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South East Asia - the new Offshoring Powerhouse

Keith Tan
August 17, 2017

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Offshoring is the relocation of business operations from one country to another. These business operations usually deal with operational processes, such as manufacturing, or supporting (also known as back-office) processes, such as accounting. The term "offshoring" is often used interchangeably with the term "outsourcing".

The main impetus for "offshoring" or "outsourcing" has been to reduce operational costs. Often, the costs of operating in the home country, or "onshore" are significantly higher than the costs of operating in the "offshore" or "offsite" location or country.

South East Asia - the new Offshoring Powerhouse

(Image: Our Wondernauts partaking in a monthly team-bonding session, March 2017)

India as emerged as a key offshoring destination for many companies over the past 15 years. The competitive advantages that India held were:

1. Lower costs, comparatively

2. Technically educated workforce

3. Abundance of talent

This is especially so when it comes to the offshoring of technical, or software development operations. Companies such as Infosys and HCL were built on this wave of offshoring.

India is indisputably the most successful country amongst the offshore locations. It continues to score very well across all criteria - technical ability, cost-effectiveness, language proficiency. However, the rising Rupee has threatened its cost competitiveness. It is our belief that South East Asia will become the next powerhouse region for offshoring in the next decade.

Here is a summary of some of South East Asia's offshoring locations:

 

South East Asia - the new Offshoring Powerhouse

Indonesia: Costs have improved dramatically as infrastructure is improving by leaps and bounds. Excellent internet connectivity is the best case in point. The talent pool has made a quantum leap, from “poor” to “fair”. While there is an undeniable competency gap (on average), the dollar-for-dollar cost effectiveness makes it extremely attractive. Indonesia has consistently increased its output of technical talents from its many universities. The number of qualified engineers is increasing. In the last 15 months, we at Wonderlabs increased our acceptance rate from 5.1% to 6.3%, based purely on increasing quality of talent. An increasing number of vendors are now providing offshore services out of Indonesia, which is actually great for our business. It proves that Indonesia is the correct destination.

 

South East Asia - the new Offshoring Powerhouse

Malaysia: In the last 3 years, Malaysia has improved government support and infrastructure. For example, in Malaysia's 2010 budget, the government introduced green IT initiatives, high speed broadband. It has become a regional centre for customer services, as the language proficiency is comparatively higher compared to other offshoring locations in the region. However, our opinion is that its technical talents are insufficient to support a large and growing offshoring base. Its tertiary education system is not producing talent fast enough.

 

South East Asia - the new Offshoring Powerhouse

Philippines: The Philippines has been a stable offshoring location, especially for customer services. Other sectors that have seen growth include finance, accounting and business process outsourcing. Recent political events in the Philippines have seen its global and legal maturity aspects slip, causing concern amongst investors. However, the country's young, experienced labor pool still has comparatively the best English proficiency in the region (sans Singapore).

 

South East Asia - the new Offshoring Powerhouse

Vietnam: Vietnam has improved its labour pool, and education. Its young and motivated workforce makes it an extremely attractive location. News in 2010 that the Vietnamese government created a priority list of skills for government-funded training (IT/Software Development among the top skills on the list) is very good news to foreign firms searching for technical talent. There is already a sizeable expatriate community from Japan, South Korea, Taiwan, Malaysia, Singapore, Thailand and France. In particular, many Singapore companies have set up offshore technical centre in Vietnam. However, in our opinion, Vietnam shows signs of an overheated talent market, with high-level of turnover and job switching (to achieve quick pay increases). This is terribly disruptive for companies.

Last Word: If you want to find out how we run an offshore software development centre in Indonesia (Jogjakarta and Bandung), download our Operational Model brochure:

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images sources: Freepik 

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