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India is still the best place from which to deliver offshore services, but its biggest threat could come from the increasing maturity of automation technology.
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The rising number of locations that offer their own particular advantages as well as maturing technology makes the offshoring choice increasingly difficult for today’s business leaders.
The latest Global Service Location Index from management consultancy AT Kearney puts India top of the pile with a good balance of cost, skills and business environment.
But there could be a threat to India and it is not another country or region – but a technology. According to AT Kearney, the new business model associated with automation is a threat to traditional offshoring.
Software robots are being programmed to perform business processes, and artificial intelligence (AI) is already offering businesses cognitive platforms that can complete tasks and even learn as they go along. This technology has been around for a few years, but is now gaining momentum.
For example, an AI platform from IPsoft known as Amelia is already in its second iteration. Amelia can understand the semantics of language and learn to solve business process queries in a similar way to a human.
AT Kearney said new digital solutions are reducing the need for low-cost labour to carry out back-office services. “Many countries that have relied on the business process outsourcing [BPO] industry for economic development now see the era of easy work coming to an end,” it said.
India could be a prime example. The model of Indian service providers offering lower-cost equivalents could not work for ever, and automation is providing a cheaper alternative for many IT and business process tasks.
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- The government in China is attempting to develop an IT services industry through tax cuts, financial support and reducing bureaucracy.
- The Philippines challenges India as a destination for outsourcing in Tholons Top 100 report.
- Low-cost, highly skilled IT labour and a relatively close proximity to the UK is making Eastern Europe an increasingly attractive destination for UK businesses.
When it comes to competition for India from other countries, China took second spot in the AT Kearney Index, followed by Malaysia. Fellow Asian countries Indonesia, Thailand and the Philippines were also in the top 10 at five, six and seven, respectively. These three countries are part of the Association of South-East Asian Nations (Asean) block, as is Malaysia, giving the region four of the top 10 global service locations.
Brazil broke up the two Asian groups at number four, while Mexico and Chile were eight and nine, respectively. The other country to made it into the top 10 is Poland at number 10.
Finding the best location, or mix of locations, for IT services has become more complicated in recent years because CIOs have more options. Suppliers around the world offer IT and business process delivery, and all have their own particular advantages.
With billions of pounds’ worth of IT outsourcing agreements coming to the end of their contracted period over the next few years, IT services work will inevitably move – and not just between suppliers, but continents too.
In the past, CIOs might have made a choice between keeping work onshore or shipping it to India, but today there is a move to multi-shoring. It is now possible for a UK business to have call-centre services delivered from a low-cost region in the UK, have its digital software development done in Ukraine and application development in India.
Then there are large global companies that might have a different mix of delivery locations for businesses units in different geographies. For example, the Asia-Pacific (Apac) arm of a global business might choose a combination of India, the Philippines and China, while the North American arm might use Brazil, Costa Rica and Mexico.