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					The Shifting Geography
of Offshoring
The 2009 A.T. Kearney Global Services Location IndexTM
         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 skills and 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    $250 million. That agreement included a provi-
services, with the philippines a distant second.        sion that infosys would provide philips with BpO
Together the two countries account for 50 per-          services 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         talent. in this year’s index, an experienced labor
a total of 1,300 people, to infosys in 2007 for         force is key to success (see figure 2 on page 4).

                                                    A.T. Kearney   |   The ShifTinG GeOGrAphy Of OffShOrinG    3
    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

4   The ShifTinG GeOGrAphy Of OffShOrinG                                            |   A.T. Kearney
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).

                                                    A.T. Kearney   |   The ShifTinG GeOGrAphy Of OffShOrinG     5
          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

                                                                   United      United States
                                                                 Germany          Canada
    Average of people skills and availability,

                                                 2.0                   Australia
                                                             Ireland                                                                                                                                        India
          and business environment

                                                                                                       New Zealand
                                                                                            Israel                                                         Brazil
                                                                                                                          Czech Republic         Estonia             Chile                Malaysia
                                                 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


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

6    The ShifTinG GeOGrAphy Of OffShOrinG                                                                            |   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                                      India: Continued Growth
legislation. 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

                                                                                 A.T. Kearney      |   The ShifTinG GeOGrAphy Of OffShOrinG                                              7
    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

8   The ShifTinG GeOGrAphy Of OffShOrinG      |   A.T. Kearney
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       Delta Airlines, announced in April
    Currency movements. Start-            be next on the target list. Though         2009 that it would close its contact
ing in late 2006, the rupee began         the 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        able 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
    Terrorism. While terrorism has        its regulatory environment to prevent      to staying on top.

                                                           A.T. Kearney   |   The ShifTinG GeOGrAphy Of OffShOrinG              9
     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),

10   The ShifTinG GeOGrAphy Of OffShOrinG                       |   A.T. Kearney
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
Kingdom—allow the country to function as a                    for 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.

                                                          A.T. Kearney   |   The ShifTinG GeOGrAphy Of OffShOrinG            11
     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

                                                                                                                                              Source: A.T. Kearney

     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,

12   The ShifTinG GeOGrAphy Of OffShOrinG                         |       A.T. Kearney
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
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
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
opportunities (see figure 7).
     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
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
Offshoring 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           Spanish Telefónica has a near-shore center in the
a major regional hub for iT services and head-          north of Morocco, just a short distance from Spain
quarters functions, and the government-sponsored        across the Strait of Gibraltar.

                                                    A.T. Kearney   |   The ShifTinG GeOGrAphy Of OffShOrinG                                   13
     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                           along with, of course, the United
     use 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.

14   The ShifTinG GeOGrAphy Of OffShOrinG           |   A.T. Kearney
     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      capture indian iT company invest-
the 2007 index are in this year’s        area in the government’s future            ments. indian software association
index, we are keeping an eye on new      growth initiative.                         nASSCOM’s decision to hold an
countries entering the offshoring            Several Caribbean islands are          executive meeting in the kingdom
playing field, and we expect some of     hoping to become niche players; the        in late 2008 was an early public
them to enter future rankings. for       Dominican republic and Barbados            relations success. in Kenya, KenCall
example, there has been considerable     already have centers up and running.       is leading a nascent industry with
activity in Latin America, where         in South Asia, Bangladesh is creating      clients in both the United States
countries such as Guatemala and el       the necessary framework to accom-          and the United Kingdom. Other
Salvador are starting to focus on        modate the offshoring industry.            African countries can also emerge
attracting U.S. near-shore dollars. in   More surprisingly, Bhutan, which           as successful candidates in this space
South America, Colombia is attract-      until recently was closed to the           in the future.
ing offshoring investments, and the      world, is actively planning to

                                                          A.T. Kearney   |   The ShifTinG GeOGrAphy Of OffShOrinG            15
     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 iT 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 services occupa-                               on to this trend and marketing their regions as
     tions.2 While specific offshoring moves may have                                “at 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
         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.

16   The ShifTinG GeOGrAphy Of OffShOrinG                             |   A.T. Kearney
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.

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
Johan Gott is a consultant in the Washington, D.C., office. He can be reached at
Michelle Battat is a consultant in the Washington, D.C., office. She can be reached at

                                                        A.T. Kearney   |   The ShifTinG GeOGrAphy Of OffShOrinG         17
     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

     Source: A.T. Kearney

18   The ShifTinG GeOGrAphy Of OffShOrinG                    |   A.T. Kearney
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