India still first choice for offshore outsourcing

India remains the top global offshore outsourcing destination but China is catching up fast on the back of strong governmental support, according to the latest research from Gartner.

Only India currently has the right combination of cheap resources and robust technology infrastructure for an offshoring destination. Gartner predicts it will continue to pick up the lion's share of global offshore spending on IT services, which is predicted to total $50bn by 2007.

Despite India's dominance, Gartner is advising organisations looking at offshore outsourcing to consider multiple locations around the world.

India will face increasing competition from Brazil, China, Mexico and the 'nearshore' eastern European countries such as the Czech Republic, Hungary, Poland and Russia but Gartner says only China comes close in the potential to match India in terms of size and the number of IT professionals.

Ian Marriott, research VP at Gartner, also warned that while the cost of labour will remain a major factor in the choice of offshore location, organisations need to do a detailed cost-versus-risk equation.

In the report he said: "Organisations must understand the various types of risks when using global software teams or offshore outsourcing, and assess each through a more rigorous due diligence of the short-listed offshore firms."

Some of the emerging offshore countries highlighted by Gartner, which do not yet have the sufficient resources and infrastructure to deliver services on a profitable level include Belarus, Estonia, Latvia, Lithuania, Mauritius, New Zealand, Slovakia and the Ukraine.

A separate report by analyst Forrester shows the UK leads the European outsourcing market on the back of strong activity among public sector and financial services and organisations. BT Global Services headed the vendor chart for deal value after landing a €2.2bn deal with the Ministry of Defence.

Forrester's figures also showed a decline in the level of infrastructure outsourcing, while telecoms and network outsourcing grew 18 per cent on last year and accounted for almost a third of all the deals.