Recession Creates New IT Outsourcing Destinations

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Global recession is producing new locations for oursourcing, according to research – but companies should appreciate the risks involved

Tough economic conditions will push an increasing number of companies to look beyond the usual suspects when it comes to outsourcing key services in a bid to cut costs, according to research.

In a report published late last week, Exploring Global Frontiers, management consultant KPMG claimed that destinations such as Winnipeg, Belfast and Brisbane could compete with stalwarts such as Bangalore, Chennai or Shanghai as outsourcing hubs for UK businesses.

Shamus Rae, advisory partner at KPMG UK, said that the downturn could prompt a new rush for outsourcing services across the IT sector. As established locations in India and China become more developed, and potentially less financially competitive, there are opportunities for new and emerging locations, he said.

“Traditional sourcing locations, which have been at the forefront of the outsourcing boom, were always going to reach saturation point,” said Rae. “Corporates now need to know which locations to consider next for their outsourcing activities. There are many locations around the world which are able to supply a credible outsourcing capability.”

KPMG’s list of 31 highlighted destinations includes 10 locations in the Americas such as Buenos Aires, Calgary and Winnipeg. Asia-Pacific destinations included Brisbane, Jaipur and, Ho Chi Minh City as well as 11 sites in Europe, the Middle East and Africa such as Sofia, Zagreb and Belfast.

Rae explained that there are difference in labour skills, niche specialisms and government incentives which led the consultant to highlight these 31 locations.

KPMG also warned that while emerging outsourcing destinations may be more competitive on price than more established destinations, they may also carry more risk.

“As a word of warning though, these locations are still ‘emerging’ and, as such, can still carry a degree of risk; an element of venturing into the unknown,” said Rae. “This is why all outsourcing location decisions should be carefully thought through on a case-by-case basis; there is no ‘one size fits all’ approach to outsourcing.”

But while new offshoring destinations might carry risk, recent events at outsourcer Satyam have led to security and confidentially concerns about outsourcing services to an established destination such as India.

In January, Satyam Computer Services chairman Ramalinga Raju resigned after admitting to regulators that his company’s books deliberately overstating of its revenue and profits “for a number of years”.

“In the current economic environment, enterprises consider financial indiscretions by any business intolerable,” said IT analyst Gartner in a statement at the time.