India remains the world’s top outsourcing hub but is facing increasing threat from rival China due to India’s high attrition rate, poor infrastructure and rising wages, a global research group said.
According to its 2006 global outsourcing survey, Frost & Sullivan said India was the favourite hub followed by China, Ireland, Singapore, Malaysia, Mexico, the Czech Republic, Poland, the Philippines and Canada.
The survey covered some 300 multinational firms in seven sectors: financial services, technology, health care, fast-growing consumer goods, transportation, energy, media and entertainment.
When respondents were asked to choose their top three outsourcing hubs, India scored 2.25, China 1.76 and Ireland 0.77.
But India’s lead in the industry is being challenged by China’s ability to cover lower end functions such as back office processing to high value services and its wide talent pool, the study found. Also, Beijing’s hosting of key events such as the 2008 Olympics make it a strong contender, it said.
“India is faced with increasing threat from China which is emerging fast as an attractive location for information technology, research and development and procurement services,” the study said.
Despite churning out 3 million graduates each year, demand for experienced professionals in India is outpacing supply, leading to attrition levels of up to 40 per cent or higher, especially in the technology sector, said Aroop Zutshi, the group’s president for Asia-Pacific and Europe.
“The attrition rate is creating a big challenge in India. Clearly costs are going up and efficiency is coming down. It’s unsustainable,” he said.
Mr Zutshi said Malaysia, Singapore and Dubai are emerging as key contenders for outsourcing services and will benefit from India’s consolidating market.
The survey said new locations are sprouting for specialised functions such as Russia for high-end software development and Dubai for banking and financial services.
It predicted the global outsourcing market for the seven sectors would grow at an average of 15 per cent a year, to surge to $1.43 trillion (euro 1.05 trillion) by 2009, from $930 billion (euro 680.52 billion) last year.
Financial services and technology accounted for more than half of outsourcing spending last year, and will remain key drivers over the next few years, together with health care and consumer goods, it added.