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Automation Seen Threat to India's Dominance in Outsourcing Business

India is the world's biggest outsourcing destination in terms of financial attractiveness and business environment, according to a study by global management consulting firm A.T. Kearney.
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Automation Seen Threat to India's Dominance in Outsourcing Business
Singapore: India is the world's biggest outsourcing destination in terms of financial attractiveness and business environment, according to a study by global management consulting firm A.T. Kearney.

A.T. Kearney's 2016 Global Services Location Index (GSLI) rated India as number one out of the total 55 countries analysed. China, Malaysia, Brazil, Indonesia, Thailand, the Philippines, Mexico, Chile and Poland respectively made up the top 10 list.

However, the study cited automation as potential threat to India's dominance in the outsourcing sector.

"Even though the top six or seven countries are landing in the same order this year as 2014, looking forward, this could all change radically because the very nature of what's being outsourced is changing," said Arjun Sethi, global leader of A. T. Kearney's strategic IT practice.

"For the first time, we have a trend - automation - that could displace the leadership of the likes of India and China in outsourcing. Technology's relentless progress continues to transform in unanticipated and fundamentally different ways not only where work is moving to, but how and by whom - or by what - it is being done," Sethi said.

He said the new business model associated with this automation threatens established concepts of offshoring, while expanding the market. India's undisputed industry leadership is facing a challenge from China which has become attractive with its recent devaluation of Renminbi and gains in educational skills and cultural adaptability.

"The implications on accessibility of services and employment in these countries are massive. On the client or receiver end, Business Process as a Service (BPaaS) dramatically lowers the entry barriers to business data management, opening the floodgates to smaller and newer companies," said Sethi, principal author of the study.

Offshoring to India remains a high attractive proposition for many companies, said the study which also takes a deeper dive into optimal cities for offshoring within the ranked countries.

"While India and the Philippines are still top of mind when it comes to offshoring, the hunt for new talent is now taking companies beyond these countries' capitals and major cites to tier 3 locations such as Surat, Nagpur, and Lucknow in India and Bacolod and Iloilo City in the Philippines," said Nikolai Dobberstien, partner with A. T. Kearney's Communications, Media and Technology practice.

One advantage of tier 3 cities is the relative affordability of real estate as facilities in Nagpur and Ahmedabad are 25 per cent to 30 per cent cheaper than Kolkata and Delhi, the report said.

Another advantage is the relative availability of labour, its lower cost and lower attrition rates. Many of these cities have highly developed educational infrastructure, ensuring fresh crops of qualified graduates for the foreseeable future, the study said.

The GSLI, launched in 2004, helps companies make key location decisions for offshoring and industry development projects with objective guidance.

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