Labor cost advantage of offshore locations for office services will continue till 2027, says study by A.T. Kearney, a global management-consulting firm. Even though wages in offshore locations for services, such as IT, business processes and call centers, have started to rise, they will remain cheaper for the foreseeable future under the most aggressive projections of wage inflation and currency appreciation in developing countries.

A.T. Kearney’s Global Services Location Index (See Table) also finds that the labor cost advantage of the leading offshore destinations declined almost universally, while the plus points for these countries are their significantly increasing talent pool and maturing business and policy environment. The analysis — based on the findings from more than 40 metrics comparing the financial attractiveness, people skills and business environment of 50 countries worldwide — found that India and China registered declining costs advantages but also scored high in terms of improving talent supply and business environment.

This year’s index reflects the growing number of countries competing to establish themselves as remote-services locations and includes ten new countries — including the three Baltic States and Ukraine in Eastern Europe, Sri Lanka and Pakistan in South Asia, Uruguay in Latin America, and Morocco, Senegal, and Mauritius.

South East Asian countries reinforce their position as the primary alternates to India and China, with all six major ASEAN markets (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) now ranked among the top 20 locations.

Reflecting new policy initiatives to promote service exports in many countries, Latin America performs well, with all five major contenders (Argentina, Brazil, Chile, Mexico and Uruguay) rising in the rankings.

The newer contenders in Central and Eastern Europe are increasingly outshining more established players, as Bulgaria, Slovakia and the Baltic States move ahead, while the Czech Republic, Hungary and Poland slip in the rankings. The Middle East and Africa continue to rise in visibility, with Egypt, Jordan, the United Arab Emirates, Tunisia, Ghana, South Africa, Israel and Turkey all maintaining or improving their position, while Mauritius, Morocco and Senegal debut in the rankings.

While most onshore or nearshore locations in developed countries improved their absolute scores, almost all fell in the rankings, as emerging markets improved their people skills and environment scores at a faster rate.

Global Services Location Index 2006