Offshoring: China to overtake India in four years?

Affordable rent, low-cost labour and population literacy are the main reasons why companies still prefer to set up their delivery centres in Indian cities such as Bangalore and Mumbai. But this offshoring trend is likely to change in the near future.

According to a study by analyst IDC, Chinese cities will overtake their Indian counterparts as top destinations for offshore global delivery by 2011, based on the results acquired from IDC's Global Delivery Index (GDI).

The GDI compares 35 cities in the Asia Pacific region as potential offshore delivery centres based on a set of criteria such as labour and rental costs, language skills and turnover rate. Cities covered by the index include Adelaide, Bangalore, Dalian, Hanoi, and Kuala Lumpur.

Conrad Chang, IDC's research manager for Asia Pacific business process outsourcing research, said what differentiates the leading cities from the rest is "the focus on deal-clinching factors" such as agent skills and political risk.

He said in a statement: "There are different risk factors to consider when evaluating outsourcing, offshoring, onshoring and nearshoring. Some factors are obviously more critical than others."

Chang also noted that while Indian cities scored high on the criteria set by the GDI, the picture could well be different four years from now.

Although the top-ranked Chinese cities - Dalian, Shanghai and Beijing - trail their Indian counterparts in the GDI this year, they are expected to overtake the competition by 2011.

IDC attributed this to China's massive investments in areas favourable to offshoring, including infrastructure development, technical skills and internet connectivity.

According to the GDI, the top 10 cities for offshoring in 2007 are Bangalore, Manila, New Delhi, Mumbai, Dalian, Shanghai, Beijing, Sydney, Brisbane and Auckland.

Farihan Bahrin writes for ZDNet Asia