Outsourcing Global Services Location Index 2009

The Shifting Geography
of Offshoring
The 2009 A.T. Kearney Global Services Location IndexTM

A
s the world continues to experience economic turmoil, the off-
shoring 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 IndexTM reflect
this unstable recessionary environment. While some established out-
sourcing 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 Global grouped into three categories: financial attractive-
Services Location IndexTM (GSLI) remain the ness, people skills and availability, and business
same—India, China and Malaysia—but the environment (see Appendix: About the Study on
world’s volatile economic environment is reflected page 18).
in the rest of the rankings. Not long ago Central This paper presents an overview of the 2009
and Eastern Europe emerged as one of the premier findings in the GSLI, highlights the major
global hubs for offshoring, catering primarily to strengths and weaknesses of each region, and
Western European clients. This year, however, the offers recommendations for choosing the right
established leaders, including Poland, the Czech locations around the globe to locate services during
Republic and Hungary, have fallen as increasing these turbulent times. Regardless of the economic
costs erode their competitiveness. Meanwhile, conditions, making decisions that maximize the
countries in low-cost regions such as Southeast Asia overarching benefits of offshoring is vital for
and the Middle East make significant gains on this success both in the short and long term.
year’s list, as the IT-enabled services industry grows
and export figures improve (see figure 1 on page 2). Changes in the Offshoring Landscape
The GSLI, first established in 2004, analyzes The offshoring industry has matured over the past
and ranks the top 50 countries worldwide as the decade. IDC, an IT market intelligence company,
best destinations for providing outsourcing activ- reports that outsourced offshoring alone has gener-
ities, including IT services and support, contact ated $30 billion in revenues and has grown by 25
centers, and back-office support. Each country’s percent over the past two years. This does not take
score is composed of a weighted combination of into account captive centers in low-cost locations
relative scores on 43 measurements, which are operated by companies from developed countries.

A.T. Kearney | THE SHIFTING GEOGRAPHY OF OFFSHORING 1

Figure 1
The 2009 A.T. Kearney Global Services Location IndexTM

Financial People skills Business
Rank Country attractiveness and availability environment Total score
1 India 3.13 2.48 1.30 6.91
2 China 2.59 2.33 1.37 6.29
3 Malaysia 2.76 1.24 1.97 5.98
4 Thailand 3.05 1.30 1.41 5.77
5 Indonesia 3.23 1.47 0.99 5.69
6 Egypt 3.07 1.20 1.37 5.64
7 Philippines 3.19 1.17 1.24 5.60
8 Chile 2.41 1.20 1.89 5.50
9 Jordan 2.99 0.91 1.59 5.49
10 Vietnam 3.21 1.02 1.24 5.47
11 Mexico 2.48 1.50 1.45 5.43
12 Brazil 2.18 1.83 1.37 5.39
13 Bulgaria 2.83 0.89 1.62 5.34
14 United States 0.47 2.71 2.15 5.33
15 Ghana 3.26 0.70 1.36 5.32
16 Sri Lanka 3.13 0.95 1.17 5.25
17 Tunisia 2.86 0.91 1.45 5.22
18 Estonia 2.06 0.93 2.20 5.19
19 Romania 2.63 0.91 1.58 5.12
20 Pakistan 3.12 1.08 0.91 5.11
21 Lithuania 2.31 0.81 1.99 5.11
22 Latvia 2.28 0.86 1.96 5.10
23 Costa Rica 2.67 0.89 1.50 5.07
24 Jamaica 2.77 0.79 1.49 5.06
25 Mauritius 2.32 0.95 1.77 5.04
26 Senegal 3.06 0.88 1.08 5.03
27 Argentina 2.47 1.34 1.21 5.02
28 Canada 0.54 2.10 2.38 5.02
29 United Arab Emirates 2.10 0.84 2.04 4.98
30 Morocco 2.62 0.93 1.42 4.97
31 United Kingdom 0.43 2.13 2.39 4.94
32 Czech Republic 1.74 1.14 2.07 4.94
33 Russia 2.39 1.45 1.08 4.92
34 Germany 0.42 2.10 2.40 4.91
35 Singapore 0.72 1.55 2.62 4.90
36 Uruguay 2.46 1.00 1.43 4.89
37 Hungary 1.95 1.01 1.92 4.88
38 Poland 1.82 1.22 1.73 4.77
39 South Africa 2.28 1.02 1.44 4.74
40 Slovakia 2.05 0.94 1.75 4.73
41 France 0.40 2.03 2.29 4.72
42 Ukraine 2.63 0.97 0.99 4.58
43 Panama 2.48 0.70 1.40 4.58
44 Turkey 2.01 1.23 1.29 4.54
45 Spain 0.57 1.90 2.00 4.47
46 New Zealand 1.12 1.18 2.15 4.45
47 Australia 0.42 1.62 2.22 4.26
48 Ireland 0.27 1.56 2.26 4.09
49 Israel 0.85 1.39 1.78 4.02
50 Portugal 1.00 1.00 1.97 3.98

Note: The weight distribution for the three categories is 40:30:30. Financial attractiveness is rated on a scale of 0 to 4, and the categories for people and skills availability, and
business environment are on a scale of 0 to 3.
Source: A.T. Kearney

2 THE SHIFTING GEOGRAPHY OF OFFSHORING | A.T. Kearney

India is still the largest provider of offshore million. That agreement included a provision that
services, with the Philippines a distant second. Infosys would provide Philips with BPO services
Together the two countries account for 50 per- for the next seven years.
cent of the world’s business process outsourcing While cost remains a major factor in decisions
(BPO) market. While the strong position of these about where to outsource, the quality of the labor
two countries appears unthreatened for the time pool is gaining importance. With this in mind
being, the competition is heating up, as Europe governments around the world are investing in
steps more prominently into the picture. North the human capital demanded by the offshoring
American companies, which still account for industry. University curricula are being updated,
70 percent of offshore outsourcing
spending, were the first to send ser-
vices offshore. However, European
companies are catching up as their
spending on offshoring has risen Regardless of the economic
faster than their counterparts in
North America. This shift on the
conditions, making decisions
demand side affects the overall
industry footprint, resulting in more
that maximize the overarch-
interest in European near-shore loca- ing benefits of offshoring is
tions where English is not the domi-
nant language, including locations vital for success both in the
in Central and Eastern Europe, and
the Middle East and North Africa. short and long term.
Another major trend is a move
away from captive centers toward
more outsourcing providers. As many
captive centers failed to contain costs
efficiently, more companies are opting to buy the postgraduation courses are being offered, and
services they need from outsourcing providers. private educational institutions are offering train-
For example, after many false starts, Citibank ing in key vocational skills. Companies are view-
finally sold its Indian captive operations to Indian ing the labor market more through a global lens,
outsourcing provider Tata Consultancy Services and in many cases offshoring decisions, especially
(TCS) in October 2008. The deal included in higher, value-added functions, are being driven
12,000 employees and an agreement that TCS by talent shortages at home as much as by cost-
will provide the services that Citigroup produced cutting. Companies with a focus on research and
in its captive centers. The sale made TCS the development (R&D) are increasing their global
second-largest outsourcing company in India and footprint to seek fresh talent in new markets, as
Citigroup its largest client. Similarly, Philips sold their home locations cannot supply the needed
three of its offshore BPO centers, which employ a talent. In this year’s Index, an experienced labor
total of 1,300 people, to Infosys in 2007 for $250 force is key to success (see figure 2 on page 4).


Figure 2
Companies want a quality workforce

People skills and availability scores
United States (tier 2) 3.94 2.00 1.20 1.50 0.39 9.03
India 3.91 2.00 1.30 1.05 8.26
China 3.58 2.00 1.20 0.98 7.76
United Kingdom (tier 2) 3.58 0.49 1.25 1.50 0.25 7.08
Canada 3.39 0.28 1.32 1.50 0.50 6.99
Germany (tier 2) 3.61 0.53 1.26 1.21 0.37 6.99
France (tier 2) 3.55 0.48 1.23 1.10 0.41 6.77
Spain 3.52 0.36 1.19 1.10 6.33
Brazil 2.55 1.39 0.96 1.08 6.11
Australia 2.39 1.30 1.50 5.40
Ireland 2.40 1.27 1.50 5.21
Singapore 2.20 1.36 1.25 0.32 5.17
Mexico 1.64 0.77 1.02 1.06 0.50 4.99
Indonesia 0.63 1.46 0.98 0.98 0.85 4.89
Russia 1.09 1.53 1.16 1.05 4.82
Israel 1.75 1.11 1.18 0.53 4.63
Argentina 1.83 0.42 0.96 1.18 4.48
Thailand 1.13 0.58 1.05 0.90 0.70 4.35
Malaysia 1.58 1.11 1.08 4.15
Turkey 0.75 0.61 1.08 0.96 0.71 4.11
Poland 0.93 0.41 1.25 1.08 0.40 4.07
Chile 1.30 1.08 1.10 0.36 3.98
Egypt 1.18 0.67 0.94 1.00 3.98
New Zealand 0.59 1.31 1.50 0.49 3.93
Philippines 1.14 0.71 0.83 1.10 3.90
Czech Republic 0.84 1.26 1.11 0.50 3.79
Pakistan 0.91 0.84 0.78 1.09 3.61
Vietnam 0.48 0.56 0.98 0.88 0.51 3.41
South Africa 0.76 0.31 0.55 1.19 0.59 3.40
Hungary 0.84 1.23 1.10 3.36
Portugal 0.75 1.18 1.19 3.35
Uruguay 0.47 1.06 1.18 0.61 3.34
Ukraine 0.54 0.52 1.11 1.05 3.22
Sri Lanka 0.43 1.00 1.04 0.58 3.18
Mauritius 0.42 1.05 1.18 0.50 3.16
Slovakia 0.46 1.21 1.11 0.31 3.13
Estonia 0.36 1.29 1.20 0.23 3.10
Morocco 0.53 1.00 0.90 0.47 3.09
Relevant experience
Jordan 0.31 1.01 0.89 0.79 3.05
Tunisia 0.37 0.94 0.96 0.66 3.02 Size and availability of labor force
Romania 0.65 1.02 1.16 3.02 Education
Costa Rica 0.54 1.03 1.16 2.98
Bulgaria 0.46 1.04 1.10 0.30 2.96
Language capabilities
Senegal 0.32 1.13 0.75 0.68 2.93 Attrition risk
Latvia 0.40 1.21 1.09 2.86
United Arab Emirates 0.59 1.15 0.73 0.29 2.80
Lithuania 0.39 1.20 1.06 2.69
Jamaica 0.28 0.73 1.50 2.64
Panama 0.31 0.75 1.04 0.22 2.34 Note: Values below 0.20 not shown due to space constraints.
Ghana 0.28 0.72 0.98 0.24 2.32 Source: A.T. Kearney

The Impact of the Economic Crisis NASSCOM has revised down its industry growth
Although past figures indicate healthy growth in figures for 2009. The value of new offshoring
the offshoring sector, like all other sectors it is deals signed worldwide during the three-month
being hit by the economic crisis. The full effects of period between October 2008 and January 2009,
the crisis remain far from known, but early signs as reported by research service Datamonitor,
suggest that offshoring growth has already slowed. declined by 38 percent compared to the same
For example, the Indian software association period the previous year. Compensation has been


frozen among several outsourcing providers in supply chains for most financial services compa-
India and attrition rates have dropped in half nies. The process of removing offshoring from the
compared to the previous year—sure signs that equation would be very costly, not taking into
the industry is slowing down. account the longer-term loss of savings due to
A major factor driving this decline is the increased labor costs.
prominence of the financial services industry in New moves offshore have declined consider-
offshoring. Forty percent of the activities in Indian ably, but the percentage of companies with staff in
service centers are driven by banks, and the melt- offshore locations may rise as companies lay off
down of the banking sector worldwide thus hurts staff in onshore locations due to the recession.
the offshoring sector disproportionally. Banks There are two reasons for this: cost and efficiency.
worldwide have shed 5 percent of their entire It makes sense to look at high-cost areas first when
workforce during the financial crisis—a quarter- seeking to contain costs. A prime example is IBM,
million people; in the United States, it’s 8 percent. which in March announced 5,000 job cuts in the
As the most important customer segment tries to United States, while simultaneously transferring
fit into smaller shoes, offshoring providers will many of the affected functions to India. The other
certainly suffer. reason is efficiency. Offshore centers have in most
A different crisis-related issue could come cases been set up in the past decade and are run-
from the various government bailout packages in ning on well-developed and standardized proce-
many countries. Not only have they made banks dures. Onshore organizations, on the other hand,
dependent on government, but these bailouts have decades of history and may not be fully
have led to public resentment, as taxpayers’ money aligned with operational requirements; thus, they
is spent on restoring balance sheets. Much as may not be as efficient as offshore centers. Once
corporate jets and Wall Street bonuses became the economy turns and companies start to grow
a hot political issue in the United States, moving again, it is likely that the percentage of staff off-
offshore to cut costs could become politically shore versus onshore will remain constant. We are
controversial. Whether or not offshoring is good witnessing a more global workforce as a result of
corporate strategy, or if it benefits the national the crisis.
economy, will be less relevant than the news head-
lines. Lawmakers have already inserted provisions The Findings: Familiar Names at the Top
in some bailout packages that attempt to limit While there is great volatility in the Index, the top
expansion of offshoring operations for banks three countries — India, China and Malaysia —
receiving government support. have remained the same since the inception of
Nonetheless, we do not expect the offshoring the Index in 2004. While we often see an inverse
trend to reverse anytime soon, not even in the correlation between costs on one hand, and busi-
financial sector. Although there will likely be a ness environment, and people skills and availabil-
slowdown in the number of new moves offshore, ity on the other, these three countries are regular
the “onshoring” of current offshore operations in outliers, in that they have better scores for the
banking is still rare. Any such attempts will run areas of people skills and availability, and business
counter to efforts to keep the banks afloat. environment than their cost structure suggests
Offshore operations are an integral part of the (see figure 3 on page 6).


The compensation and other cost data used United States — are the real winners in the Index
to build the Index reflect the situation in 2008 rankings since 2007, as they have become more
when the U.S. dollar was weak in relation to other competitive against virtually all other countries.
global currencies (reaching $1.60 to the euro at It is important to remember, however, that
its lowest point). The Index uses the dollar to currencies are volatile. In the first few months of
measure costs, and compensation data is bench- 2009, the dollar is strengthening — to roughly
marked to U.S. wage levels, so the dollar’s weak- $1.35 to the euro as of mid-May. The stronger
ness affects the rankings. This had little effect on dollar will benefit some countries and hurt others,
the attractiveness of low-cost locations, where but the main conclusions of our survey still hold,
compensation costs still remain between a fifth regardless of the changing exchange rates.
and a tenth of U.S. compensation cost levels. Generally speaking, many middle-income
However, medium-income countries experienced countries are suffering because they are converg-
an accelerated drop in their relative competitive- ing toward the same cost levels as high-income
ness due to the exchange-rate shifts, since their countries, especially in professions that are part of
compensation costs are only about half of the a global service market. The classic response to
American equivalent. Countries whose currency rising costs is to increase productivity and value,
is tied to the dollar — along with, of course, the and improve the business environment, including

Figure 3
India, China and Malaysia are the outliers in financial attractiveness

2.5
United United States
Kingdom
Germany Canada
France
Average of people skills and availability,

Singapore
2.0 Australia
Spain
Ireland India
China
and business environment

New Zealand
Israel Brazil
Czech Republic Estonia Chile Malaysia
Mexico
1.5 Portugal Poland UAE Argentina
Hungary Lithuania Thailand
Slovakia Latvia Mauritius Bulgaria
Russia Romania Jordan Egypt
Turkey South Indonesia
Africa Uruguay Tunisia Philippines
Panama Morocco Jamaica Vietnam
Costa Senegal Ghana
1.0 Ukraine Rica Sri Lanka
Pakistan

0.5

0.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Financial attractiveness Source: A.T. Kearney


Figure 4
Traditional cost leaders stay the same

Financial attractiveness scores
Ghana 7.12 0.36 0.67 8.15
Indonesia 6.99 0.56 0.54 8.08
Vietnam 7.14 0.42 0.46 8.02
Philippines 6.94 0.72 0.33 7.98
Sri Lanka 6.91 0.57 0.34 7.82
India 7.01 0.37 0.44 7.81
Pakistan 6.76 0.41 0.63 7.80
Egypt 6.57 0.75 0.35 7.68
Senegal 7.01 0.32 0.33 7.66
Thailand 6.59 0.63 0.41 7.63
Jordan 6.38 0.55 0.55 7.47
Tunisia 6.22 0.57 0.37 7.16
Bulgaria 6.13 0.57 0.38 7.08
Jamaica 6.17 0.25 0.49 6.92
Malaysia 5.79 0.62 0.49 6.90
Costa Rica 5.77 0.41 0.50 6.67
Romania 5.60 0.48 0.51 6.58
Ukraine 5.59 0.55 0.43 6.57
Morocco 5.79 0.40 0.36 6.55
China 5.79 0.50 6.47
Mexico 5.37 0.38 0.46 6.20
Panama 5.47 0.30 0.42 6.19
Argentina 5.47 0.44 0.26 6.17
Uruguay 5.39 0.41 0.36 6.15
Chile 5.11 0.29 0.63 6.03
Russia 5.15 0.50 0.33 5.99
Mauritius 4.97 0.39 0.44 5.81
Lithuania 4.92 0.49 0.37 5.78
South Africa 4.49 0.52 0.70 5.71
Latvia 4.83 0.44 0.43 5.69
Brazil 5.00 0.26 5.45
United Arab Emirates 4.09 0.53 0.64 5.25
Estonia 4.20 0.53 0.44 5.16
Slovakia 4.38 0.36 0.38 5.13
Turkey 4.13 0.42 0.48 5.03
Hungary 4.07 0.44 0.36 4.87
Poland 3.72 0.49 0.34 4.54
Czech Republic 3.66 0.36 0.33 4.34
Compensation costs
New Zealand 1.52 0.52 0.76 2.80
Portugal 1.81 0.25 0.44 2.50 Infrastructure costs
Israel 1.40 0.33 0.41 2.14 Tax and regulatory costs
Singapore 0.99 0.21 0.61 1.81
Spain 0.74 0.29 0.40 1.43
Canada 0.68 0.62 1.34
United States (tier 2) 0.57 0.59 1.16
United Kingdom (tier 2) 0.26 0.77 1.07
Australia 0.42 0.62 1.05
Germany (tier 2) 0.56 0.48 1.04
France (tier 2) 0.60 0.39 1.00 Note: Values below 0.20 not shown due to space constraints.
Ireland 0.55 0.69 Source: A.T. Kearney

infrastructure and intellectual property rights leg- India: Continued Growth
islation. This helps increase competitiveness. India remains the leader in the Index, which we
Despite rising costs in these middle-income coun- expect will continue for the foreseeable future. In
tries, there is still room to take advantage of labor just one decade India has transformed and rein-
arbitrage, as our analysis still reveals a clear divide vented the outsourcing industry several times
between developed economies and emerging mar- over, staying ahead of all trends. India started as
kets in terms of cost (see figure 4). a low-cost location that provided routine tasks for


American IT companies, and it still retains a com- spokes reaching out to increasingly diverse loca-
petitive advantage in this area. At the same time, tions. For example, TCS operates global delivery
it has moved up the value chain. Today, virtually centers in Argentina, Brazil, China, Hungary,
any offshoring service can be performed in India, Mexico, Singapore, the United States and
and new areas are constantly being invented. Uruguay, in addition to its multiple centers in
These services include routine data entry, finance India. This trend benefits not only India, but
and accounting, customer-facing functions, and it also creates opportunities for the new host
higher-end outsourcing such as knowledge man- countries. When Indian outsourcing vendors
agement and legal processes. Infosys or Wipro set up shop in a new coun-
try, they tend to expand
more aggressively than most
Western multinational corpo-
rations, and they also bring
While cost remains a major fac- with them the expertise to
tor in decisions about where to train large numbers of new
staff quickly, which gives
outsource, the quality of the labor the local labor pool an imme-
diate boost.
pool is gaining importance. India’s outsourcing indus-
try has been shaken by an
accounting scandal at Satyam,
coupled with safety issues
stemming from the 2008
In addition, Indian outsourcing companies attacks in Mumbai (see sidebar: Is India
are beginning to expand across the world, with Vulnerable?). Yet, India will likely remain the
the largest companies becoming significant play- unmistakable leader for years to come.
ers in the United States and Europe. Their own
offshore footprint is also rapidly expanding to East Asia: Climbing Up in the Rankings
dozens of other countries, which from the per- China shares many characteristics with India.
spective of many other countries, makes India Both countries have a large, well-educated work-
a country that is impossible to compete with force with significant labor cost arbitrage oppor-
head-on. The good news, however, is that India tunities compared to the United States or Japan.
has in many ways ceased to be a competitor and However, China still lags far behind India in
has become an enabler for industry growth in industry size. A lack of language capabilities, con-
other countries. As India-based outsourcing com- cerns around intellectual property protection and
panies spread across the world, the country is an economy geared toward manufacturing are
an important player in expanding and pushing keeping China from developing into a global off-
offshoring to new frontiers. The expansion has shoring behemoth such as India. For now, China
turned Bangalore, Hyderabad and Gurgaon into is an important player in the Asia-Pacific offshor-
hubs of the global offshoring universe, with more ing industry, notably with Japanese companies as


its major customers. This may change, however, as Several more Southeast Asian countries figure
the Chinese government recognizes an opportu- prominently in the top of the Index, occupying
nity and is launching an ambitious plan to sup- the 3rd, 4th, 5th, 7th and 10th spots. For the
port and grow the offshoring industry. China may fourth year in a row, Malaysia is ranked 3rd in
be able to capitalize on new concerns regarding the Index. Its strong performance reveals good
security in India following the Mumbai terrorist fundamentals — a safe business environment and
attacks and the Satyam accounting scandal. high-quality human capital at an affordable price,

Is India Vulnerable?
There is no debate around India’s been a fact of life in India for a long such scandals from happening again.
leading position in offshoring, yet, time, the attacks in Mumbai in In addition, there have been
recent events have highlighted that November 2008 drove home the risks recent examples of companies aban-
even India is vulnerable. Currency of operating in India, especially for doning India, returning customer
movements, terrorism and a major Western companies. Western interests service functions to domestic loca-
corporate scandal have made some were deliberately attacked, raising tions. The world’s largest airline,
executives uneasy with India. fears that corporate interests could be Delta Airlines, announced in April
Currency movements. Start- next on the target list. Though the 2009 that it would close its contact
ing in late 2006, the rupee began overall risk may or may not have centers in India and return these
strengthening against the dollar, changed in India, the perception and functions to the United States in an
trading at 37 rupees per dollar in risk equation in the minds of execu- effort to improve customer service.
2007 as opposed to 47 rupees in tives has changed. Continued cross- Similar centers in Jamaica and South
2006. The across-the-board cost border tension with Pakistan has not Africa are not affected by the decision.
increase of almost 30 percent, in helped. The search for alternative Delta competitor United Airlines
dollar terms, created much concern locations to complement the Indian announced in February 2009 the
and questions about the sustainabil- centers has accelerated and there is an relocation of its customer-facing
ity of the Indian offshoring industry. opportunity for countries with lower functions from India to Chicago and
Starting in 2008 the trend reversed exposure to terrorism, such as China, Hawaii. In a similar move, Dell is
when the rupee returned to normal to capture market share. now offering a premium technical-
levels—a trend reinforced by the eco- Corporate scandals. Adding to support subscription, which guaran-
nomic crisis as investors flee to safer the worries, the confidence in India tees American customers they can
currencies and the rupee trades at took a hit following the unveiling talk to customer service representa-
record lows. Although this is good of a large-scale accounting fraud at tives in the United States as opposed
news for the Indian offshoring indus- Satyam. Much like the Enron de- to India.
try, the currency developments in bacle shook confidence in corporate Still, India remains indispens-
2007 show how fast a cost advantage America, the Satyam scandal has put ible in offshoring and no country
can erode. India will remain cost- the spotlight on Indian corporate or combination of countries can
competitive for U.S. companies, but governance practices. Given the reli- replace it — at least not yet. None-
its advantage may come under attack ance on Indian outsourcing partners, theless, these events illustrate India’s
from cheaper locations. India will have to reestablish trust in vulnerabilities and the challenges to
Terrorism. While terrorism has its regulatory environment to prevent staying on top.


Figure 5
Singapore leads in business environment

Business environment scores
Singapore 5.17 1.94 0.97 0.66 8.75
Germany (tier 2) 4.75 1.94 0.48 0.83 8.00
United Kingdom (tier 2) 4.67 1.80 0.69 0.81 7.96
Canada 4.71 1.78 0.84 0.61 7.94
France (tier 2) 4.53 1.94 0.56 0.60 7.64
Ireland 4.64 1.34 0.95 0.59 7.53
Australia 4.87 1.39 0.41 0.74 7.40
Estonia 4.23 1.71 0.86 0.53 7.32
United States (tier 2) 4.35 1.60 0.39 0.83 7.17
New Zealand 4.60 1.26 0.66 0.64 7.15
Czech Republic 3.70 1.63 0.92 0.64 6.89
United Arab Emirates 3.77 1.45 0.97 0.59 6.78
Spain 3.88 1.54 0.55 0.70 6.66
Lithuania 3.95 1.55 0.70 0.43 6.64
Portugal 3.89 1.50 0.64 0.53 6.57
Malaysia 3.95 1.40 0.70 0.53 6.57
Latvia 3.88 1.38 0.88 0.40 6.53
Hungary 3.70 1.47 0.61 0.63 6.40
Chile 4.21 1.62 0.41 6.30
Israel 3.24 1.32 0.83 0.53 5.92
Mauritius 3.58 1.17 0.72 0.42 5.90
Slovakia 3.63 1.56 0.46 5.82
Poland 3.48 1.13 0.70 0.46 5.78
Bulgaria 3.18 1.32 0.53 0.36 5.40
Jordan 2.62 1.29 0.94 0.44 5.29
Romania 3.24 1.20 0.44 0.38 5.26
Costa Rica 3.31 1.00 0.33 0.38 5.02
Jamaica 2.68 1.45 0.55 0.31 4.98
Mexico 3.19 0.95 0.31 0.39 4.84
Tunisia 2.66 1.30 0.47 0.40 4.83
South Africa 3.27 0.92 0.58 4.79
Uruguay 2.72 1.22 0.47 0.36 4.77
Morocco 2.33 1.40 0.67 0.33 4.73
Thailand 2.97 1.25 0.36 4.71
Panama 2.80 1.36 0.37 4.68
Egypt 2.73 1.18 0.28 0.39 4.58
Brazil 3.01 1.13 0.43 4.58
China 2.90 1.12 0.54 4.56
Country risk
Ghana 2.60 0.90 0.78 0.27 4.55
India 2.76 0.92 0.58 4.35 Country infrastructure
Turkey 2.78 1.13 0.40 4.31 Cultural exposure
Vietnam 2.62 1.00 0.28 4.13
Philippines 1.97 0.97 0.80 0.39 4.12
Security of intellectual property
Argentina 2.54 1.19 0.28 4.04
Sri Lanka 1.97 1.09 0.52 0.31 3.89
Senegal 2.03 0.97 0.30 0.32 3.61
Russia 2.21 1.00 0.31 3.59
Indonesia 2.16 0.86 0.29 3.31
Ukraine 1.84 0.94 0.25 0.27 3.30 Note: Values below 0.20 not shown due to space constraints.
Pakistan 1.57 0.83 0.36 0.29 3.05 Source: A.T. Kearney

and strong government support. The Philippines but it is now increasingly moving into IT and
is the second-largest offshoring destination in the nonvoice BPO services.
world, capturing around 15 percent of the global Sri Lanka and Pakistan both climb the ranks
market, and its leading position is reflected in this year, assisted by low costs in a world with
its 7th position in the Index. It has been home otherwise rising costs. While Pakistan is held back
to many contact centers, especially those geared by the continued political instability and country
toward the U.S. market, for the past 10 years, risk (it ranks as the riskiest country in the Index),


Sri Lanka has started to take off as an offshor- Thailand and Indonesia could be in a position to
ing destination, steadily expanding since HSBC compete for business that is currently going to
established a base there in 2005. The risks associ- the Philippines.
ated with a civil war and relatively weak English- Vietnam is a country to watch as it climbs
speaking capabilities (as compared with India) are the rankings nine spots into 10th place. This
still obstacles for Sri Lanka. However, its advan- change reflects an increasingly busy offshoring
tages—including its proximity to India and a industry, especially focused on IT. Japanese com-
supply of chartered accountants trained on the panies have outsourced IT services work to
same accounting standards used in the United Vietnam for several years. Japan’s preferences for
Kingdom—allow the country to function as a Vietnamese IT providers prompted Russia’s
backup to Indian centers. Luxoft, an IT outsourcer, to open a center in Ho
Thailand and Indonesia share many simi- Chi Minh City, with the explicit purpose of tar-
lar characteristics with the Philippines but the geting the Japanese outsourcing market. Singapore
English skills in the Philippines account for the has the best business environment score in the
dramatic difference in industry size. However, Index, well ahead of second-place Germany (see
as part of the takeover of Philips’ captive off- figure 5). It is home to business continuity and
shoring operations, Infosys gained a foothold in disaster recovery sites for IBM and Hewlett-
Thailand, hailing the move as the addition of Packard, among other companies.
“another low-cost location that is not plagued
with attrition and wage hyperinflation.” Given Central and Eastern Europe: A Sharp Drop
the strong fundamentals of these countries, it is Among the most dramatic changes in this year’s
our view that the offshoring industry in Thai- Index is the decline in rankings of the established
land and Indonesia could offer companies a large Central and Eastern European (CEE) countries
pool of largely untapped talent at a low cost. that were global leaders just a few years ago. The

Regional Offshoring on the Rise
While offshoring is often understood supplied skilled migrant labor to in the Gulf markets, supplying much
as a phenomenon in which compa- the countries in the Gulf region for of the development work from their
nies in developed countries outsource decades. As improved telecommuni- home offices.
work to low-cost countries, the global cations allows for remote delivery, Mauritius is a service exporter to
offshoring landscape is far more com- some of these skilled laborers can Europe. Now, several local Mauritius
plex than that. Just as it makes sense deliver their services without leaving companies that provide BPO services
for advanced economies in North their home country. Saudi software to France have opened up their own
America and Europe to trade business companies, including Saudisoft, offshore centers in nearby Madagas-
services with lower-cost countries, it Harf and Sakhr, and Kuwaiti ITS, car. By doing so, these companies
also makes sense for low-cost coun- established their IT development augment their service offerings by
tries to offshore to each other. centers in Cairo. Local Egyptian sys- hiring French-speaking workers at
In the Middle East, Egypt has tems integrators sell more services significantly lower costs.


Figure 6
Changes in Index rankings (2007 to 2009)

1 India 0 26 Senegal 13
2 China 0 27 Argentina –4
3 Malaysia 0 28 Canada 7
4 Thailand 0 29 United Arab Emirates –9
5 Indonesia 1 30 Morocco 6
6 Egypt 7 31 United Kingdom 11
7 Philippines 1 32 Czech Republic –16
8 Chile –1 33 Russia 4
9 Jordan 5 34 Germany 6
10 Vietnam 9 35 Singapore –24
11 Mexico –1 36 Uruguay –14
12 Brazil –7 37 Hungary –13
13 Bulgaria –4 38 Poland –20
14 United States 7 39 South Africa –8
15 Ghana 12 40 Slovakia –28
16 Sri Lanka 13 41 France 7
17 Tunisia 9 42 Ukraine 5
18 Estonia –3 43 Panama –2
19 Romania 14 44 Turkey 5
20 Pakistan 10 45 Spain –2
21 Lithuania 7 46 New Zealand –2
22 Latvia –5 47 Australia –2
23 Costa Rica 11 48 Ireland 2
24 Jamaica 8 49 Israel –11
25 Mauritius 0 50 Portugal –4


Czech Republic was 4th in the 2004 Index and with a lower cost profile than most other member
now ranks 32nd. Hungary, Slovakia and Poland states, they are the new offshoring stars in Europe.
experienced similar falls in their rankings (see Bulgaria provides a great example for creating
figure 6). The main reasons for the falls are rapid niche capabilities — for example, when Outsource
increases in costs, driven partly by currency appre- Partners International established a BPO center to
ciation against the dollar and wage inflation, cater to the global shipping industry, they selected
which hampers these countries’ competitiveness the Bulgarian port city of Varna, where they could
in lower-end BPO activities. The glimmer of good find the relevant expertise. In Romania, Swedish
news is that the price increase has been less dra- telecom company Ericsson established a global
matic for customers that operate in euros—the delivery center, exclusively employing engineers.
majority of the CEE customer base. At the same time, the Baltic countries are also
The winners in Europe are Bulgaria and emerging as alternatives to the Central European
Romania, which continue to stay comfortably in countries. Lithuania made great advances in the
the upper half of the Index, at 13th and 19th, Index this year and now ranks 21st. It specializes
respectively. Members of the European Union but in contact centers serving the European market,


providing services in English, German, Russian, Figure 7
Polish and the Scandinavian languages. Today Middle East and North Africa gain popularity
3,000 people are employed in the sector. Russia
has lost some of its attractiveness due to the
6 Egypt
increasingly volatile political environment and
rapidly escalating costs, particularly in Moscow 9 9 Jordan
and St. Petersburg. 12
13 13 Bulgaria
14
15
Middle East and North Africa: 16
17 Tunisia
Hot Destinations 18 18 Estonia
19 Romania
The Middle East and North Africa (MENA)
region is emerging as a hot offshoring destination
24
for the world. Home to large, well-educated pop- 26
ulations, with low costs and proximity to Europe,
the area has the potential to redraw the offshor- 30 Morocco
ing map and in the process bring much-needed 32 Czech Republic
33
opportunities (see figure 7).
36
In 2004, the only Middle Eastern countries 37 Hungary
38 Poland
considered in the Index were Israel and Turkey— 40 Slovakia
now, five more MENA countries make the list. 2007 2009
rank rank
Egypt, which debuted in the 2005 Index at 12th
Middle East and North Africa
place, is now 6th. American IT giants IBM and
Central and Eastern Europe challengers
Source:
EDS have had operations in Egypt for some time, Established Central and Eastern Europe A.T. Kearney

but now Wipro and Infosys are aggressively
expanding into Cairo, taking advantage of the
availability of low-cost, qualified people. Egypt is Dubai Internet City is further facilitating the IT
also a service provider for companies in other industry. In North Africa, Tunisia and Morocco,
Middle Eastern countries (see sidebar: Regional ranking 17th and 30th, respectively, have long
Outsourcing on the Rise on page 11). Jordan, at 9th been destinations for French offshoring services.
place, is another top performer, as it has solid Morocco is the clear leader in French language off-
capabilities in IT and is home to numerous shoring, with approximately half the francophone
successful outsourcing companies that compete market. The country has 25,000 jobs in the sector.
internationally. It also has one of the region’s most The government is a strong backer of the industry
favorable business environments. The currencies and has invested heavily in the sector to support
of Jordan and Egypt are closely linked to the sustained growth. Dell, the U.S.-based computer
dollar, and their competitiveness is strengthened maker, is providing services to its French custom-
by a weak dollar. ers from a contact center in Casablanca, and
The United Arab Emirates (29th place) is a Spanish Telefónica has a near-shore center in the
major regional hub for IT services and headquar- north of Morocco, just a short distance from Spain
ters functions, and the government-sponsored across the Strait of Gibraltar.


Sub-Saharan Africa: Growing Markets in the Index. Its political stability and favorable
Despite the smallest labor force in the Index, the business environment are key differentiators, and
island nation of Mauritius ranks favorably at it is in the process of joining the Organisation
25th overall thanks to strong people skills and for Economic Co-operation and Development
a favorable business environment. Located east of (OECD), a symbolic entry into the club of
Madagascar, Mauritius has created a favorable advanced economies. Its main strengths are in
business climate. According to the World Bank’s the high-value-added area, which has boosted IT
Doing Business report, it is the 24th most services companies such as Oracle and TCS, and
attractive business environ-
ment globally. HR outsourcing
company Ceridian has several
hundred positions serving the
francophone market in the
Countries whose currency is
CyberTower, the government-
sponsored technology park.
tied to the weakening dollar —
Accenture and Infosys also use along with, of course, the United
Mauritius for their global
delivery functions. States —are the real winners in
South Africa is the largest
offshore destination in Africa the Index rankings, as they have
by far, operating a successful
contact center cluster in Cape become more competitive against
Town along with several R&D
operations around its aero- virtually all other countries.
space hub in Pretoria. This
year, South Africa dropped
to 39th place in the rankings
after it lost points in all three categories; the dete- knowledge process outsourcing (KPO) activities
rioration in infrastructure was the most striking in IT and biotech. For example, KPO provider
drop among individual metrics. In Ghana, 50 Evalueserve serves U.S. banks with investment
companies are members in the national IT asso- research and financial analytics out of the coastal
ciation GASSCOM, including U.S.-based IT city of Valparaiso.
services company ACS, which employs 1,800 In Brazil, the software organization Brasscom
people in Ghana. is promoting the country’s strong domestic base of
IT companies to overseas clients. Brazil is still show-
Latin America and the Caribbean: ing strong performance in the Index at the number
Capitalizing on Proximity 12 spot and it will continue to be an important
The top three countries in Latin America, Chile, player in the offshore space. Red tape continues to
Brazil and Mexico, are still doing well. This year, be a concern, particularly the services and export
Chile is the Latin American leader, ranking 8th taxes that inhibit growth for the offshore industry.


Mexico, holding steady in 11th place, is sector in Montevideo and the availability of
increasingly viewed by American companies as trained professionals.
a complement to Indian operations. The deval- Jamaica is an offshoring leader in the
uation of the peso has helped to hold up the Caribbean due largely to its English-speaking
ranking, even while companies are wary of the population, government incentives for the indus-
security situation. Similar to the American manu- try and proximity to clients in the United States.
facturing industry, the services sector considers The country now has more than 15,000 outsourc-
Mexico’s proximity and accessibility an advan- ing employees. Its 24th place ranking indicates
tage. Mexico’s size also allows multiple cities to the increasing popularity of the Caribbean islands
be offshoring hubs, giving the labor market as offshore destinations. One spot ahead of
greater depth than in countries relying only on Jamaica is Costa Rica, an established player that
one national center. Its large labor pool is devel- is still adding new investors, including online
oping English language skills, not to mention retailer Amazon, which opened a contact center in
its ability to serve the growing U.S. Hispanic Heredia in 2008. Several other Latin American
consumer market. countries that are not yet in the Index are also
Argentina, at 27th place, has enjoyed a favor- developing attractive offshoring markets (see side-
able cost environment since the devaluation of the bar: New Players on the Offshore Field).
peso in 2001, but inflation is slowly eroding its
competitiveness, which means the country will Developed Countries: More Onshoring?
have to rely on higher-end functions to compete Since the onset of offshoring, there has been con-
with other locations. Uruguay, in 36th place, siderable debate about its impact on importing
occupies a niche in the financial services out- countries. Many believe that offshoring is a race to
sourcing market thanks to the strong banking the bottom, with employment and wage levels in

New Players on the Offshore Field
While the same 50 countries from sector has been identified as a focus Indian IT company investments.
the 2007 Index are in this year’s area in the government’s future Indian software association NASS-
Index, we are keeping an eye on new growth initiative. COM’s decision to hold an executive
countries entering the offshoring Several Caribbean islands are meeting in the kingdom in late 2008
playing field, and we expect some of hoping to become niche players; the was an early public relations success.
them to enter future rankings. For Dominican Republic and Barbados In Kenya, KenCall is leading a
example, there has been considerable already have centers up and running. nascent industry with clients in both
activity in Latin America, where In South Asia, Bangladesh is creating the United States and the United
countries such as Guatemala and El the necessary framework to accom- Kingdom. Other African countries
Salvador are starting to focus on modate the offshoring industry. can also emerge as successful candi-
attracting U.S. near-shore dollars. In More surprisingly, Bhutan, which dates in this space in the future.
South America, Colombia is attract- until recently was closed to the
ing offshoring investments, and the world, is actively planning to capture


developed countries suffering, especially in occu- For the third year in a row, we are including
pations exposed to international competition. in the Index tier-2 locations in France, Germany,
The current economic crisis will no doubt create the United Kingdom and the United States. These
more concerns. countries have set up operations in lower-cost
However, research indicates that developed locations to perform domestic remote delivery
countries and their companies have gained from functions. The cities used to represent tier-2 loca-
offshoring. New research also indicates that pro- tions are based on regional cost data: Marseilles in
fessionals in developed countries have not seen France; Leipzig in Germany; Belfast in the United
their positions deteriorate as a result of offshor- Kingdom; and San Antonio in the United States.
The United States dramatically
improves its ranking in this year’s
Index thanks to the weakening dollar.
Fourteenth overall, the United States
In just one decade India has is also the leader in the people skills
and availability category, not surpris-
transformed and reinvented ingly given its large and educated
labor force working in the world’s
the outsourcing industry sev- largest ITO and BPO industry sector.
Although the dollar has regained
eral times over, staying ahead strength in 2009, there is increased
of all trends. interest in onshoring in the United
States, as the economic crisis has ren-
dered offshoring politically sensitive
and, at the same time, rising unem-
ployment rates increase the number of
ing. A study by Bradford Jensen and Lori Kletzer available workers. U.S. tier-3 locations are becom-
at the Institute for International Economics ing a new option for voice and nonvoice BPO
reveals that both employment and wages in trad- services, as the costs in the U.S. hinterlands are
able services occupations have not only increased lower than they are in the major cities. Regional
between 1996 and 2006 — but also increased development agencies in U.S. states are catching
faster than wages in nontradable service occupa- on to this trend and marketing their regions as “at
tions.2 While specific offshoring moves may have home” offshore destinations.
an impact on individuals, there is a good case The United Kingdom, Germany and France
that the globalization of trade in services has have all risen slightly in the rankings (31st, 34th
been on the whole positive for professionals in and 41st, respectively), due more to other countries
both exporting and importing countries. This is falling in the ranks than their own improvements.
worth keeping in mind as calls for protectionism However, crisis-related political considerations and
grow stronger. the availability of qualified labor may create an
2
Jensen, Bradford & Lori Kletzer, “Fear” and Offshoring: The Scope and Potential Impact of Imports and Exports of Services, Peterson Institute for
International Economics Policy Brief, January 2008.


onshoring movement in Europe similar to that of shake up the current offshoring geography as
the United States, or at least delay further moves countries deal with the volatility with varying
from domestic to offshore locations. degrees of success. Over the longer term, the
crisis might actually trigger the further globaliza-
Rapidly Changing Offshoring Environments tion of services.
The geography of offshoring is changing fast. The volatility in the wake of the crisis and geo-
Countries that were safe bets a few years ago and political risk mean that risk management will take
still attract large investments in the industry may on a new importance to protect supply chains from
already have peaked and be in decline as future interruption. The offshoring landscape will reveal
destinations. Relatively unknown locations today new opportunities as countries develop new com-
may be important destinations tomorrow. The petitive advantages. Companies on the lookout for
number of countries competing for the offshor- new sources of talent should perform thorough
ing business steadily expands and the different location assessments so as not to miss under-the-
niche markets that countries serve multiply. radar locations in a broad range of countries.
Location decisions are not as straightforward as Even as the world enters a new era of risk, the
they used to be. opportunities are larger than ever. As the global
In addition, the economic crisis is creating labor pool becomes more accessible, and the
further volatility as it reshapes the offshoring number of countries courting investors grows,
landscape. In the short term, the recent decline in the rewards will go to those companies first to
growth will continue, and the crisis will likely identify them.

Authors
Norbert Jorek is a partner in the New York office and the head of A.T. Kearney’s Global Business Policy Council.
He can be reached at norbert.jorek@atkearney.com.
Johan Gott is a consultant in the Washington, D.C., office. He can be reached at johan.gott@atkearney.com.
Michelle Battat is a consultant in the Washington, D.C., office. She can be reached at michelle.battat@atkearney.com.


Appendix: About the Study

The 50 countries included in this year’s Global Services Location Index were selected on the basis of
corporate input, current remote services activity, and government initiatives to promote the sector.
They were evaluated against 43 measurements across three major categories: financial attractiveness,
people skills and availability, and business environment (see figure).

The metrics used to evaluate location attractiveness were determined from responses to A.T. Kearney
and other industry surveys, and knowledge obtained in client engagements over the past five years.
The relative weights of each metric are based on their importance to the location decision, again
derived from client experience and industry surveys. Because cost advantage is typically the primary
driver behind location decisions, financial factors constitute 40 percent of the total weight in the
Index. The two remaining categories — people skills and availability, and business environment —
each constitute 30 percent of the total weight.

Index metrics
Category Subcategories Metrics
Financial attractiveness Compensation costs • Average wages
(40%) • Median compensation costs for relevant positions (call-center
representatives, BPO analysts, IT programmers and local operations managers)

Infrastructure costs • Rental costs
• Commercial electricity rates
• International telecom costs
• Travel to major customer destinations (New York, London and Tokyo)

Tax and regulatory costs • Relative tax burden
• Corruption perception
• Currency appreciation or depreciation

People skills and Remote services sector • Size of existing IT and BPO sectors
availability experience and quality • Contact center and IT center quality certifications
(30%) ratings • Quality ratings of management schools and IT training

Labor force availability • Total workforce
• University-educated workforce
• Workforce flexibility

Education and language • Scores on standardized education and language tests

Attrition risk • Relative IT and BPO sector growth and unemployment rates

Business environment Country environment • Investor and analyst ratings of overall business and political environment
(30%) • A.T. Kearney Foreign Direct Investment Confidence IndexTM
• Security risk
• Regulatory burden and employment rigidity
• Government support for the information and communications technology (ICT) sector

Infrastructure • Overall infrastructure quality
• Quality of telecom, Internet and electricity infrastructure

Cultural exposure • Personal interaction score from A.T. Kearney Globalization IndexTM

Security of intellectual • Investor ratings of IP protection and ICT laws
property (IP) • Software piracy rates
• Information security certifications



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