Risk mitigation boosts China's outsourcing

Shanghai and Beijing "steal limelight" from Indian service centers, as firms look to spread security risk and ease infrastructure pressure, finds new report.
Written by Eileen Yu, Senior Contributing Editor

Heightened emphasis on business continuity, economic pressures and pressures on network infrastructure are pushing businesses to diversify their offshore delivery services, according to a new IDC report.

Released Tuesday, the research firm said recent events across the Asia-Pacific region including the H1N1 outbreak and terrorist attacks in Mumbai and Jakarta, have forced organizations to reassess areas such as business continuity and operational risk management.

This need to diversify their offshore plans has "enabled Chinese cities such as Shanghai and Beijing, to steal some of the limelight away from the likes of Bangalore and New Delhi as global delivery locations".

IDC further noted that there is strong enterprise demand for service providers to offer such diversification strategies to "minimize location-centric business risks".

To meet this need, outsourcing vendors are tweaking disaster recovery plans to include measures such as capacity build-out and diversified talent pool located across several regions. The emerging locations are incorporating such plans into their service offerings and preparing to compete for business demand, in particular, looking to move out of India.

Suchitra Narayan, IDC's Asia-Pacific IT services research manager, said in the report: "Tier-one cities in India are coming to terms with rapid growth for infrastructure and increasing costs of living and labor. Pure low-cost modeling without a longer term view on developing high-value services will result in diseconomies of scale and cities falling behind the competition, in terms of their attractiveness as global delivery centers."

According to IDC, government support in initiatives to beef up the city's ICT infrastructure and growth in the number of graduates with appropriate skillsets, will help accelerate China in this segment.

"Since the Chinese cities are not completely mature in terms of services offerings, there are still significant opportunities that exist for growth," the research firm said. "Chinese cities such as Chengdu and Shenzhen, are creeping up to take positions in the top 10 optimal locations for offshore global delivery by 2013.

"Bangalore, on the other hand, which is struggling with growing demands on both ICT and non-ICT related infrastructure and increasing costs, is expected to give way to some of these Chinese cities by 2013."

Suchitra noted: "In light of the events such as the economic downturn and terror attacks, moving forward, global delivery will not just be a cost consideration, but a more extensive balance between cost, skillset and political stability offered by the locations. There is an increasing emphasis on value, as opposed to pure costs."

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