New Offshore Hot Spots: 2005 and Beyond

January 6th, 2005

7New Offshore Hot Spots: 2005 and Beyond

2004 was a great year for outsourcing. Entrenched BPO hubs like India, Philippines, Canada, Ireland, and even China increased their market share. While India strengthened its hold on the BPO suppliers’ market, other players continued to thrive, expanding niche capabilities. But the real competition begins in 2005 as the foreign offshore market is poised to expand into new geographies across the globe. The key drivers of expansion in the upcoming year — lower costs, bilingual language skills, and geographical and cultural affinities, along with continued expansion into niche capabilities and value-added service offerings-will separate the new winners from the losers as the next wave of global outsourcing hot spots emerge. Here’s a forecast on the countries we believe may be the frontrunners to grab the limelight this year.

Land of the Rising Sun

We predict Asia will remain in the spotlight for 2005. The continent’s vast low-cost, highly-skilled labor pool will ensure its position as a leader for addressing the talent shortage India currently faces. Newer offshore locations like Malaysia, Singapore, Sri Lanka, Bangladesh, Vietnam, Thailand, and Korea will increase their efforts courting US and global CIOs.


Malaysia is Asia’s most promising rising offshore hub and a natural contender to India and China in the BPO area. According to the UN World Investment Report 2004, third-party call and contact centers are growing at a rate of 100 percent to 200 percent since 2000.

Malaysian providers excel at offering BPO services to companies and banks issuing smart cards and secured devices, customer loyalty and rewards applications, confidential data preparation, call center and customer service support. They’re also proven providers of general data-entry services. A distinct Malaysian advantage: a multilingual labor pool that speaks English, Malay, Mandarin, Cantonese, Hindi, and Tamil. Language abilities have already lured major companies like BMW, Citigroup, Dell, DHL, Ericsson, Hewlett Packard, HSBC, IBM, Royal Dutch, and Shell to set up their regional service hubs in Malaysia. The country also has a comparable cost advantage over other Asian locales.

According to the AT Kearney 2004 Offshore Location Attractive Index, Malaysia’s attractiveness is ranked number three after the two Asian giants: India and China. Malaysia’s low costs, particularly for infrastructure, and its strong score in providing a good business environment, has helped its case, the AT Kearney study says. The study also states that a recent Datamonitor report has confirmed Malaysia’s emergence; the report says that Malaysia is among the countries that could well rival India’s dominant position in business process outsourcing services in the next five years.
There are some constraints. Malaysia’s population is a mere 20 million, and the economies of scale may not allow it to achieve India’s level of expertise and scalability. Data piracy concerns will continue to dog the Malaysian industry. Over the long term, the country will have to work to overcome such constraints to become competitive in the global market.


Asia’s newest BPO tiger could be Vietnam. While the country’s BPO industry appears to be a sleeping tiger at the moment, we believe that the treasure hunt may be starting soon. Industry observers claim that the cost of developing software in Vietnam is at least 90 percent cheaper than in the US and between one-third and one-seventh the cost of developing software in India. Vietnam’s talent pool is also remarkably youthful. Almost 75 percent of the population is under the age of 35, and this youthful energy is apparent in the eagerness of high-school and university students flocking to learn computer science and enter the technology arena. Moreover, the workforce has historically been underemployed, due to an economy ravaged by three decades of war and a corrupt establishment thereafter. Therefore the eager workforce appears easy to train, offering the world an inexpensive, productive, and skilled labor pool. Within Vietnam there exists a familiarity with European and Western culture as a result of French rule in the early part of the century and the prevalence of Catholicism as the second largest religion in the country.

A final plug for Vietnam is declining bandwidth costs–a major prerequisite for outsourcing work. Telecom costs are falling, thanks to the liberalization of the telecom sector after Vietnam’s bilateral trade agreement (BTA) with the US in 2001. The Vietnamese government’s continued drive to turn the country into an offshore powerhouse is apparent in a slew of tax and fiscal incentives to boost foreign direct investment (FDI) in Vietnam. With the deadline for the country to join the WTO set for 2005, it could be a watershed year for the Vietnamese.


Don’t be surprised to see this city-state looming on the horizon. Although most experts don’t see Singapore as the conventional low-cost offshoring destination, keep in mind that wage differentials alone will not allow supplier countries to remain ahead and be competitive. Over the longerterm, as markets mature, companies will look beyond cost at geopolitical stability, data security, and improved service delivery mechanisms in specific domains. Singapore is already seen as a front-end for India and China’s back-end competencies. Its advantages are apparent in its stable intellectual property regime (IPR), world-class telecommunications infrastructure, and a healthy business environment.

Additionally, it has the legal and physical infrastructure and strong competencies in niche product development. Singapore has carved out is own niche in areas like remote robotics management, healthcare, and genetic diagnostics and that will propel it forward in 2005 and beyond.

Latin Rhythm

To a large extent, heightened concerns about security and geopolitical instability in Asia have provided a catalyst for offshore opportunities in Argentina, Brazil, Costa Rica, and Chile. However, these countries have also benefited particularly from the increasing demand for language-specific BPO expertise. The Latin American call center market is among the fastest growing in the world. However, cost savings are not as attractive as in
Asian markets, so the jury is waiting to see what evidence Latin America can produce to keep pace with its Asian counterparts.


Argentina is the Latin American BPO heart throb for 2005. Availability of a large and talented pool of Spanish-speaking labor, which is also one of the least expensive in the world, will be a key driver of growth in the country’s BPO segment. Following the devaluation of the peso, Argentina is now the least expensive market for an outsourced voice-based customer care agent.

Argentina also has a very talented pool of technically savvy and well-educated resources ready for work. During the dot com boom, the country was home to approximately 65 percent of design and implementation work of most regional Internet startups; a large population of highly trained programmers and designers helped the country stand out from its Latin American neighbors in the technology domain. Rampant unemployment, a result of Argentina’s 2001 currency crash, has proved a boon to outsourcing providers.
-speaking agents will continue to climb. Because jobs are still scarce, there is a mere 15 percent agent turnover rate in Argentina and Brazil, which is lower than India’s (about 20-25 percent), and far lower than the 90 percent turnover rate in US-based contact centers, says Datamonitor’s report entitled “Call Center Outsourcing in Latin America and
Though US firms have been looking at Argentine call centers for assistance in English and Spanish for the past few years, the market for multilingual options really took off in 2004. In 2005, trends forecast that the demand for Spanish the Caribbean to 2008”.

Coding from Eastern Europe

Many European, mainly German, firms see Eastern Europe as an increasingly favorable near shore alternative. While cultural affinities, cost, language skills, strong technical capabilities, and minimal data-regulatory issues makes offshoring to these countries so tempting, Romania and Eastern Europe as a whole will step up the heat on India as yet another BPO hot spot in 2005. Eastern Europe’s forte: a strong talent pool with bias towards mathematics, logic, science, and technology.

Romania, Czech Republic, Hungary and Poland

Ten years ago India didn’t register a blink on the radar of Western companies. Eastern Europe today is where India was a decade ago. Some experts believe Romania is the future European frontrunner for India’s outsourcing crown. In 2005, as US and West European companies look beyond India, Ireland, and China towards Eastern Europe, ostensibly to leverage competitive costs among other advantages, Romania will shine.

Quality of service has become an essential parameter in offshoring, and buyers are now looking beyond labor arbitrage. Romania’s well-educated and multilingual labor pool, competitive property costs, and time zone and infrastructural advantages easily make it Eastern Europe’s top BPO and IT services location in 2005. Besides Romania, according to the UN World Investment Report 2004, the Czech Republic, Hungary, and Poland offer equally attractive conditions for offshoring to Eastern Europe. Here’s an example: in 2003, DHL set up a European IT center in the Czech Republic that created almost 500 new jobs; Accenture followed with an expansion of its service center that is projected to increase from 300 people in 2003 to 1,500 in 2008. Clearly, Eastern Europe’s value proposition will be hard to ignore in 2005 and beyond.

African Safari

For Africa, BPO could be set to light up the entire continent. In Africa, export-oriented foreign direct investment (FDI) in services has largely been in the form of call centers. We predict that the African opportunity in 2005 will be centered on South Africa, with nations like Ghana, Senegal, and Tunisia springing some surprises. 2005 could well be an inflexion period for these African nations.
South Africa

South Africa is the entrenched player in the region, with around 400 call centers already set up in 2003. Currently, South Africa employs around 80,000 people. According to estimates in the UN World Investment Report 2004, the number of work stations related to call centers and back-office services are likely to increase by more than 200 percent until 2007. The benefits for clients who choose South Africa for their call centers include modern infrastructure and technology and good training for the operators. The geographic position also makes it easier for European companies to base their call centers in South

Africa due to favorable time zone differences, strong cultural ties with both the US and the European Union, and a healthy business climate. Combined, these amenities may cement South Africa’s status as one of the leading BPO hubs for servicing continental Europe and the US as well. However, according to AT Kearney, in 2005, South Africa must deal with negative factors like the current strengthening of the rand against major currencies, restrictive government legislation, and the high cost of local telecommunications. Rohit Kapoor, president and CFO of EXL Service, a BPO service provider, is optimistic about the South African opportunity and believes that with the deregulation of the South African telecommunications industry in 2005, costs will decline dramatically and that will be the key to its progress in the offshore services market.

New Horizons Loom Brightly in 2005

While market analysts don’t predict a dramatic change in course for 2005, it’s becoming increasingly clear that buyers will increasingly look beyond leveraging the comparative cost advantage to also focus on competitive and value advantage. New geographies like Singapore, Malaysia, Romania, Argentina, and South Africa will tap into this new opportunity as companies globally seek new sourcing locales as a part of their ongoing sourcing strategies. For BPO, 2005 could well prove to be the take-off period for new niches, verticals, geographies, and a totally new paradigm to outsourcing.

Publish Date: January 2005
Source: OutsourcingCenter

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