When it comes to competing on the lowest costs in Asia, the situation can rapidly change, as shown by the fact that even low-cost countries such as India and China are already conducting outsourcing operations. Asian outsourcing companies have moved up the value chain, from providing simple contact centre services to end-to-end business process outsourcing services.

While the most popular function outsourced in Asia is IT solutions, a survey conducted by accounting firm KPMG and the Economist Intelligence Unit found that accounting and knowledge process outsourcing (KPO) were also popular outsourcing functions. For example, as Japanese companies depend on south-east Asian sub-contractors for their language communication and knowledge of doing business in the region, there is ever increasing outsourcing in KPO services such as market research and management consulting.

Nonetheless, PricewaterhouseCoopers and Duke University in the US found that relying on lower costs and labour arbitrage is no longer a successful strategy for outsourcing providers, who must identify ways to become valued business partners instead of just a third-party service-delivery company. As this industry evolves into a more mature market, clients are looking at quality and service levels, besides cost, as important buying factors. Companies are now outsourcing more non-key operations as well as R&D, engineering and marketing to outsourcing companies.

Offshoring services are also coming to the fore, with the main motivation being to deliver operating savings. Japan is a notable case, whereby in the aftermath of the natural disasters it witnessed in 2011 many Japanese companies begun shifting their Asia regional headquarters to south-east Asian countries, such as Singapore, with industrial facilities and commercial properties being acquired and distribution functions being outsourced to local south-east Asian partner companies.

A significant value in Asian offshoring stems from the improvement of capability building, whereby companies can benefit from offshoring to lower-cost, award-winning, world-class performing companies in Asia. Hence, rapidly evolving capabilities in Asia will more than compensate for their rising wage rates.

Lawrence Yeo is CEO and principal consultant of AsiaBIZ Strategy, a Singapore-based management consulting firm that provides Asia market research, market entry and expansion strategy and export/FDI promotion services. Website: www.asiabizstrategy.com