Offshoring? Try China and India Plus a Third Site

China may be rising as an offshoring destination, but many companies are outsourcing to multiple countries rather than just choosing between China and India.

Market saturation and rising prices in India have helped spur multinationals to offshore to other countries as well, including China, Brazil, and Vietnam, said Jim Longwood, research vice president at Gartner.

Many companies also aim to tap the different expertise available in different regions by outsourcing to multiple countries, said Michael Rehkopf, North Asia director for Technology Partners International (TPI), an outsourcing consultancy.

Such is the case for U.S.-based Hanover Insurance, which uses India as just one of three outsourcing sites abroad. The company has outsourced to India for over five years, but it also uses Canada and has turned to China in the last year the ability to adjust the size of its workforce rapidly for some tasks, said Michael Clifton, chief technology officer at Hanover.

Each site offers unique skills, Clifton said. Hanover has partners in India maintain its mainframes because the required expertise is common there, Clifton said. Parts of Hanover applications that must be developed on mainframes are also programmed in India. Mainframes still support much of the operations at the 150-year-old company.

Indian outsourcers gained "massive" experience with mainframes by working on Y2K issues for customers a decade ago, said Rehkopf, the analyst.

Meanwhile, Hanover's Canadian partners do research and development consulting, such as analyzing how younger generations think of insurance, said Clifton.

Hanover uses its China site for quick scaling and for work on application interface design.

One application Hanover has developed at its China site is a tool for sales agents. It can be used to modify Hanover insurance plans and produce price quotes according to the needs of potential buyers. The application, built with a service-orientated architecture and based on Adobe Flex, runs through a browser window but looks like a resident program, said Clifton.

Service-orientated architecture development and user interface design for multiple devices are two of China's engineering strengths, he said.

China also offers expertise in embedded application design, perhaps because products like mobile phones and cameras that run such software are so often made in China, said Rehkopf. India offers contrasting expertise in business office systems, he said.

Development of Web applications is also a strength for China, though the country does not have a definite advantage over India in that area, Rehkopf said.

Hanover has found scaling easy in China, said Clifton. The number of people at Hanover's China site has usually run between 50 and 75, but that number can fluctuate by the month and reach 100 if needed, he said.

"I have the ability to dial up really great expertise and literally hundreds of people if I needed it," he said.

But while scaling is possible for software development in China, India may retain the advantage when those projects require several hundred people, said Rehkopf. Established Indian outsourcers like Infosys Technologies dwarf their Chinese counterparts.

Huge populations give China and India unmatched scaling potential. But many other countries are grabbing from the outsourcing market pie as well, said Rehkopf. Language needs might draw a Spanish or Portuguese company to South America, for instance, or another company to eastern Europe rather than Asia, he said.

Hopes of avoiding geopolitical risk have also pushed multinationals to outsource to multiple destinations. In India's case, the terrorist attacks in Mumbai last November may have pushed companies to consider moving their outsourcing, said Longwood, the Gartner analyst.

One advantage for China is that many companies see outsourcing as a step toward cracking the huge local market, said Brian Keane, CEO of Dextrys, the U.S.-based outsourcing vendor that Hanover works with in China.

Many of the vendor's customers are either overexposed to India or hope to sell their services in China, said Keane.

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