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Malaysia Remains World’s Third Leading And Asean’s Top Offshoring Destination

Bernama News | 07 Feb 2011 07:30 AM

Malaysia continues to occupy the third leading position, after India and China, in the list of the world’s leading offshoring destinations, according to global management consulting firm A.T. Kearney’s latest Global Services Location Index (GSLI).

Malaysia also remains a force to reckon with amongst Asean member countries which are fiercely competing for a slice of the global offshoring pie.

While Indonesia continues to rank at number five, Thailand has slipped down from the fourth to seventh ranking and the Philippines from the seventh to ninth ranking.

The descent of the Philippines seems to be quite remarkable because it was touting itself as “the world’s ideal offshoring destination” and even perceived at one time to steal the thunder from India.

The dark horse within the Asean group, however, is Vietnam which is inching its way up and is currently eighth ranking up from number ten.

Asia dominates the top ten positions in GSLI.

There are also significant changes taking place in the global business climate. Factors such as wage changes and currency flux are expected to cause major changes in the rankings.

While a sluggish recovery continues to create the kind of pressure for economies that are crucial for the outsourcing business, an increasingly complex global economic environment has led to major changes in the ranking of the most attractive offshoring destinations, according to A.T. Kearney’s GSLI.

India continues to rule the roost. A combination of human resources and low costs have, once again, placed India, China and Malaysia in the top three spots — positions they have held since GSLI’s inauguration in 2003.

At the same time, however, currency movement has helped strengthen the competitive position of states whose costs had formerly kept them far down on the list, including the Baltic States, the United Kingdom (UK), Mexico and the United Arab Emirates (UAE).

Indeed, the Middle East and North Africa have become increasingly attractive, according to GSLI, because of their proximity to Europe and the vast talent pool.

Egypt was the leader in the region and fourth worldwide, directly behind Malaysia.

However, the rankings were compiled before the recent political unrest erupted. Consequently, the political uncertainty and the country risk associated with Egypt have “dramatically increased and the situation needs to be closely monitored to gauge whether the long-term risk profile will change”, the A.T. Kearny report said.

UAE climbed to the 15th ranking, serving as a regional services hub.

While many European countries were deeply affected by the financial crisis, Estonia (11), Latvia (13) and Lithuania (14) saw their ratings climb as a result because of what A.T. Kearney describes as “internal devaluation”, entailing wage reduction and expenditures and making themselves leaner and more effective in terms of providing competitive cost structures.

The UK also benefited from a sharp decline in wages, and ascended to the 16th position from 31st in 2009.

The United States is the top customer for outsourcing services, accounting for 63 percent of global IT outsourcing spendings; its so-called Tier II locations rank 18th as outsourcing locations, thanks to a combination of talent and accessibility.

Canada’s cost advantage has, meanwhile, diminished and it has dropped in the rankings to 39th.

GSLI purports to analyse and rank the top 50 countries worldwide for locating outsourcing activities, including IT services and support, contact centres and back-office support.

Each country’s score is composed of a weighted combination of relative scores on 39 criteria which are categorised into three segments – financial attractiveness, people and skills availability, and business environment.

A.T. Kearney maintains that in addition to economic changes, the nature of outsourcing itself is in transition.

The old model involving multi-year contracts, custom code, and on-site systems integration workers is beginning to give way to a new model in which outsourcers provide standardised software solutions on a per-use basis.

The past two years have seen a number of outsourcers building and/or acquiring the capabilities required to survive this shift, in the opening salvo of a coming revolution in outsourcing, according to A.T. Kearney.

“Regardless of changes in the outsourcing industry business model and other temporary setbacks, we believe the era of globalisation of services production has only just begun,” said Erik Peterson, managing director of A.T. Kearney’s Global Business Policy Council.

“IT and BPO (business process outsourcing) offshoring are early manifestations of a larger trend that, in the long run, means that more functions can and will be considered for localization in countries outside of which end-customers reside.

“We have already witnessed a shift in the footprint of manufacturing across the globe to a point where emerging markets have become manufacturing powerhouses, and we can expect to see a dramatic shift in the relative balance of service production among the developed and emerging markets in the future,” said Johan Gott, manager of research for the Index.

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