Chief Digital Technology Officer & SVP
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My Prediction: Asia to Own the Offshore Market
In a recent meeting with a senior executive at one of our clients in Denver, a question came up when we were discussing offshoring and selecting locations. Are we looking at the world wrong? His question and our subsequent discussion prompted me to write this blog entry.
You see, when selecting the locations where they will offshore, most organizations focus on three factors: 1) the price for labor 2) the availability of talent (is there a ceiling to accessing great talent) and 3) political stability.
But there is another important talent factor to take into consideration: population concentration. To make smart, long-term offshoring decisions, you need to know more than if there is available talent today. You need to know that there will be skilled workers to support your business in the future as well.
When you compare offshoring in Europe/ Eastern Europe to Asia, you will find that pricing in Asia is significantly lower. But take a moment to look at the population factor. Asia has a surplus of people, which can be translated into an almost endless supply of technical talent. However, when you look at countries like Romania (15 million people), Ukraine (10 million people) and Russia (142 million people) as potential offshorers, you realize that they are a lot smaller in terms of talent than you might think and not necessarily the best candidates for long-term offshore partnerships. Growth potential is a critical factor. You need to know that great talent is up and coming so that your offshore functions are well managed over the long term. The lack of population concentration in Eastern Europe leads you to believe that they will reach a technical talent ceiling more rapid than Asia.
Okay so it's cheaper to go to Asia, but is there also the possibility of running out of talent? Here are some of the populations in the offshore Asian marketplace:
As far as population goes, running out of talent is not a near-term or long-term worry in Asia. And for India, today's world capital of offshoring, the availability of talent today and tomorrow is not a problem. On the other hand talent retention and now talent cost are becoming the challenges.
India's economic, geographic and cultural stability add to the country's incredibly high turnover rates of 40+%. India has had about 10 years of offshoring success and now it is beginning to show a few signs of trouble. Indian offshore companies are struggling to maintain their talent, as job opportunities are plenty for professionals with the right skills. A tremendous amount of talented professionals are also migrating out of the country.
So India has some talent struggles ahead. How does this compare to the rest of Asia? China is currently experiencing challenges in dealing with the western world and western values. I believe China will eventually learn the need for flexibility from a governmental perspective and begin to attract more and more offshore clients. I would project that China will become a serious player in about five years.
But, it's easy to look at the big "over one billion in citizens" countries and see opportunity. Let me tell you who the real gem countries are in terms of big and highly skilled populations. They are Vietnam, Thailand and the Philippines. All boosting large, skilled talent pools, each of these countries has also made great strides in becoming strong offshoring locations and carving out their own niche in the marketplace. For example, Vietnam has excelled in the application world. The Philippines has captured a large number of customer service clients. Thailand has a very strong manufacturing presence. In addition, these smaller (but still enormous from a population perspective) countries are investing significantly to train their talent pools.
It would be wrong to not point out the Easter European countries are also training new professionals and looking to the future. It's just that their resources are fewer and their populations cannot even begin to compete with the Asian countries. I would actually predict that, due to population declines in the West and ongoing growth in the East, all offshoring will eventually be in ASIA ONLY. It's a long ways off but worth serious consideration!