The research analyst's Global Delivery Index (GDI) released this week indicated that India is still the offshoring country of choice. In its second edition, IDC's GDI ranks 35 cities in the region based on criteria such as labor and rent costs, language skills and political risk.
Two other Indian cities also made it to the top 10 list--New Delhi edged out Manila for the number two spot, while Mumbai dropped three places from last year's list to seventh.
Jenna Griffin, senior research analyst for global delivery services research at IDC Asia-Pacific, told ZDNet Asia that Bangalore and New Delhi were attractive due to existing infrastructure, large quantity of skilled workers as well as competitive pricing. She noted, however, that the appreciating rupee was eroding the cost arbitrage.
Auckland and Beijing made significant progress over last year, moving up five and three notches, respectively. Griffin said Auckland's ranking was influenced by factors such as greater government support, an increased emphasis toward a digital economy and currency depreciation.
On the other hand, the investment into Beijing's infrastructure and the environment for the upcoming Olympic Games has sharpened the city's competitive edge, she added.
Griffin said: "With prices on the rise in India, locations like Beijing with established infrastructure and lower costs will be in demand. Beijing also has a highly skilled workforce, supported by a strong education network."
The Chinese cities of Shanghai and Dalian were also counted by IDC as among the top 10 global delivery locations. Dalian, however, slipped from number four in 2007 to the current number nine.
Griffin said: "Despite scoring very well in terms of costs, Dalian has not scored as well in terms of skills and capabilities, and lacks the strength of infrastructure that some other competing locations have."
The analyst noted that Dalian receives support at a federal level as it is one of the cities identified under the Chinese Ministry of Commerce's 1000-100-10 project. However, support from local government also plays an important role. "[From that point of view,] other competing cities such as Beijing and Shanghai have an inherently stronger starting position," she added.
According to Griffin, there will be an increase in the number of Chinese cities considered as optimal global delivery locations by 2012. Xian, for instance, will become a top 10 offshoring destination for businesses.
In the short-term, the rise of Chinese cities will not have much impact on India, said Griffin.
She said: "Political support and the efforts of bodies like Nasscom (National Association of Software and Services Companies) are helping to keep Indian cities positioned as optimal global delivery locations.”