India's Got Some Outsourcing Competition

Dramatic cost savings are dwindling and companies are seeing improved labor quality in emerging nations, two forces that seemed to drive a shift in outsourcing delivery preferences in 2009, according to the latest report by global management consulting company A.T Kearney.

The firm's Global Services Location Index (GSLI) recently ranked the top 50 outsourcing destinations worldwide. Although India is still number one, other countries are gaining ground, and some perennial favorites are losing appeal.

The GSLI report found that companies are re-assessing their outsourcing choices, evaluating them based on political and security risks, labor arbitrage and skills requirements. In addition, businesses are looking to spread out outsourcing locations to protect global delivery, and are increasingly interested in nearshore and sameshore options. Some Latin American and Caribbean countries are profiting from the growing nearshoring trend and are thereby strengthening their positions as attractive alternatives to India.

Chile placed highest among countries from the region, ranking eighth on the strength of its political stability and favorable business environment. Clearly, the recent earthquake in that country will affect Chile's near-term ability to do business. Other popular choices include Mexico (ranked 11th) and Brazil (12th).

The report also indicated some U.S. cities -- such as San Antonio (14th) -- were profiting from onshoring. Skilled local workers and lower wages (compared with other U.S. cities), combined with the falling dollar and government pressure to create domestic jobs have resulted in the city's growing popularity as an IT services provider.

Poland, Czech Republic and Hungary fell in popularity because of increased costs and wage inflation.

Capitalizing on their loss were Romania (which moved from 39th to 19th), Russia (37th to 33rd) and Ukraine (47th to 42nd). According to the report, the residents' strong educational background and the countries' engineering base along with high language competence and geographical proximity make those countries attractive nearshore options for Western European clients.