Outsourcing ranking shift in global survey

An increasingly complex global economic environment has led to major changes in the ranking of the most attractive offshoring destinations, according to a new A.T. Kearney study.

Despite this, India, China and Malaysia take up the top three spots, positions they have occupied since the first Global Services Location Index in 2003. 

Currency movements has helped boost states whose costs had formerly kept them far down on the list, including the Baltic States, United Kingdom, Mexico, and the United Arab Emirates.

Highlights from this year’s Index include:

• Asia dominates the top ten positions on the Global Services Location Index, with the leaders once again India (1), China (2) and Malaysia (3), as well as Indonesia (5), Thailand (7), Vietnam(8) and the Philippines (9). The different strengths of these countries varies from India, with a deep and broad skill base, to Vietnam, which ranks as the most financially competitive country in the index.
• The Middle East and North Africa have become increasingly attractive because of their proximity to Europe and vast talent pool. Egypt is the leader in the region and 4th worldwide, however, the rankings were made before the recent political unrest began. As a result, the political uncertainty and country risk associated with Egypt have dramatically increased and the situation needs to be closely monitored to gauge whether the long-term risk profile will change. The United Arab Emirates climbed to 15th overall, serving as a regional services hub.
• While many European countries were badly hurt by the financial crisis, Estonia (11), Latvia (13) and Lithuania (14) saw their ratings climb as a result. The UK as well was able to benefit from a sharp drop in wages, and climbed to 16th in the ratings from 31st in 2009.
• While the United States is the top customer for outsourcing services, accounting for 63 percent of global IT outsourcing spending, its Tier II locations rank 18th as outsourcing locations, thanks to a combination of talent and accessibility. Meanwhile, Canada has seen its cost advantage diminish, and it has fallen in the ranking to 39th.
• Latin America continues to serve the US market well, and is expected to grow in importance. This year, Mexico, in 6th place worldwide, leads the region, due to a sharp drop in wages over the year, the increased attractiveness of “near-shoring,” and a well-developed talent pool. Chile dropped to 10th place from 8th, while Brazil was number 12 for the second straight year.

“Regardless of changes in the outsourcing industry business model and other temporary setbacks, we believe the era of globalization of services production has only just begun,” said Erik Peterson, managing director of A.T. Kearney’s Global Business Policy Council.

The Global Services Location Index analyses and ranks the top 50 countries worldwide for locating outsourcing activities, including IT services and support, contact centres and back-office support. Each country’s score is composed of a weighted combination of relative scores on 39 measurements, which are grouped into three categories: financial attractiveness, people and skills availability and business environment.

“We have already witnessed a shift in the footprint of manufacturing across the globe to a point where emerging markets have become manufacturing powerhouses, and we can expect to see a dramatic shift in the relative balance of service production among the developed and emerging markets in the future,” said Johan Gott, manager of research for the Index.

Click here for a more detailed analysis and information on regional performance.