies, adds Karthik.

Pros: Low cost of operations (30 to 50 percent less than India), strong government support

Cons: Rampant software piracy, weak intellectual property laws, limited English skills

4. Bulgaria

Bulgaria remains one of the least expensive destinations in this region. “A combination of excellent educational institutions (if still somewhat influenced by the Soviet, rote style of learning), a passion for higher education among its citizens, and relatively good availability of European language skills has fueled a lot of growth here,” says Herrera.

Pros: Availability and quality of IT skills, proximity to Western Europe, BPO maturity

Cons: Low IT services maturity, smaller population

5. Turkey

Turkey is volatile, but viable, says Herrera. “We still have relatively few clients going here, but would not instinctively advise against it. It looks to have potential across a number of functional expertise areas. It also has enough local, large companies to foster a sophisticated business-savvy workforce.”

Pros: Large labor pool, European language support, potential to support high level research and development work

Cons: Security and geopolitical risk related to terrorism and international market, nascent IT market

6. South Africa

Like Bulgaria, BPO is where South Africa has made its mark thus far. But it’s bang for the buck is driving interest in sourcing IT-related work here as well. The country also boasts sophisticated finance and accounting specific skills, says Karthik.

Pros: Large English-speaking labor pool, European time zone compatibility, developed infrastructure, attractive domestic and regional market

Cons: Higher operating costs than most offshore locations, lower IT services maturity

Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section. Follow everything from CIO.com on Twitter @CIOonline, on Facebook, and on Google +.