Offshoring: Shifts, Stops and New Starts

As the world economy continues its downward spiral, the offshoring industry is not immune — especially as the industry's most important client, financial services, struggles to stay afloat. Findings in the 2009 A.T. Kearney Global Services Location Index™ (GSLI) reflect this unstable recessionary environment.¹ While some established outsourcing hubs are fading—nine countries dropped nine or more positions in the Index—new rising stars are changing the outsourcing landscape.

The top three countries in the 2009 GSLI remain the same: India, China and Malaysia once again show their versatility as low-cost locations with a strong business environment and good people skills and availability (see figure).

The world's economic troubles are reflected in the rest of the rankings. Not long ago Central Europe emerged as a premier global hub for offshoring, catering primarily to Western European clients. This year, however, the established leaders, including Poland, the Czech Republic and Hungary, have fallen as increasing costs erode their competitiveness. Meanwhile, countries in low-cost regions such as Southeast Asia and the Middle East make significant gains on this year's list, as the IT-enabled services industry grows and export figures improve.

Figure: The 2009 A.T. Kearney Global Services Location Index™

Other highlights from the 2009 GSLI include:

A weak dollar shakes the Index. A dollar that sank to $1.60 to the euro in 2008 shook up the rankings as countries whose currency is tied to the dollar—along with, of course, the United States, which jumped seven spots into 14th place—became more competitive against virtually all other countries. The competitive positions of some medium-sized economies, particularly in Eastern Europe, have eroded.

The Middle East: a "nearshoring" alternative. Only two Middle Eastern countries were considered for the first Index in 2004. This year there are six, including 6th place Egypt and 9th place Jordan. Home to large, well-educated populations, with low costs and proximity to Europe, the area has the potential to redraw the offshoring map and in the process bring much-needed opportunities.

"Onshoring" in response to protectionism? While still a rare occurrence, some tier 2 locations in developed countries are emerging as alternatives to offshoring. Additionally, the government bailout packages propping up banks have led to public resentment, as taxpayers' money is spent on restoring balance sheets. In many countries, moving offshore to cut costs is politically controversial, regardless of whether it is good corporate strategy. This is an issue to watch in coming months.

Latin America and the Caribbean: capitalizing on proximity. Chile, Mexico and Brazil stay in the top 12 of the rankings this year, and other countries in the region are capitalizing on their proximity to the United States to move up in the rankings. English-speaking Jamaica now has 15,000 outsourcing employees, and Costa Rica continues to add new investors such as Amazon.com.

For more information, contact the authors.

¹ First established in 2004, the GSLI comprises 43 metrics comparing the financial attractiveness, people skills and availability, and business environment of 50 countries worldwide. The GSLI offers a snapshot for business leaders and policy makers who must choose from among a growing list of offshore locations.