Outsourcing to Asia

In today’s business landscape, companies in the DACH region face immense challenges due to rapidly increasing competitive pressure. Customers not only expect consistently higher quality and better services, but also competitive prices. Outsourcing to Asia can be the ideal solution as it offers the advantages of lower costs, a well-trained workforce, and greater flexibility.

However, moving operations abroad requires thorough preparation and extensive guidance to minimize associated risks. It is crucial to rely on an experienced interim management team that is familiar with the challenges of operating in Asia.

Why consider outsourcing?

Outsourcing provides numerous advantages to companies, which are not solely limited to Asia. It has been a successful strategy for decades, enabling businesses to drive growth, reduce manufacturing and service costs, and mitigate market-specific risks. The rapid pace of globalization has further intensified this trend, with even the largest corporations successfully outsourcing entire divisions to foreign countries.

For instance, call and service centers are increasingly located in Eastern Europe or Asia. Similarly, the production of individual components or complete end products is often shifted to countries with lower manufacturing costs to maintain long-term competitiveness. Thus, there are several compelling reasons why outsourcing is highly attractive.

Outsourcing to Asia offers an opportunity to plan and organize things anew.

The following five countries are well-suited for outsourcing:

1. China

Despite facing challenges with its own COVID-19 restrictions, China offers unique framework conditions for production relocation. Additionally, the country is developing competencies in powerful technologies and artificial intelligence. However, demographic change, caused by the previous one-child policy, has led to a rapid aging of society. Political risks also exist.

2.India

As of April 2023, India became the world’s most populous country, surpassing China. It has long been a preferred destination for companies seeking to outsource consulting and IT services, especially those that can be conducted over the phone. The advantage of Indian professionals lies in their excellent command of English. Moreover, India possesses a significant pool of well-trained workers who are increasingly taking on software development tasks.

3.Thailand

Thailand offers favorable production conditions and is considered a potential replacement for China as the world’s manufacturing hub. The country stands out with its low costs, abundant workforce, and rapid digitalization. Additionally, Thailand is experiencing robust growth, facilitated by the ease of doing business and attracting foreign investments.

4.Philippines

When it comes to outsourcing consultancy services in Asia, the Philippines is often the second choice after India. Similarly to India, individuals in the Philippines possess excellent English language skills, and wage and salary costs are considerably lower. However, there are challenges related to the significant time zone difference and infrastructure trade-offs.

5.Vietnam

Vietnam presents an attractive alternative in the Asian region. With a population of nearly 100 million, the country has achieved high growth rates in recent decades and developed a strong middle class. The youthful population is expected to continue growing, and the education system consistently produces new skilled workers. However, compared to its main competitor Thailand, Vietnam’s overall conditions for foreign companies are less favorable.

These are the advantages of outsourcing to Asia:

Apart from the specific advantages and disadvantages of each country, outsourcing to Asia generally offers similar benefits. When an experienced service provider takes over certain processes in your company, you can enjoy the following advantages:

• Lower costs: Outsourcing production to other countries in Asia provides significant cost advantages. Even if you pay wages and salaries above the local average, you can still save a substantial amount, benefiting both parties.
• Large workforce: Building large new teams in a short period of time is often challenging in European countries due to a lack of manpower. However, the young population in Asia presents an incredibly high potential to meet labor market demands for decades to come.
• Lower risk: Outsourcing to Asia reduces risk. You don’t need to establish your own resources in the country, which can be costly and involve long-term commitments. This flexibility is advantageous.
• Growing markets: Outsourcing to Asia creates an ideal starting point for future market expansion. Asian markets have a high growth potential, and through your outsourcing relationships, you can even tap into this potential directly in the future.

Following the resolution of the pandemic, Asian ports have once again become vibrant hubs of activity.

Are there disadvantages to outsourcing to Asia?

Certainly, there are also disadvantages and risks that must be considered when outsourcing. That’s why it’s crucial to seek the right advice and rely on experienced interim managers from the outset.

• Language and culture: Unlike Eastern Europe, where many people speak German, language proficiency in Asia may be limited. Additionally, cultural differences and misunderstandings can impact productivity and results.
• Organizational challenges: Dealing with different time zones and physical distance creates organizational hurdles. Scheduling meetings becomes difficult, and visiting partners in Asia requires long journeys.

Are there alternatives to outsourcing to Asia?

Eastern Europe is a popular alternative as it can mitigate some potential disadvantages of outsourcing to Asia. Language and cultural barriers are generally less problematic for companies in the DACH region, as many workers in Eastern Europe speak German fluently. Moreover, the organizational challenges are easier to manage due to the geographical proximity. There are no significant time zone differences, and in case of issues, you can be on-site within a few hours.

However, it’s important to acknowledge that by choosing alternatives to Asia, you will forego the advantages offered by the Asian continent. Asia has a notable advantage in terms of cost and the availability of a large workforce. Furthermore, the growth potential in terms of population and market opportunities in Asia is substantial. While alternatives exist, careful evaluation based on your specific requirements is necessary.

In Conclusion:

Outsourcing to Asia can provide numerous advantages for your company, enhancing long-term competitiveness. Nevertheless, it’s crucial to be aware of the risks and disadvantages associated with outsourcing. Prior research and seeking proper guidance are essential. Our experienced interim managers will guide you step by step to ensure a successful relocation abroad. Establishing a location alone is not sufficient; integrating it into your supply chain, considering local challenges, and accessing local suppliers are equally important factors, and 3i Business Solutions can assist you in these areas as well.

Contact us now for detailed consultation and advice.