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Gartner: Strong growth for offshoring predicted for 2008

Gartner report vets the mature offshore markets and hints of the new frontier.

Just in time for the holiday season comes a list of the top 30 countries for offshore services, courtesy of Gartner Inc. No need to check it twice.

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The Stamford, Conn.-based research firm applied a list of 10 criteria (see sidebar) to find its top 30, but many of the conclusions aren't anything you haven't heard before: e.g., India remains the "undisputed leader" in offshore services, but China, Russia and Brazil are providing credible alternatives. Ireland, Israel, Northern Ireland and South Africa fared well in language skills.

What you might not have realized, however, is there's a stampede of new locations determined to get your offshore business. For the 30 countries that met its criteria, Gartner reports, another 35 were viable contenders, giving companies plenty of choices in 2008. And of those 35, 13 "came darn close to making the list," said Helen Huntley, an author of the Dec. 4 report.

Top 30 offshore locations
Gartner Inc.'s top 30 locations for offshore services, by region, are:

Americas: Argentina, Brazil, Canada, Chile, Costa Rica, Mexico and Uruguay.
                               Asia/Pacific: Australia, China, India, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri Lanka and Vietnam.

Europe, the Middle East and Africa: The Czech Republic, Hungary, Ireland, Israel, Northern Ireland, Poland, Romania, Russia, Slovakia, South Africa, Spain, Turkey and Ukraine.

Gartner's criteria:

1. Language
2. Government support
3. Labor pool
4. Infrastructure
5. Educational system
6. Cost
7. Political and economic environment
8. Cultural compatibility
9. Global and legal maturity
10. Data and IP security

They are: Colombia, Guatemala, Panama, Peru, Puerto Rico and Venezuela in the Americas; Indonesia, Mauritius and Thailand in Asia-Pacific; and Belarus, Egypt, Latvia and Morocco in Europe, Middle East and Africa, or the EMEA region.

While there is a growing consensus among the analyst firms, including Gartner, that IT investment and spending will be lower than anticipated in 2008, offshoring is not an area where companies (and vendors) are pinching pennies.

Indeed, Gartner predicts that offshore spending in the U.S. will grow 40% in 2008. In Europe, where companies have been slower to use overseas labor as part of their IT strategies, Gartner pegs the growth even higher, at 60%.

During a Forrester Research conference call last week warning of lower-than-anticipated IT growth rates for 2008, analyst Andrew Bartels pointed to the offshore market as an exception.

"If you look at the IT outsourcing market, the offshore portion certainly has seen the strongest growth. Vendors like Wipro, Tata and Infosys have been growing at far stronger growth rates than a lot of North American vendors," said Bartels, vice president of research at Cambridge, Mass.-based Forrester.

The rising interest may not immediately correlate with higher spending, Bartels said, as it usually takes nine to 12 months for offshore contracts to be sourced and deals to materialize. That is about the time Forrester expects the IT overall growth rates to rebound from a 2008 slowdown.


The aim of the Gartner study was not to rank each country but to help sourcing managers determine which locations are right for their particular needs, Huntley said. "There are risks and rewards to any part of the world you go to, and everything from service delivery to concerns about security and language to consider."

Here are some main findings in the report, listed by regions:

There are risks and rewards to any part of the world you go to.
Helen Huntley
analystGartner Inc.
The seven countries from the Americas are becoming or already are attractive destinations for U.S. companies, but a lack of government support is restricting offshore development. Only Mexico rated "very good" in this area, followed by Canada and Uruguay. Canada and Mexico rated higher than Brazil in the quality of the labor pool. In terms of infrastructure, think twice about Argentina, the only country to rate lower than "good." Canada earned excellent marks in most categories, except in the big rate limiter: cost.

The Asia Pacific region boasts the most countries in the top 30 list -- 10. India rules, with China at its heels. Language skills have come a long way. Only China, Sri Lanka and Vietnam rated less than "good." You can expect strong government support in China, India and Singapore.

The rest of the countries are a "mixed bag" of plusses and minuses. Australia, New Zealand and Singapore, and an increasingly proactive China, rate high on infrastructure and educational systems. Vietnam leads the pack on cost, earning an "excellent," while China, India, Pakistan, the Philippines and Sri Lanka rated "very good."

Not surprisingly, cost and risk correlate tightly: The higher the cost, the lower the risks. Vietnam, Pakistan, the Philippines, Sri Lanka and Vietnam scored either "fair" or "poor" in the category of political and economic environment.

The established EMEA countries generally score high on educational systems, infrastructure and language, either because of their high population of English speakers or because they offer other useful language skills. No country earned higher than a "good" in government support. Only Russia rated a "very good" in quality and quantity of labor pool. Newcomers like Slovakia and Romania scored well on cost, but costs in the EMEA region in general are in flux, Gartner warns. The EMEA countries are also parochial: With the exception of Russia, few countries have a network of local service providers outside their own country.

Let us know what you think about the story; email: Linda Tucci, Senior News Writer.

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