India and China are still unmatched in the Asia Pacific for Business Process Outsourcing services and offshore IT. While these two countries enjoy their status, there are some countries that are becoming credible substitutes, according to the latest report by Gartner.
The research firm examined the capabilities of several countries as offshoring locations for their latest report, ’10 Leading Locations for Offshore Services in Asia Pacific and Japan for 2010.’ Another study categorized the top 30 in the international BPO industry.
Jim Longwood, research vice president at Gartner said, “Countries such as Malaysia, the Philippines and Vietnam have continued to strengthen their position against leading alternatives, while Indonesia has entered the top 10 for the first time. Some of these countries have invested considerably and leveraged increased demand for lower-cost services. The global financial crisis forced many organisations to place a greater emphasis on cost optimisation.”
The other countries in the top 10 are a combination of established environments that offer limited cost benefits, such as Australia, New Zealand and Singapore, and countries that offer attractive costs accompanied with a few challenges like Malaysia, Indonesia, the Philippines, Thailand and Vietnam.
Many countries have worked hard to improve their standing as leading offshore sites. Even though India maintains its development in exporting IT services, its global market share has decreased. India now faces challenges in employee compensation, financial irregularities, geopolitical concerns, and local attrition rates. These problems are allowing other countries to share in the boom as they are improving their capacities.
Longwood said, “In view of India’s dominance, many countries trying to tap into this market are reassessing their strategy and looking at niche markets like call centres, logistics and other back-office functions where they might have a physical proximity advantage over mature countries like Australia, Hong Kong and Singapore.”
A new finalist in the top 10 list was Indonesia because of its massive labour pool and developing business environment. Pakistan drops down the top 10 list.
Longwood continued, “This was largely due to Indonesia’s noticeable progress in addressing offshore opportunities rather than Pakistan’s drop in performance, but political instability was also an issue here.”
The US currency’s instability and the global financial crisis are hurdles that offshore vendors and buyers still face. It is noted that the APAC region is less affected by these problems, but the fluctuating currency exchange rates against the US dollar has affected the appeal of some countries.
“As organisations increasingly look at global delivery as a means to reduce cost, they will need to focus on important areas such as security, data and IP protection and compliance,” shared Longwood. “However, the link between lower risk and higher cost holds true.”
The mature markets of Australia, New Zealand, and Singapore presented limited cost savings, but these countries are rated for cultural compatibility, data and intellectual property, globalisation and legal maturity, language, political and economic environment, and security and privacy.
Although Vietnam was the sole country to be top rated for cost, it was rated fair or poor for other standards. It received the lowest ratings for data and intellectual property, and security and privacy.
Thailand, Vietnam, the Philippines and Indonesia all rated low for political and their economic environments. While low cost is important, understandably the political and economic environment is still considered very carefully when moving business to offshore locations.
The only category where most APAC countries are rated from good to excellent is infrastructure. Most offshore sites are rated as good to very good for cultural compatibility and language except for China, Indonesia, Thailand and Vietnam.
Outside the top 10 list, Pakistan, Sri Lanka, Bangladesh and North Korea are also strongly considered, as these countries are building attractive environments for companies that look for lower cost environments.
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