India, China hold offshoring ground

Asia's leading offshore outsourcing locations maintain their dominance, while the Philippines outperforms Malaysia, study shows.
Written by Joel D. Pinaroc, Contributor

India and China continue to lead in Asia's offshoring activities, while Philippines' growth has exceeded analyst expectations, reveals a new market report.

According to XMG's latest study on the onshore and offshore delivery of outsourcing services, India will account for 11.5 percent of the global market in 2007, compared to China's 4.4 percent share.

India, the world's top offshore outsourcing destination, will grow at a compound annual growth rate of 29.5 percent to reach US$34.1 billion in revenues by the end of 2007.

The research firm also said India will continue to lead the offshore segment through 2010 with at least 15 percent share.

China's 2007 revenues are forecasted to hit US$13.1 billion, registering a compound annual growth rate of 47.9 percent.

However, India and China are not the only markets to watch.

Lauro Vives, chief analyst at XMG, said: "While it is no surprise that India and China continue to lead amongst the offshore countries, our study also showed a noteworthy insight to those following the growth of other offshore countries in Asia.

"The Philippines is experiencing an unprecedented growth rate of 62 percent [which] will surpass Malaysia in 2007," he added.

According to the XMG study, Philippines' revenues are expected to grow to almost US$4.1 billion, garnering 1.4 percent of the global market.

"The Philippine industry has far exceeded all analyst expectations," Vives said.

In comparison, Malaysia's revenue forecast by year-end is estimated at US$3.6 billion, or 1.2 percent market share.

In 2006, Malaysia and the Philippines were neck and neck with 1.04 percent and 1.02 percent share of global revenues, respectively, XMG said.

Despite a projected 38 percent growth this year, Malaysia's growth is being outstripped by other markets, primarily due to the country's lack of manpower to sustain the growth of its offshore and outsourcing industry, the report noted.

"Locators are turning to other countries where there is headroom for further growth and expansion," Vives said.

Looking forward to 2008, the study predicted "turbulence but continued strong growth in the offshore markets", citing the rising costs and the continuing depreciation of the U.S. dollar.

The report also noted the rise in real estate prices and the rising cost of operations in India and the Philippines due to wage rate hikes. Both India and the Philippines are expected to experience continuing general wage increases of 11 percent and 8 percent, respectively, due to the talent supply challenge.

According to XMG, the global outsourcing market for IT, business process outsourcing, and call center services is expected to grow by 19.3 percent to top US$297 billion this year. By 2010, the market is projected to be worth US$450 billion.

Joel D. Pinaroc is a freelance IT journalist based in the Philippines.

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