How Offshoring Strategies in Emerging Markets Powers Business Growth
By Cong Ong, Head of Regional Business Group, PERSOLKELLY
Background
Managing your business through economic uncertainty is hard.
Increasing business costs and the ongoing Talent crunch add to the challenges.
Meanwhile, recent geopolitical volatility in Europe and Asia brings further disruption risks, forcing businesses to explore supply chain diversification.
This fast-evolving landscape requires agility and bold strategies.
As we’ve seen, organisations have become more open to adopting new operation models and remote work during the pandemic, making flexible working arrangements more feasible. Offshoring is a solution that can help your business counter the headwinds, maintain a competitive edge and accelerate growth.
In this article, I discuss how OFFSHORING strategies in the emerging markets of Vietnam, Thailand and Indonesia can benefit companies of all sizes.
What is Offshoring, and how does it help?
Offshoring is the transferring of activities of specific business processes to a different country (similar to BPO - Business Process Outsourcing). As working remotely from another country becomes more popular and businesses are more receptive to acquiring overseas talents, we see offshoring of skills becoming more viable for many job functions. A PEO or EOR company can execute the management of offshoring.
So, what are its advantages? In brief, Offshoring can be cost-effective, provides resources to quickly fill gaps in your workforce, opens up opportunities to reach new markets, gives access to a bigger pool of Talent with specific skill sets, and enables the diversification of business operations.
Which Countries are Best for Offshoring?
Successful Offshoring requires a stable, low-risk environment that enables a business to operate seamlessly. As members of the world’s largest free-trade bloc, the Regional Comprehensive Economic Partnership (RCEP) - Vietnam, Thailand and Indonesia offer significant benefits to companies by eliminating tariffs and providing standard rules on the flow of goods across all RCEP states, including China and Japan.
Other essential Offshore-friendly factors in these three emerging markets are financial attractiveness, a workforce with skills and availability, and high-quality infrastructure. Let’s take a closer look below.
Vietnam
Vietnam’s post-pandemic recovery is gaining momentum, with the economy expected to have the highest growth rate in Southeast Asia in 2022 at 6.9%. While Covid-19 dented progress, Vietnam still aims to become a high-income country by 2045.
Meanwhile, the Vietnamese government continues to bring in reforms and investment incentives to make the country more accessible to do business. These efforts are bearing fruit, as the country received $4.42 billion in foreign direct investment (FDI) in the first quarter of 2022, a 7.8% increase from the previous year.
Vietnam’s population of over 97 million and its well-educated workforce supply an enormous potential pool of resources for Offshore companies. In 2020, the literacy rate was over 95%, one of the highest rates in the Asia Pacific region.
Offshoring in Vietnam is mainly focused on the country’s Manufacturing and IT sectors, including the production of labour-intensive goods as well as more sophisticated products such as software. The government’s National Digital Transformation Programme to 2025 will strengthen skills development for IT and Technology specialists. According to a Google, Temasek and Bain & Company report, Vietnam’s digital economy is forecast to reach US$52 billion in 2025, accelerating at a compound annual growth rate of nearly 30%.
Indonesia
For many years Indonesia, Southeast Asia’s biggest economy, remained somewhat off the radar regarding Offshoring. But that is now changing. This nation of 270 million people occupying an archipelago longer than the United States is an increasingly attractive proposition for foreign businesses looking to shift their manufacturing operations from elsewhere in Asia Pacific.
As Indonesia’s economy; continues to rebound, companies are drawn by the nation’s huge domestic market and easy access to other fast-growing ASEAN economies.
As the 10th largest manufacturing nation in the world, Indonesia’s attractiveness as an Offshoring location is sweetened by various investment incentives. For example, in 2021, the Indonesian government introduced the Positive Investment List as part of its Omnibus Law that enables companies from most business sectors to apply for 100% foreign investor ownership. The government undertakes risk analysis for business activities, with low-risk entities only needing a business registration number to begin operations. Other incentives include supporting infrastructure and the guaranteed energy supply or raw materials.
In addition, Indonesia has created 19 special economic zones (SEZs) to attract foreign investment and boost industrial activity. Offering good connections with the rest of the country, easier licensing processes and tax concessions, the SEZs were expected to bring in over US$6.2 billion in total investment by the end of 2021.
Weak infrastructure development in Indonesia stalled investment for many years, so the government has prioritised this area for rapid change. There are ambitious plans for more than US$400 billion to be spent on a slew of projects by 2024, including 25 new airports, new power stations, 2,000km of new highways, and more than 3,000km added to the rail network. The country’s digital infrastructure is also getting enhancements following the completion of the Palapa Ring national broadband network at the end of 2019, providing 4G internet access across the archipelago.
Thailand
World-class hospitality is a given in the Land of Smiles, a country that’s certainly no stranger to Offshoring. In 2020, Thailand climbed six places to 21st out of 190 countries in the; World Bank's ease of doing business rankings.
The nation has long had a reputation for welcoming foreign-owned businesses, even earning the nickname “the Detroit of the East” following a steady influx of foreign automobile manufacturers since the 1960s. Thailand’s oil and gas sector also continues to see ongoing investment from international companies.
The Thai government has instituted many initiatives to encourage investment, including reducing red tape and digitising processes. Inspired by these investment-friendly measures, foreign investment has grown and diversified recently to include a broad mix of technology, digital services and cloud computing firms.
Thailand boasts many attractions for companies seeking Offshoring solutions. The second-largest economy in Southeast Asia is exceptionally well connected to neighbouring ASEAN economic powerhouses. It also has a massive highly-skilled workforce to draw on from its 69 million population.
Large-scale infrastructure projects in Thailand should drive further interest in Offshoring in the coming years, with high-speed rail lines and new and expanded ports assisting in establishing the country as an ASEAN transportation hub.
Grasp the Offshoring Opportunities
Vietnam, Indonesia and Thailand are pulling out all the stops to create an investment-friendly environment and make it easier for overseas companies to set up shop quickly and efficiently. As well as supporting traditional, labour-intensive industries like manufacturing, their young and digitally savvy populations can help organisations build a future-ready tech workforce in software, cloud computing and AI sectors.
With businesses facing increasing resourcing and trading challenges in their home markets and elsewhere, these fast-emerging Southeast Asian countries present tremendous new opportunities for companies needing to spice up their growth strategies.
PERSOLKELLY’s Regional Talent Solutions support our clients’ Offshoring strategies in these emerging markets and across APAC, enabling businesses to diversify quickly and emerge stronger.