Over the last decade, several new offshoring destinations have emerged across Asia, Eastern Europe, Nordic region and the Middle East. Although, the quantum of offshoring to some of the geographies is low at present, the future scenario is likely to change, driven by the rush amongst the established service providers to set up base in these low cost regions.

Apart from the traditional low cost arbitrage possibilities, the other prominent drivers for setting up base in offshore destinations include:

• Service language markets other than English
• Create a global footprint
• Exploit regional, cultural compatibilities
• Geographical de-risking
• Disaster recovery management

Skill availability….

The availability of domain skills differs amongst destinations and their competitive positioning depends on availability of the skill sets. While India scores high on research and analytical skill count, Philippines and East European countries score higher in CRM functional skills compared to other destinations.

• China is strong in IT and non-voice transaction processing work. China has good infrastructure and low cost labor. However, the country’s lack of English skills is a hurdle for the higher end analytical jobs.
• Singapore is positioned as a safe location for sensitive high value activities, and the government policies there has simplified the outsourcing process further. But costs are significantly higher.
• Philippines has an edge over other Asian countries due to the English language skills of its workforce. Moreover, being an American colony, its financial system is akin to that of the US. Also, it ranks high on cost competitiveness. In fact, Philippines is the strongest competitor to India at the moment.
• Dubai in the Middle East launched in 2005 the world's first 'free zone' dedicated to the outsourcing industry - called the Dubai Outsourcing Zone and aims to fill a gap between Singapore and London.
• Eastern European countries are poised to take more offshoring business, due to their attractive regulatory environments as well as proximity and cultural similarity with Europe. The Czech Republic is making a strong push, as is Poland. Both these countries have emerged as strong offshoring destinations due to their good infrastructure coupled with low cost skilled manpower. Romania is another emerging offshore destination. These destinations also serve as near shore destinations for the European outsourcers.
• Nordic countries like Denmark and Sweden specialize primarily in back office services and mostly cater to the European companies and financial institutions.

….holds the key

Though labor cost arbitrage has been the primary driver for offshoring, skill availability will determine the comparative advantage of vendor destinations in the long run. As more countries emerge as viable outsourcing destinations, cost arbitrage will cease to be a unique differentiator.

In the long run, sustainability of the comparative advantage would depend on availability of talent pool at a particular location – and of course, competitive pricing. It is only a matter of time when the platforms enabling delivery of offshore services for low valued jobs would be replicated in more destinations.

However, models of delivery based on specialized knowledge and high skills are more difficult to replicate. Every country has its inherent strength, and destinations that build on such unique skill capabilities will prosper as outsourcing hubs.

For example, India’s strength lies in its vast pool of skilled manpower. The value proposition that India puts forward cannot be easily replicated. India’s prominence as an offshoring destination for high volume as well as high value and complex jobs will be maintained, but only as long as the country is able to maintain the supply of qualified people at a reasonable cost.