The cost advantage of offshoring declined in 2006, found the Global Services Location Index released by A.T. Kearney, a Washington-based global consulting firm.
The report found that although the wage advantage of offshoring locations for office services is set to last for another 20 years, it is on the decline as offshore wages for IT, business process and call center services have risen. But even under the most aggressive projections of wage inflation and currency appreciation, however, offshore locations will still have the price advantage for the foreseeable future, found the report.
The changes in labor cost are the result of both accelerating wages and currency appreciation in offshore hot spots as well as downward pressure on wages in impacted sectors in developed countries, according to the report. Still, markets are keeping up their competitiveness by continually improving their talent, experience, certifications and regulations.
“What is most striking about the results of this year’s Global Services Location Index is how the relative cost advantage of the leading offshore destinations declined almost universally, while their scores for people skills and business environment rose significantly,” said Paul Laudicina, managing officer and chairman of A.T. Kearney.
“These findings reinforce the message that corporations making global location decisions should focus less on short-term cost considerations and more on long-term projections of talent supply and operating conditions.”
The report found that even as the cost-saving appeal in offshore hot spots may be declining, the competition is intensifying. Nevertheless, “on-shore” and “near-shore” locations in developed countries fell in rankings, although their absolute scores improved.
