Asia

Many of the world’s up-and-coming markets are located in Asia. By 2036, the region is estimated to have nine trillion-dollar economies: China, Japan, India, South Korea, Australia, Taiwan, the Philippines, Thailand and Indonesia. Populous countries such as China and India are already popular destinations for offshoring, the former being known for manufacturing and the latter being known for BPO and IT services. However, many other markets in Asia are emerging in these areas, particularly as organizations look to diversify their supply chain and find cost savings. This section covers four markets in APAC – India, the Philippines, Vietnam and Thailand – all of which are promising markets for either manufacturing or BPO.

India

India is a lower-middle income nation in South Asia and the most populous country in the world after China. Due to its large population and strong economic growth, India has become a popular destination for manufacturing as a part of many organizations’ “China plus one” strategies, an attempt to diversify the supply chain in response to the US-China trade war. While manufacturing has become a focus in recent years, India has long been a popular destination for outsourcing call center and IT roles. India continues to be a popular destination for sourcing various labor categories.

BPO and IT Services

Since the 1980s, India has been a popular destination for offshoring, largely due to the Indian government’s investment in communications and information technologies. Over the past two decades, India’s services exports have grown by 14%, with BPO and IT services comprising 60% of services exports. With lower costs than more developed nations, India remains a very popular location for BPO, and the BPO industry is expected to grow by $116 billion between 2021-2026.

Traditionally, BPO and IT services in India have focused on lower-end roles such as customer service and help desk roles, but today, IT roles of all types are outsourced to India, including higher-end skill sets such as software development and web design. New and emerging technologies, such as AI and machine learning, allow BPO and IT services firms to increase efficiency and stay competitive. As the Indian economy continues to grow and develop, the demand for knowledge-based roles will likely increase.

Manufacturing

Manufacturing plays an important role in India’s economy, with many global organizations having operations in the country. Many corporations are focusing on India as part of a “plus one” strategy, with the goal to diversify supply chains and reduce reliance on a single region. India has benefited from the geopolitical tensions arising from the US-China trade war, as it is a similar size to China and has established manufacturing capabilities. This increasing popularity as a strategic location is reflected in the growth of the industry. Production increased by 10.3% YoY in August 2023, and FDI totaled $85 billion in FY 2021-2022.

The Indian government aims to attract high-tech manufacturing to the country and has attracted foreign investments from globally recognized companies in recent years. For example, Google recently announced plans to start producing the Pixel smartphone in India, while Micron Technology plans to begin producing semiconductors in the country. Aside from technology, India is also attracting investment from the automotive industry. Historically, Suzuki has been incredibly important in India’s manufacturing industry – Suzuki undertook initiatives to modernize India’s manufacturing through introducing mass production techniques and upskilling its labor force in the country. Recently, Toyota announced its plans to open a third plant in India, with the goal of producing 80,000-120,000 vehicles a year.

Deep Dive into India's Labor Market

In our most recent India Labor Market Insights Report, we explore India’s technology industry, including its economic contribution and the policies the government is set to implement to further boost this industry. The report also highlights how the GCC sector drives India’s IT industry, with an emphasis on its market and employment landscape, and workforce diversification, particularly initiatives to include and empower women within the sector.

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Summary

India is an attractive location for several regions. India has a large labor force, comparable in size to China. Additionally, English proficiency is high, which is particularly attractive when it comes to outsourcing call center and customer service roles. India is also very cost effective relative to more developed countries, as organizations enjoy lower labor costs when they source in India.

While India is a desirable location for sourcing, corporations must consider certain challenges that come with sourcing in the region. A large portion of the population is still engaged in informal employment or self-employment, both of which are associated with lower-end skill sets and industries such as agriculture. This results in skills mismatch — individuals engaged in this type of employment likely lack the skills necessary for higher-productivity jobs. Additionally, doing business in India is difficult relative to neighboring countries such as China. While the government is making efforts to ease regulations, they’ve met significant pushbacks from labor unions.

The Phillipines

The Philippines is a lower-middle income, insular country in Southeast Asia that serves as a popular destination for BPO and manufacturing. English, alongside Tagalog, is an official language of the country, and two-thirds of the population speak English fluently. This gives the Philippines an advantage over other countries in the region, particularly in the BPO industry, as organizations around the world outsource front-office tech and call center roles to the Philippines. The country is attractive for sourcing administrative and customer service roles, so much so that it has been dubbed the “Call Center Capital of the World.” Manufacturing also plays a critical role in the economy, and the Philippines is becoming an attractive spot for electronics manufacturing.

Business Process Outsourcing

The Philippines, like many other countries across the globe, has faced economic challenges in 2023, driven by high inflation, higher interest rates and waning demand. However, the demand for BPO remains strong, as offshoring remains a popular measure for cost savings. In 2022, revenues in the BPO industry increased by 10.3%, while headcount in the industry rose by 8.4%, with estimated revenue growth between 8% and 10% in 2023. Growth in the industry was driven by financial services, healthcare, retail, technology and telecommunications.

The Philippines is a popular location for BPO for organizations around the globe. In 2022, the Philippines ranked fifth in terms of inquiries on outsourcing, which accounted for a total of 28,570 roles that organizations from 146 countries wanted to outsource. In regard to marketshare, the Philippines is estimated to control between 10-15% of the global BPO market.

Manufacturing

Though less prominent relative to other countries in the region, manufacturing is an important industry in the Philippines and makes up 18% of GDP. Traditionally, the Philippines’ main exports have been low-value-added products such as agricultural products and textiles, but in recent years there’s been a shift to higher-end manufacturing such as electronics and pharmaceuticals. Semiconductor manufacturing is a prominent sector, making up a large portion of the electronics manufacturing industry and accounting for 47% of exports from the Philippines. The semiconductor industry attracts foreign investments from many countries. For example, US-based company Texas Instruments plans to invest $1 billion in semiconductor manufacturing facilities in the Philippines.

The Filipino government is focused on creating a future-ready workforce by funding efforts to upskill the labor force. This year, Filipino President Ferdinand Marcos Jr. signed the Trabaho Para sa Bayan into law, which essentially creates an employment “master plan” with a three-, six- and 10-year development timeline for upskilling the labor force. Foreign investment also emphasizes the need for preparing the Filipino workforce for higher-end manufacturing. Earlier in 2023, USAID in collaboration with Unilab launched a training initiative to create a more competitive Filipino workforce.

Summary

Sourcing in the Philippines is attractive for several reasons. The labor force is plentiful and young, and the cost of labor is cheap, roughly a third of the labor cost in China. Additionally, English proficiency is high in the region, which is particularly attractive for offshoring customer service and call center roles.

However, sourcing in the country also comes with some concerns for employers. Elementary roles make up the majority of the jobs in the Philippines, and limited structural transformation away from agriculture and low-end services have hampered the growth of higher end jobs. This has contributed to a skills mismatch as the country is transitioning to high-tech manufacturing and more knowledge-based roles. Graduates often lack the skills necessary to take on professional and technical occupations, and the country is not producing enough graduates to fill the demand for telecommunications and technical roles. While there is currently a skills gap in the market, upskilling is a top priority for the Filipino government.

Vietnam

Vietnam is a lower-middle income country in Southeast Asia that has become a hotspot for manufacturing as organizations strategize their supply chain diversification. Vietnam manufactures a variety of products, including textiles, furniture and automotive parts. However, electronics manufacturing, particularly semiconductor manufacturing, is becoming increasingly important and is a large part of the Vietnamese government’s economic development plans. This makes Vietnam an attractive prospect for offshoring manufacturing activities.

Manufacturing

Historically, Vietnam has produced low-value-add products such as textiles and furniture, which are still important industries in the country. In recent years, the country has benefited from supply chain diversification and attracted high-value-add industries such as electronics. Vietnam is one of the primary alternatives to manufacturing in China and has attracted many foreign investors, with FDI hitting a record high of $22.4 billion in 2022.

Vietnam’s importance as a manufacturer of electronics is evident in the volume of electronics exports—in 2019, Vietnam was the 12^th-largest exporter of electronics globally, up from 47^th in 2001. Major corporations including Apple, Nike, Adidas and Samsung have operations in the country, with Samsung producing a third of its output in Vietnam. Semiconductor manufacturing is also of major importance to the nation. While some corporations have been producing semiconductors in Vietnam since the 1990s, semiconductor production intensified following shortages caused by sweeping pandemic shutdowns in China. Semiconductor manufacturing is an important focus of the Vietnamese government, with the Prime Minister recently announcing a plan to further develop the industry.

Summary

Vietnam is attractive to foreign investors for a variety of reasons. The cost of labor in Vietnam is inexpensive, making it an effective option for cost savings. Wages are low relative to labor quality, and the country has a large number of engineering and science graduates. Additionally, Vietnam has liberalized trade. The country has 15 free trade agreements, making it an attractive option to global corporations.

The major downsides to sourcing in Vietnam include insufficient infrastructure and bureaucratic red tape. While Vietnam has an established manufacturing infrastructure, the energy grid is under strain, and power cuts are not uncommon, raising hesitations with investors. While Vietnam has multiple free trade agreements, doing business in the country can be difficult as the regulatory framework can be opaque and difficult to navigate.

Thailand

Thailand is an upper-middle income country in Southeast Asia that has become a popular spot for supply chain diversification in recent years. While Thailand has become an increasingly popular spot for foreign investors in light of the US-China trade war and lengthy Covid-19 shutdowns, the country has long had established manufacturing infrastructure.

Thailand is a major exporter of electronic appliances and automobiles and automotive parts, so much so that the nation is referred to as the “Detroit of Asia”. With existing manufacturing capabilities, Thailand is a potential bright spot for sourcing light industrial skill sets.

Manufacturing

Thailand has a robust manufacturing infrastructure following decades of sustained economic growth and structural changes to the economy; between 1980 and 1996, the country experienced a large-scale shift in which a significant portion of the labor force moved from low-productivity agriculture to higher-productivity manufacturing. Its manufacturing capabilities make the country an attractive destination for foreign investors, particularly those in the automotive and electronic machinery industries, with major organizations such as Sony, Sharp and Harley Davidson shifting manufacturing to the nation in recent years. Thailand is also attracting investment from the green economy. Thailand is a producer of electric vehicle parts, with Mercedes-Benz opening an EV battery plant in the country in 2018, and Chinese solar panel manufacturers such as JinkoSolar moving production to Thailand.

In recent months, Thailand’s manufacturing sector has faced challenges, consistent with the economic headwinds much of the world has struggled with in 2023. While the country has virtually recovered from the pandemic, recovery has been driven by gains in services, particularly tourism. In recent months, Thailand has seen contractions in the manufacturing industry overall, but relative to other countries in the region, the contractions have been modest.

Summary

Thailand is a popular spot for diversifying the supply chain for several reasons. Not only is Thailand a more neutral location than China in the context of the US-China trade war, but the cost of labor in Thailand is much cheaper than in China. Furthermore, Thailand is a relatively easy market to enter and do business in, ranking 21^st out of 190 in the World Bank’s Ease of Doing Business index.

While overall an attractive market for foreign investors, Thailand faces demographic concerns. Thailand’s median age is older relative to other countries in the region and countries at a similar level of economic development. The median age in Thailand was 40.1 in 2022, compared to only 32.5 in Vietnam and 25.7 in the Philippines. An aging population will translate to labor shortages; in 2020, 71% of the population was considered working age, while in 2026, the share of the working age population is estimated to only be 56% of the population.