India's traditional outsourcing centres appear to be falling out of favour.
According to Pierre Audoin Consultants (PAC), outsourcing companies are increasingly looking outside Bangalore and Mumbai when choosing new offshoring services bases.
PAC found that while India remains popular with the top 50 outsourcing companies — 11 of the 49 new offshoring delivery centres set up in 2008 were sited in the country — vendors are progressively creating more sites in cities including Chennai, Noida, Hyderabad and Pune.
According to Nick Mayes, senior consultant at PAC, conditions for outsourcers in Bangalore and Mumbai are no longer as favourable as they once were.
"Over the last two or three years, labour markets in particularly Bangalore and Mumbai have become overheated. The big IT services companies and multinational companies have been competing very intensely for the best resources coming out of the universities and also resources from their rival organisations," he told ZDNet UK's sister site, silicon.com.
The big Indian outsourcers TCS and Wipro have been first to turn to the second tier and establish links with the universities, inspiring a shift to the likes of Chennai and Pune.
The consultants also found a trend among outsourcers to spread outsourcing sites over a number of countries.
"[Outsourcers] are spreading not just the risk but also being wary of being overdependent on single market terms of salary inflation in that country or the political environment in that country," Mayes noted.
Over 2008, PAC found that 10 new outsourcing centres were opened in Latin America and another six in China, while Mayes believes Malaysia and the Philippines will also increasingly prove attractive outsourcing destinations in the future.
While similarities in business culture and language will keep India at the top of the UK's list of outsourcing hotspots, eastern Europe and Russia could be set to emerge as an alternative.
"There's some fantastic technical skills coming out of the former Soviet Union — guys with 20 or 30 years' experience of programming for military organisations and things like that. Slowly but surely, companies are starting to get the supplier marketplace in place to be able to support Western clients — previously it was 10- or 20-man outfits out there, but we're starting to see some sizeable companies build up and that's what Western clients want to work with.
"They want the security of knowing the company they're working with will be around in 12 months' time so they can commit to serious business with them," Mayes said.