Asia’s already strong outsourcing segment still has growth potential, survey finds
Outsourcing is still maturing in Asia, and offers significant growth opportunities for the industry's vendors. As the region experiences increasing M&A activity, soaring business costs and increasing talent management challenges, Asian business leaders are turning to outsourcing as a solution, according to Grant Thornton International Business Report (IBR) 2014.
The IBR findings show that just 42% of Asia-Pacific businesses are currently outsourcing or have plans to outsource a business process. Japan leads the region with 60% favouring outsourcing, followed by Thailand (48%) and India (38%). At the bottom of the survey are Hong Kong (18%), Vietnam (12%) and the Philippines (4%) .
In comparison, the IBR survey shows that businesses in Brazil and Argentina were among the top outsourcers globally, at 53% and 64% respectively. This suggests that, unlike their Asia-Pacific counterparts, businesses in developing Latin American economies are readily embracing outsourcing as
The survey also noted that like the rest of its Asia-Pacific counterparts, the major challenge facing outsourcing in Hong Kong is a business' unwillingness to lose control of a key process (27%).
"The results show that Asian businesses are still warming up to the outsourcing concept. Some companies believe that by outsourcing, they lose control of a key process. In fact, the opposite is often true. Businesses will find that through setting up tailor-made solutions with an outsourcing vendor they often gain efficiency and better understanding of a particular process. The level of expertise and experience an outsourcing vendor can bring is hard to come across through recruiting. We always hear from our clients that the collaboration has made us part of their team," says Laure Mathieu, managing director of outsourcing, Grant Thornton Hong Kong.
"For outsourcing to succeed, there needs to be a strong level of collaboration and trust between the vendor and the business. Both parties need to understand each other's expectations and work closely to achieve the business goals together. This will help address concerns about losing control," she explains.
Other reasons for not outsourcing include the high cost of implementation (15%), the lack of a strategic outsourcing plan (7%) and the complexity or risks associated with hiring a contract service (7%).
"Outsourcing can actually reduce operating costs as businesses do not have to invest in software, implementation and headcount. At the same time, foreign companies can access local expertise with one single contact. I think it is much easier to manage a service provider than internal operations," she adds.
Mathieu also notes that business confidentiality should not be an obstacle either. "Some businesses actually outsource senior management payroll in order to ensure confidentiality. External consultants usually have internal processes to protect its clients from the slightest possibility of a breach in confidentiality so they can have peace of mind. However, if the breach occurs internally, the impact on reputation may be detrimental and there is not much a business can do to reverse the damage."
Hong Kong, which saw only 18% of respondents outsourcing or looking to outsource, offers tremendous potential for the growth of outsourcing. The IBR economic updates of Q1 2014 results reflect that Hong Kong is experiencing a lack in skilled labour, with 40% of respondents highlighting that it is a major constraint. The results suggest that many businesses may not be aware of how outsourcing can alleviate recruitment challenges.
"Talent shortage and business continuity are always key concerns for businesses. Outsourcing allows a company to bypass periods of high turnover, which may add inconsistency and uncertainty to its operations, by working directly with an external vendor. In addition, outsourcing can help businesses to concentrate on shoring up their talent pool for core or strategic objectives, instead of being concerned about employing the right staff for some fundamental processes," Mathieu points out.
"The IBR highlights a number of opportunities for vendors to raise awareness of outsourcing in their market. Vendors who are able to overcome the key concerns that Asian business leaders' have about outsourcing will stand to make significant inroads and increase their market share," she adds.
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