India offers significant advantages in terms of IT skills and infrastructure over other countries that provide offshore outsourcing, according to industry analyst Gartner.
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India is "head and shoulders above the competition", said Gartner, which predicts worldwide spending on offshore IT will reach £27.6bn by 2007.
In terms of size and number of IT professionals, only China comes close to India in offshoring potential, said Gartner, pointing out that strong government support was playing a key role in boosting China's offshore IT capabilities.
But Ian Marriott, research vice-president at Gartner, sounded a note of caution about the strong interest in "nearshore" options from Western user organisations.
"Some Eastern European countries, particularly ones that are now in the European Union, are attracting attention," he said.
"However, the choice of local providers is limited. This may change as these countries become more mature members of the international business community.
"In the meantime, multi-national and leading Indian providers are establishing a presence there, mainly as nearshore locations for Western Europe."
India's success had also prompted a scramble by English-speaking countries to join the offshore IT market, said Marriott. "Although some of these countries seem promising on paper, Gartner advises companies to be extremely cautious during evaluation, paying special attention to the historical track record of these nations: specifically, low socio-political turbulence, physical and cyber security, and enforcement of intellectual property (IP) and patent law," he said.
Businesses selecting offshore service suppliers should look at factors such as the level of government support, English language skills, infrastructure and political and economic stability, as well as cost, in countries where they are considering outsourcing, Gartner recommended.
Although labour costs may be low, there were additional risks associated with offshoring, he warned. "Although infrastructure, process, project management and security risks are normal in any external service provider relationship, human capital consistency, socio-political bias or legal jurisdiction are not typically included in the due diligence process for vendor selection," said Marriott.
In selecting an offshore IT provider, users should investigate the following factors:
- Government support
- English language skills
- Educational system
- Political and economic stability
- Globalisation maturity (including legal system)
- Labour pool
- Security and privacy
- Cultural compatibility