Taking on the Tiger and Dragon: New Competition in Outsourcing

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The iron grip that China and India have held over outsourcing projects is loosening—and fast.

For one thing, neither the tiger nor the dragon is as cheap as they once were. In India, the brutal competition for talent helped send the cost of labor soaring over 100 percent in 2008, says Don Jones, international tax partner at global accounting firm BDO, San Jose, California, USA.

Rising costs combined with political discord in both India and China have given vendors in more obscure locations their big shot at luring in budget-conscious clients. With still-high unemployment rates, even the United States is emerging as an option for some North American companies looking to keep projects close to home.

“Since the economic drop in 2008, many companies are rethinking their outsourcing strategies,” Mr. Jones says.

Vietnam, Mexico, Egypt and Ukraine are just a few of the more promising upstarts. Yet Mr. Jones has heard many cautionary tales of companies that have moved all their outsourcing projects to one of the up-and-comers, only to watch them flounder due to poor project management and a lack of experienced talent.

“They eventually gave up and went back to the traditional outsourcing locations like India,” he says.

Such failures are why many of the outsourcing companies in India and China aren’t worried about these new …

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