Offshoring Opportunities Amid Economic Turbulence

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A.T. Kearney’s 2011 Global Services Location Index finds that wage changes and currency shifts from the financial crisis have led to major changes in rankings within the Index. However, the top three countries have demonstrated remarkable staying power. Thanks to their deep talent pools and cost advantages, India, China and Malaysia have been first, second and third, respectively, since the inception of the Index. Formerly lower ranked states with highly qualified labor once again became viable options amid currency devaluation.

Highlights of the 2011 Index include:

• Asia dominates the top 10 positions on the Global Services Location Index, with the leaders once again India (1), China (2) and Malaysia (3), as well as Indonesia (5), Thailand (7), Vietnam (8) and the Philippines (9). The different strengths of these countries vary from India, with a deep and broad skill base, to Vietnam, which ranks as the most financially competitive country in the Index.
• The Middle East and North Africa have become increasingly attractive because of their proximity to Europe and vast talent pool. Egypt is the leader in the region and 4th worldwide; however, the rankings were made before the recent political unrest began. As a result, the political uncertainty and country risk associated with Egypt have dramatically increased and the situation needs to be closely monitored to gauge whether the long-term risk profile will change. The United Arab Emirates climbed to 15th overall, serving as a regional services hub.
• While many European countries were badly hurt by the financial crisis, Estonia (11), Latvia (13) and Lithuania (14) saw their ratings climb as a result. While hit as severely as many Eurozone countries, they engaged in a process of “internal devaluation,” cutting wages and expenditures, and as a result were able to offer highly competitive cost structures. The UK as well was able to benefit from a sharp drop in wages, and climbed to 16th in the ratings from 31st in 2009.
• While the United States is the top customer for outsourcing services, accounting for 63 percent of global IT outsourcing spending, its tier-2 locations rank 18th as outsourcing locations, thanks to a combination of talent and accessibility. Meanwhile, Canada has seen its cost advantage diminish, and it has fallen in the ranking to 39th.
• Latin America continues to serve the U.S. market well and is expected to grow in importance. This year, Mexico, in 6th place worldwide, leads the region, due to a sharp drop in wages over the year, the increased attractiveness of “near-shoring,” and a well-developed talent pool. Chile dropped to 10th place from 8th, while Brazil was number 12 for the second straight year.

See the complete report for a breakdown of the results by region and the full rankings.

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