China to soon overtake India in offshoring?

Analyst group IDC predicts that in four years, Chinese cities will be most popular locations for offshore global delivery.

Affordable rent, low-cost labor and population literacy are the main reasons why companies still prefer to set up their delivery centers in Indian cities such as Mumbai and Bangalore. But this offshoring trend is likely to change in the near future, according to an IDC study.

The analyst group forecast that Chinese cities will soon overtake their Indian counterparts as top destinations for offshore global delivery by 2011, based on the results acquired from its Global Delivery Index.

Global Delivery Index
These are the world's top 10 cities
for offshoring, based on IDC's Global
Delivery Index, which weighs
"deal-clinching factors" such as
agent skills and political risk.

The GDI compares 35 cities in the Asia-Pacific region as potential offshore delivery centers based on a set of criteria such as labor and rental costs, language skills and turnover rate. Cities covered by the index include Adelaide, Bangalore, Dalian, Hanoi, and Kuala Lumpur.

According to Conrad Chang, IDC's research manager for Asia-Pacific business process outsourcing research, what differentiates the leading cities from the rest is "the focus on deal-clinching factors" such as agent skills and political risk.

"There are different risk factors to consider when evaluating outsourcing, offshoring, onshoring and nearshoring," Chang explained in a statement Tuesday. "Some factors are obviously more critical than others."

Chang also noted that while Indian cities scored high on the criteria set by the GDI, the picture could well be different four years from now.

Although the top-ranked Chinese cities--Beijing, Shanghai and Dalian--trail their Indian counterparts in the GDI this year, they are expected to overtake the competition by 2011.

IDC attributed this to China's massive investments in areas favorable to offshoring, including infrastructure development, technical skills and Internet connectivity.

Farihan Bahrin of ZDNet Asia reported from Singapore.

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