The growth rate of offshore outsourcing to India is expected to come down considerably, as new clients are increasingly including other countries in their evaluation, according to research firm Gartner.
"In the past, 80% to 90% of clients would automatically source from India, when they decided to go offshore," said Gartner analyst Frances Karamouzis in a telephone interview on Friday. "That number is down to 60%," she said.
Brazil, the Philippines, Mexico, Vietnam, and some East European countries are getting a larger share of offshore outsourcing, Karamouzis said.
Other emerging offshore locations are cutting into India's share of the offshore outsourcing market, but the loss of share will likely be in single digits, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International (TPI), on Monday. India will continue to retain its position as the largest offshore location, he added.
India has reached a saturation point in outsourcing, and customers are reducing their exposure to risk by looking at other locations, Karamouzis said.
In their comparison of various countries, customers are also addressing concerns such as perceptions of geopolitical risk which was heightened in India by the terrorist attack in Mumbai in November last year, Karamouzis said.
India's infrastructure, which is behind that of China, growing staff attrition rates, wage increases, and the financial scandal at outsourcer Satyam Computer Services also influence their decisions, she added.
"It is not a single event, but a confluence of five to six different things," Karamouzis said.
China is not necessarily a strong alternative to India at this point, because China is facing its own growing pains, she said. The country is however attractive to a number of customers because of its large domestic market, she added.
Customers have to pay a premium of 10% to 15% in China for English speaking staff, according to Karamouzis. Key locations in China like Shanghai, Beijing, and Dalian are already saturated and prices have gone up, a lot faster than they did in India, she added.
It is the collective impact of seven or eight different countries that is taking away market share that would have otherwise gone to India, Karamouzis said.
One of the benefits touted by Indian outsourcers is that India is the only country where a customer can scale operations easily, because of the large number of qualified staff in the country that graduate each year.
If a customer wants to have an application development center with 1,000 staff set up in six weeks to two months, the only country where it is possible is India, Karamouzis said. It can be done in China or Brazil as well, but it will take nine months to a year, she added.
However the number of new clients that will come to the market asking for 1,000 people is quite low, more like 10% of clients. Most clients require 20, 50 or 100 people, and other countries can provide that, Karamouzis said.
Indian outsourcers are already facing a contraction in business because of the economic downturn. Customers are postponing new contracts, and even implementation of current projects, Pai said.
Indian outsourcer, Infosys Technologies, forecast last week its first ever annual revenue decline. Its revenue in the current fiscal year ending March 31, 2010, may decline by 3.1% to 6.7%, the company said.
Customers also want to renegotiate contracts and cut prices. A discussion around price presents a large dilemma for Indian outsourcers who have spent marketing dollars for the last three years to try to change their image from price players to value-added providers, Karamouzis said.
As customers look to other countries for offshoring, Indian outsourcers are also setting up operations in these countries, hoping to bag the business, Karamouzis said.
In the last 18 months, 12 Indian vendors have set up operations in Mexico, seven opened facilities in Brazil, and almost all of the large companies have facilities in Eastern Europe, she said.
Indian outsourcers are well equipped to take advantage of low cost resources in other countries because of their experience in India, Pai said.
But Indian companies are taking time to become global companies, continuing to depend more on Indian resources, Karamouzis said.
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This story, "India is losing its share of offshoring market, says Gartner" was originally published by IDG News Service .