China's push to become an alternate offshore hub for MNCs tackling soaring wages and high attrition rate in India remains a distant dream as its offshore market is developing slower than expected, a study says.
Despite significant government support and huge level of visibility on the global arena, China's offshore market has not taken off as expected and still has a long way to become a potential alternative to India, technology research firm Forrester said, in a report released today.
Multinational firms, considering China as a "quick-fix" solution to deal with rising costs and high attrition of employees in other offshore locations like India, would be sorely disappointed by the country's slowing offshore momentum, the report said.
"When we first looked at China's offshore and global delivery model nearly two years ago, the country was widely viewed as the key challenger to India for offshore supremacy. However, our latest research shows that to date, the market has not taken off as expected," Forrester's Vice-President John McCarthy said.
McCarthy, who had predicted in 2002 that over three million service jobs in the US would go offshore, added that firms with large bases in India should consider other geographies when addressing the risk mitigation issue.
Even countries like the Philippines, Mexico and Brazil could prove to be better alternatives than China for diversifying offshore exposure, McCarthy said.
"The Philippines, Mexico and Brazil may provide better alternatives than China in terms of skills, language and convenience," he added. Noting that China's percentage of overall offshore resources has dropped and other countries were growing at a faster pace, Forrester said the country needs to refocus its offshore efforts.
Instead of trying to compete in areas like application development and management, where India clearly dominates, China should encourage its local firms to focus on other areas like testing, data management and product development services. Chinese firms also need to implement strict intellectual property controls and undertake training programmes, McCarthy said.
For other countries vying for the lucrative offshoring pie, Forrester suggests economic development agencies in Thailand, Malaysia, Egypt and Morocco that they need to do more than just re-labelling the pool of engineering graduates as being ready to export their services.
"Their education programmes ought to focus on advanced skills like project management and advanced architecture skills, while at the same time, respective governments should invest significant funds to market the country as an alternative to the offshore incumbent - India," McCarthy said.