By: JoDeen Urban, Editor In Chief, The Source
The 10 countries that comprise Southeast Asia represent a remarkable constellation of diversity and economic opportunity. Home to over 630 million people speaking hundreds of languages the region has been experiencing explosive growth in the sourcing sector. The ASEAN 10 are: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. In Tholon’s 2014 edition of the Top 100 Outsourcing Destinations 39 locations are within Southeast Asia, with the Philippines leading the pack with eight and Manila NCR holding 2nd Place overall.
Over the past 20 years, outsourcing sector investment has been attracted to the region because of low labor costs, a high percentage of an English-speaking workforce in several of the countries, a youthful population base with an average age range of 23-35 years that lends to a sustainable labor pool, and an improving technology infrastructure. Many ICT/ ITO-BPO, KPO, and Outsourced Semiconductor Assembly Test (OSAT) buyers and providers are drawn to the region for these reasons and remain loyal because of its proven service delivery capabilities.
As many of the countries’ economies have developed so too has the need for a more highly skilled labor force to sustain investment. According to a report published in Forbes magazine this month with the exception of Singapore, education standards are largely below what is required for skilled roles within multinational companies. This is due in part to the shorter length of schooling when compared to Western standards ranging from 5.5 years to 9.5 years.
Adding developmental pressure is the further opening of the region’s trade borders when the next phase of the ASEAN Free Trade Agreement reduces tariffs in 2015. The original trade agreement, ASEAN Free Trade Area (AFTA), signed in 1992 and appended in 1995 and 1999 sought to eliminate tariff and non-tariff barriers while attracting more foreign investment. The AFTA, unlike the European Community, has not applied a common external tariff on imported goods from non-ASEAN countries.
Beginning on January 1, 2015 ASEAN members will commence a phased reduction and eventual removal (by 2018) of all tariff barriers to trade in goods and services. Most nations are now beginning to ready their governance systems. An ADB 2013 study cautions, however, that a single market may not be fully reached until 2020 or 2025.
In addition, ASEAN and six of its major trading partners (China, Japan, South Korea, India, Australia and New Zealand) have agreed to finalize the Regional Comprehensive Economic Partnership in 2015 resulting in the world’s largest free-trade agreement.
These initiatives have stimulated vigorous debate in the region about impending impacts. Many constituents are concerned about increased competition from more efficient countries like Taiwan, or cheaper countries like Indonesia and Vietnam. Not surprisingly, some local providers are imploring their governments to implement protectionist measures to reduce, what they are calling the impact of the “onslaught of multinationals” especially from India in the services sector and China in the mass-production of products. The impact on services is considered a prominent issue. One consequence being the effect trade liberalization will have on greater labor mobility of skilled workers between countries – this is expected to alter the competitive landscape especially for sourcing revenue.
Against this backdrop, several countries are aggressively addressing talent development and retention, educational reforms, investment incentives and marketing their political environments as being more conducive to sustaining stable sourcing industries in comparison to some of their neighbors. While not devoid of certain ecosystem concerns, positive enablers such as cost, scalability, output-quality and business environments are a few of the reasons The Source profiles two of the leading tiger economies in this issue: the Philippines and Vietnam.
Editor In Chief
JoDeen is an independent management consultant working with established companies as well as start-ups on strategy, organizational capability and business model innovation.