Gone are the days when offshoring was the most-preferred option for global corporations to reduce costs and improve go-to-market strategies.
While India has so far been able to establish its leadership position among the major offshore locations, the concept of offshoring is under threat from nearshoring and onshoring. This is because there has been a subtle change in the shoring decision-making framework by global corporations, which seem to be no more emphasising on straight cost arbitrage. Rather, they are taking their shoring decision with long-term view on productivity, operational efficiency and the future scalability of shoring locations, says a report by the financial and professional services firm, Jones Lang LaSalle.
It also says India is beginning to face strong competition from many other countries such as China, the Philippines and Indonesia, which offer offshore information technology (IT) and business process outsourcing (BPO) services.
| OUTSOURCING HOT SPOTS Top shoring locations* in 2008-12 | |||
| Country | No of projects | Global rank | Jobs created |
| Philippines | 115 | 1 | 72,444 |
| India | 105 | 2 | 64,370 |
| China | 56 | 3 | 25,455 |
| UK | 95 | 4 | 22,304 |
| United States | 78 | 5 | 18,594 |
| Brazil | 23 | 6 | 13,964 |
| Poland | 46 | 7 | 13,476 |
| Mexico | 18 | 8 | 11,515 |
| Romania | 40 | 9 | 11,438 |
| Costa Rica | 31 | 10 | 8,878 |
| *In terms of FDI in shared service centres, customer contact centres and technical support centres from Jan 2008 to Dec 2011. Ranking is based on the number of jobs created in these projects during this period Source: Jones Lang LaSalle | |||
“The options for global location decision-makers are extending. Optimal decisions require a broader and more considered evaluation reflective of changing times,” says Tom Carroll, director-corporate research, Jones Lang LaSalle.
While India continues to be a leading player in this environment, supported by its strong fundamentals, “international corporations are increasingly focused on productivity, operational efficiency and future scalability, rather than straight cost-saves in the short term,” he adds.
Besides, the cost landscape in most major offshore locations has changed considerably with rising labour costs, labour-retention issues and currency fluctuations. These have significantly impacted the attractiveness of some locations, it says.
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This change is also pushing companies to view shoring decisions as more than straight cost arbitrage and assess the longer term viability of shoring locations in light of demographic and labour profile change.
“When it comes to offshoring business operations to India, the traditional benefits of availability of a large talent pool, lower costs and quick turnaround time, still apply,” says Anuj Puri, chairman and country head, Jones Lang LaSalle India. “However, India is beginning to face stiff competition on the outsourcing front from other markets like China and Indonesia.”
The whitepaper says onshoring has re-emerged in recent months particularly in the US, which is the biggest market for the Indian IT and BPO services providers. “Rebalancing within mature economies as well as weakening currencies and growing availability of skilled labour, have led to a growth in the attractiveness of onshore locations,” it adds.