China's outsourcing market closes in on India

China may eventually supersede India as the outsourcing powerhouse in the world, according to an analyst.

China's outsourcing market is giving India "substantial competition" in terms of "footprint, awareness and capability", said Jens Butler, principal analyst at Ovum, in a statement released Thursday.

India's possible eclipse by China's ascension in the outsourcing business has been reported by analysts in recent years. They point to India's high attrition rates, poor infrastructure, and rising wages as factors contributing to the country's decline in shared services and outsourcing (SSO) activities.

In a study conducted by Tholons and Global Services, India was the top global outsourcing nation in 2009. China was among the top five.

Butler called the competition between China and India a "two-horse race to the finish".

Both countries, said the analyst, are frequently touted to have low-cost delivery locations, which attract investments from several foreign enterprises to set up operation. Both countries are also becoming increasingly influential global centers of political and economic power, added Butler who is based in Sydney.

Butler stressed the need to consider each delivery location on "an individual contractual demand basis" because each market has its own unique advantages and trade-offs. For instance, India's maturity of its outsourcing marketing vis-a-vis China's cost-competitive rates that will appeal to companies eager to tap the huge domestic market.

However, political stability and government support are also key, noted Butler, adding that such factors play a "key role".

In India, there is province-led support for homegrown free-market organizations. In China, under the country's Five-Year Plans--aimed at turning its economy from mostly manufacturing to including services--the government has given strong supportto boost the local outsourcing industry. It has done this by supporting outsourcing centers, temporarily removing business taxes on offshore local contracts, and opening up more jobs in the industry.

India has non-IT outsourcing to look to
India's key information technology (IT) outsourcing market may be threatened by China's, but outsourcing for other industries in the country is on the rise.

Spurred by the high quality of writing and the cost savings of hiring Indian legal writers and editors, there are now at least 140 legal outsourcing companies in India as at end of 2009. In comparison, there were a mere 40 in 2005, according to a report from Indian consulting firm ValueNotes.

Butler also pointed out that there are a host of other countries which provide alternatives to the two current "magnets" of SSO activities, such as the Philippines, South Africa and Latin America.

"These locations may not compete from a pure scale perspective, but they may well continue to extract market share from both", just as China is doing to India, he concluded.