Credit crunch to prompt new growth in outsourcing

The report highlights 31 cities that are rapidly emerging as outsourcing destinations

Locations in Europe, the Americas and Asia-Pacific could all benefit from a new boom in IT outsourcing as the credit crisis continues to bite, according to new research from consultancy KPMG.

The report, Exploring Global Frontiers (PDF), highlights 31 cities across the globe that are rapidly emerging destinations and could replace traditional locations such as Bangalore, Chennai and Shanghai, which are reaching saturation point.

Among those locations likely to benefit from what KPMG is calling "a new rush " for outsourcing services across the IT sector are Buenos Aires, Calgary, Brisbane, Penang, Belfast and Belgrade.

Cities in the Americas are likely to benefit from large labour pools, scalability, a more mature service offering, proximity to the major client base and multiple language skills, the report noted. Asia-Pacific locations, meanwhile, benefit from lower costs, younger populations and government incentives while EMEA offers greater diversity, excellent infrastructure and niche specialisms.

“The need to develop new, cost-effective, viable outsourcing locations has been highlighted by the economic events of the past few months. Companies are focused on reducing their cost base, both for short-term and long-term gain," said Shamus Rae, advisory partner at KPMG in the UK.

“These are fascinating times to be choosing a new outsourcing provider or location as there is simply so much choice. New cities are emerging as outsourcing contenders all the time, each boasting a different set of characteristics."

However, Rae cautioned that these emerging destinations still represent a degree of risk and should be assessed on a case-by-case basis.

Rex Parry, a partner at international law firm Eversheds, argued that before outsourcing to a new location, firms need to assess factors such as the legal rules on IP ownership, tax and data protection in that country.

"Employers must also assess issues including language, the availability of trained people, infrastructure - especially the resilience of telecom connections – political stability, tax treatment and size of the provider," he added.

"The size of the population and likely population growth must also be considered to determine the growth potential for a region."