Perspectives and Potential of Asia’s Hotspots – China and Philippines in Focus

Global IT spend is expected to increase at a faster rate post 2009 as several service buyer markets unentangle themselves from recession. Growth may still be tepid but nonetheless more significant than the previous 3 years.

Post recession clients are more aligned towards offshore benefits.

Drivers for Technology Spend:

• Cost reduction as clients look for demand recovery
• Growth in competition leading to need for scalable, optimized and effective operations
• Diversification of business and expansion into new markets is pushing clients for innovation and faster time to market
• Growing SMB participation as service buyer (currently at 33% of total spend) globally

How suppliers can exploit growth in IT spend?

There remain opportunities for outsourcers, as offshoring spend remains relatively small

• Identification of new delivery and engagement models
• Overhauling of existing resources/ network to offer higher value
• Foster innovation/ IP/ assets- must for gaining edge over competition
• Develop ready to deploy platforms / frameworks for multiple geographies in order to enable faster time to market

The demand side is still composed of two regions of the globe- North America and Western Europe, which together contribute about 55% of global IT/ BPO spend. Offshore revenue share is 75%. But domestic markets from BRIC nations will also become increasingly important players in the near term.

The supply side will stretch across geographies and begin accelerating the pace of competition. Countries in S. America such as Argentina, Chile, Colombia, Uruguay, etc. are some which will be vying to supply clients, particularly the Hispanic population in US.

The incumbent Indian providers will continue to build delivery centers in key delivery regions such as Latin America, Eastern Europe and China.

Game changing strategies on supply side:

• Vendors positioning themselves as End to End service providers rather than cost saviors to increase wallet share

• Increased vendor consolidation and diversification (eg. Dell acquired Perot Systems, Product vendors expanding services portfolio etc)

• Building capabilities around RIM/ IO* and platform based BPO services (Service lines witnessing traction from client side)

• Vendors entering new regions to support existing client’s localization needs (deepens client reach and wallet share)

Strong Domestic and Regional Markets –

There is strong market potential in Asia Pacific region as evidenced by robust growth rates of regional domestic economies. Apart from India and China, smaller countries like Philippines and Vietnam, which are seen as supply side components, have strong domestic consumption potential, as evidenced by their strong growth rates on the back of increased domestic consumption.

• Healthy growth in IT spend provides tremendous scale for growth in these markets
• Current outsourced market for the region is over US$22 billion – primarily served by local & regional vendors
• Technology spend by government, BFSI, telecommunication and manufacturing will drive the growth
• International and regional vendors serving these markets have witnessed double digit growth

Service Delivery Cluster-

In the past 10 years, the service delivery cluster in Asia (earlier composed primarily of India, Sri Lanka and Philippines) has evolved to a circle of multiple nations providing a multitude of services and catering to a diverse group of markets and verticals.

For this cluster to further expand, and further clusters will emerge across the globe. Each service cluster will develop its own niche and market development segment. These clusters will lead to growth of the region as a whole.

Top Cities in Asia

Continuous demand has led to proliferation of outsourcing locations in Asia.

• Indian cities continue to lead the pack, followed by Philippines and China catering to both global and domestic requirements. Many, particularly in China are looking at catering to the domestic market instead of the global requirements.

• Manila NCR, after Indian cities like Bangalore and Delhi, has been consistently making it to the top of the outsourcing cities lists.

• China follows India in terms of most number of cities on the lists. Dalian has been consistently moving up rankings.

• Several cities moving down the rankings are also an indication of strong competition among the cities. This also indicates the aggressiveness of cities in promoting themselves as locations of choice.

• Most of the emerging Tier II/III cities are from Southeast Asia- from Philippines, Indonesia, Thailand and Malaysia. This could be mostly due to initiatives undertaken like by the Business Processing Association of Philippines (BPAC)