India continues to be the major destination for multinational companies outsourcing their jobs due to a combination of two factors -- low costs and availability of human resources, according to a study.
China secures the second spot. It lags behind in terms of experience and other key factors such as IT and management education, language skills, concerns about intellectual property and overall country risk.
The study by American business consultancy A T Kearney, in its list of top countries in the service sector jobs, revealed that offshoring should not be based on 'one size fits all strategy.'
India will continue to be ahead of the pack in terms of offshore destinations due to two reasons -- it offers the deepest experience in business process outsourcing and a large labour force second only to that of China.
"The strength of India's people is no accident. Every year the educational system graduates two million proficient English speakers with strong technical and qualitative skills. India also benefits from its experience as it has been an offshore destination for over a decade," it said.
Although the human assets factor have made India the offshore leader, it ranks below the top ten in terms of business environment, the study said.
Infrastructure weaknesses and concerns over economic stability pull India down. The government's efforts to improve infrastructure and maintain economic and political stability seem likely to reinforce India's emergence as a global player, it said.
Canada slipped from the second spot to the eighth, while Malaysia soared to number three after not making the top ten last year. Canada has proven particularly attractive to Indian companies setting up near shore operations.
Malaysia and the Czech Republic are third and fourth in the A T Kearney's 2004 Offshore Location Attractiveness Index.
The firm also described Malaysia as a natural choice for offshore services because of 'low costs, particularly for infrastructure, the most attractive business environment among emerging markets, and high levels of global integration.'
The study predicted that a growing number of companies from Western Europe will be drawn to countries such as Czech Republic, due to its 'competitive infrastructure costs, a stable business environment and particularly strong education results.'
Singapore, not typically low-cost, was ranked fifth, due to its education, language skills, superior infrastructure and pro-business tax and regulatory environment.
The Philippines ranked sixth, bolstered by widespread English-language skills, a cultural affinity with the United States and low costs.
Poland and Hungary -- two other Central European countries joining the European Union -- ranked tenth and eleventh on the list.
Latin America's two largest countries both lost ground, with Brazil sliding to seventh from third and Mexico dropping out of the top dozen countries after being tied for second last year. Chile cracked the top 10 for the first time, coming in eleventh.
The annual index is a tool to help companies understand and compare the factors that make countries attractive as potential locations for offshore services. It measures the viability of countries as offshore destinations based on their financial structure, people skills and availability, and business environment.
At the end of the day, the best lessons may be those learned from watching the offshore leaders' companies that adopt multi-country strategies, moving operations to multiple locations as a way to diversify risks and tap into the broadest possible pool of global talent, the report said.
The study revealed that lower wages don't represent the only competitive threat posed by developing countries. It concluded that the US and Germany 'in particular perform poorly' against many offshore locations when it comes to
mathematical, scientific and reading skills.
A T Kearney derived its rankings from field work carried out at its more than 60 offices in 37 countries, augmented by interviews with global executives. Financial factors made up 40 per cent of the index's weighting, with people skills and availability contributing 30 per cent and local business environments accounting for the remaining 30 per cent.
The study found that more than 90 per cent of companies surveyed named costs as the main reason for their initial decision to offshore jobs.
Sixty-seven per cent of companies that already have offshored jobs cited concerns over risks and instability as the main reasons they were not offshoring even more, it said.