By Preetam Kaushik
Until recently, the mantra of offshoring in the West used to be “if it is manufacturing, shift it to China, and if it is services, ship it to India.” However, this perception starting to change, with many countries in Southeast Asia emerging as serious competitors for established players like China and India in the offshoring market and as favorite destinations for outsourcing.
The reasons for this trend range from similarity of culture and accent between the US and the Philippines (a former US territory), a business-friendly climate in the Philippines and Vietnam, levels of process and operational excellence in Thailand and Malaysia that have historically been developed as compared to India, and finally, the proximity to China which helps these countries reap the rewards of Chinese investment and growth.
The Eye of the Tiger
Given that the “Asian Tiger” economies of Southeast Asia (such as Taiwan and South Korea) have always been at the forefront of economic growth and rapid strides in productivity, it is a mystery as to why their success has not rubbed off on nearby countries like the Philippines and Vietnam. A possible reason for this may have been the fact that these neighboring countries came late to the party, as Vietnam only opened up its economy fairly recently and the Philippines finally realized that its advantage of being a former US colony means more than sending expatriates abroad and instead began tapping its domestic workforce to ride the outsourcing wave.
In recent years, both Philippines and Vietnam have liberalized their economies and provided incentives for Western multinationals seeking to do business there. Indeed, they compare favorably to India on several parameters, including ease of doing business, openness to globalization, corruption, and global competitiveness.
It has often been mentioned that China and India have succeeded in manufacturing and services because of their large workforces that are low cost, technically proficient, and highly productive. However, recent surveys have shown that the employability level of Indian graduates is around 10%, compared to 30% in the Philippines, which means that the latter nation has an edge as far as the labor pool is concerned. Other countries in Southeast Asia, such as Vietnam and Thailand, are taking a leaf from the Asian Tigers and making huge investments in human capital or enriching their human resources.
Moreover, Thailand and Malaysia have always been known to be operationally deep, which means the existence of standard business processes and a familiarity with the Western way of doing business. This is helping them in regaining some of the lost ground that they ceded because of the Asian financial crisis in the 1990s.
Outsourcing’s ‘Third Wave’
The emerging trend of these Southeast Asian nations becoming significant outsourcing destinations represents the third wave of outsourcing services, which started with Europe first, India next, and is now reaching Southeast Asia. The governments in these countries are doing their bit as well to help the businesses. This can be seen in the way the Philippines has a government-run program to train its graduates and Vietnam has allowed 100% foreign direct investment in many sectors.
Furthermore, the fact that these countries are closer to China means that Western businesses that invest there think of them as secondary and tertiary markets for expansion. And the data of the past couple of years seems to point to the fact that these countries are catching up. For instance, the BPO sector in Philippines is now a $ 10 billion industry with a major voice segment business coming its way thanks to its workforce’s familiarity with American and European accents. This is one area where India is losing its edge and where Latin America has yet to catch up. In addition, many multinationals that want to diversify their risks and have geographically dispersed outsourcing centers. This business driver puts the countries of Southeast Asia at an advantage, since many BPO providers based in India have opened secondary centers there..
This indicates that the next”Tigers” can be from these countries, which seem to move faster than the lumbering “elephant” that is India. While it is early yet to glorify Southeast Asia (apart from the Tiger economies) as an unmitigated success, trends seem to suggest that the global outsourcing industry may well make the next move towards these countries. It is time for Latin America to more fully emerge and for India to be watchful.