India’s crown as outsourcing venue of choice is wobbling, and could soon topple off all together.

Once seen as the cheap and cheerful location for banks to ship their business processing to, India isn’t quite so cheap any more.

With a glut of IT vendors – such as Infosys, TCS, Stayan, Wipro and HCL Technologies – all competing for a limited pool of talent, Indian wages rose by an average of 15.1% last year, according to figures from Hewitt Associates, and they are expected to rise by 15.2% in 2008.

So where are the new powerhouses of outsourcing likely to emerge? A study by Pierre Audoin Consultants (PAC) predicts that China, Hungary and Morocco will pick up the new business.

Rajeena Brar, consultant at PAC, says: “The language barrier was once seen as a disadvantage in China, but the government has invested heavily to correct this. In Central and Eastern Europe, more value-added services can be offered.”

These value-added services include the research and development of new products, and offering more innovative solutions to banks’ individual needs, something the Indian players have always fallen down on, says Brar.

But the death knell shouldn’t be sounded for India just yet. Infosys is still upping headcount by thousands in India each year, and PAC research says areas such as Noida and Hyderabad offer a cheaper source of labour than traditional hotspots like Bangalore and Mumbai.

And a study from Nasscom predicts a 25% annual growth in Indian IT services over the next few years, though this isn’t restricted to financial services.

Nick Mayes, senior consultant at PAC, reckons there should be no shortage of work for whichever location is chosen for outsourcing: “Last time there was a downturn in financial markets, there was an acceleration in outsourcing activity as it was seen as a fast way to save money on IT.”