WHILE China continues to challenge India to be a global hub for offshore services in the outsourcing industry, it also has to confront competition from other nations which are aiming to grab a bigger slice of the pie.

Among them are the Philippines, Vietnam, and Malaysia which is an emerging contender whose advantages still haven't been leveraged by many outsourcers.

That's the conclusion from findings of a recent study by business research firm Frost & Sullivan on shared service and outsourcing, or SSO.

"China and India are the undisputed powerhouses for SSO, but both are mainly cost arbitrage players," said Kam Soon Siew, consulting director of Frost & Sullivan, in an e-mail to Shanghai Daily.

Both countries boast relatively lower-cost labor, and China seems to have an even bigger advantage over most competitors in this area.

India is losing its advantage in this regard because of the rupee's appreaction against the US dollar.

The average annual salary of a software worker in India has risen 18.7 percent to 620,000 rupees (US$15,500), slightly above the 18.3 percent increase last year, according to a nationwide survey of employees by IDC India for technology magazine Dataquest, the Financial Times reported on Wednesday.

Meanwhile, the rupee has risen seven percent against the US dollar in the past five months, narrowing Indian firms' margins as software exports to the United States are the biggest revenue source for many leading players in the industry.

China thus has an opportunity to gain more ground by leveraging its existing advantages, which include an abundance of human capital, especially for research and development, and huge domestic demand to support global manufacturing operations, apart from lower costs.

But these factors won't be enough.

"China need to address the lack of English speakers and domain expertise in banking and financial services, for example," said Kam Soon Siew.

He listed Malaysia as an example that China could learn something from, citing the Southeast Asian nation's establishment of "a single government body to handle and coordinate SSO inquiries, investments and intellectual property-related risks."

Malaysia began its efforts in building up its edge in offshore services in 1996. The country was ranked No. 3 in 2004 by AT Kearney, a US-based consultancy, in global offshore location services after China at No. 2 based on financial structure, people and skills availability and business environment.

At that time the government initiated a project called Multimedia Super Corridor and built Cyberjaya, its version of "Silicon Valley." MSC is overseen by the Multimedia Development Corporation, or MDeC, a high-powered one-stop agency focused on ensuring the success of the MSC and the companies operating in it.

MDeC guarantees a 30-day turnaround for applications, and will coach companies through the application process. It also assists in expediting permit and license approvals, and introduce firms to potential local partners and financiers.

MSC now has become an information and communications technology hub, hosting more than 900 multinationals, foreign-owned and homegrown Malaysian companies of multimedia and communications products, solutions, services and R&D activities, with big names like Intel, Cisco, Microsoft, Tata Consulting and recent investors like Dell, Satyam and IBM.

"Compared with China, Malaysia has the advantages of multi-languages and a relatively matured education system," commented Alex Lim, general manager of management consulting agency HayGroup's Malaysia office.

But overall, Malaysia won't be able to compete with China in terms of availability and cost of talent, Kam pointed out. He singled out Vietnam, together with India, as a bigger threat for China in this regard.

In Vietnam, call centers and other outsourcing operations have established themselves over the past few years to take advantage of the nation's young and increasingly computer-literate population.

The country's attractiveness is justified recently by Hon Hai Precision Industry Co, the world's biggest electronics contract maker, which announced plans to boost investment by five times in the next five years to US$5 billion.

Meanwhile, the Philippines, another favorable location for SSO activities, specializes in back-office operations for IT and IT services. The country is home to more than 60 business process outsourcing service providers like 24/7 Customer, which employ about 22,500 people in back-office services like contact centers, raking in revenues of US$180 million in 2005 from this segment alone.

Several notable SSO centers in the Philippines include HSBC's BPO delivery center, Citigroup's Shared Services Center and Dell's SSC. Several companies like IBM have moved their SSO operations out of India to the Philippines.

Frost & Sullivan's Kam said that China should focus on "insurance-related SSO, back-office IT-based services, healthcare R&D and also arrest the decline in the transport and logistics sector which is primarily due to increasing competition from countries like India and Malaysia."

The global SSO market is set to grow 15 percent through 2009 to hit US$1.43 trillion, Frost & Sullivan said.