Offshore Staffing in the AsiaPacific Region:

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Offshore Staffing in the Asia-Pacific
Region Financial, Administrative, and Regulatory
Impacts on Location Attractiveness Stan Malos,
J.D., Ph.D. Professor of Management/HRM Organizati
on and Management Department College of
Business San Jose State University San Jose,
California USA
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Overview of Presentation This paper examines
financial, administrative, and regulatory effects
that may impact the expansion of offshoring
beyond established locations such as India,
China, and Malaysia. Investments in global
labor markets can be seen as options on future
employment sources that help create sustainable
competitive advantage by diversifying staffing
locations throughout the Asia-Pacific region and
elsewhere. An apparent trend toward
nearshoringshifting overseas operations closer
to home bases in more developed countriesis also
examined and discussed.
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Motivations for Offshoring Developed countries
may have higher standards of living, a greater
supply of educated and trained workers, better
infrastructure, more favorable business
environments, but ... These factors typically
reflect higher wage and income levels or tax
burdens that may lead to the desire to offshore.
Developing countries offer lower apparent
labor costs but may be undermined in
attractiveness if administrative or regulatory
burdens on doing business are seen as too great.
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Effects on Offshore Location Attractiveness Cert
ain business functions may be stronger candidates
than others for nearshoring rather than
offshoring. Asia-Pacific countries such as
Malaysia that wish to encourage their greater use
as an offshore location by Western companies
should consider competitive threats from emerging
economies in the Western Hemisphere. Such
countries may have similar profiles and tradeoffs
among cost, skill, and infrastructure dimensions
but shorter supply chains to and from the home
country. Other Asia Pacific offshore locations
(e.g., the Philippines, Vietnam) have also
increased overall offshore attractiveness.
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Research Methods A. T. Kearneys Global
Services Location Index (2005) and World Bank
ratings on ease of doing business internationally
(2005 2006) were used to investigate
relationships among levels of economic
development, administrative and regulatory
burdens on employing workers, and perceived
overall attractiveness of the top 40 offshore
staffing locations. Kearney data split into
sub-ratings for Financial Structure (compensation
costs, overhead, tax and regulatory costs),
People Skills and Availability (labor force
availability, education and language ability,
business process skills and experience, attrition
rates), and Business Environment (economic and
political stability, cultural adaptability,
infrastructure quality, security of intellectual
property).
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Data Analyses Regression Analysis used to
investigate impact of regulatory constraints on
ease of starting a business, obtaining licenses,
employing workers, trading across borders,
enforcing contracts etc. on the Kearney
sub-ratings (Financial Structure, People Skills
and Availability, and Business Environment).
Cluster Analysis with same Kearney sub-ratings
used to create profiles of countries as (1)
developed offshore user, (2) established
offshore location, or (3) less developed but
emerging offshore location.
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Selected Results re Regulatory Burdens GNI
per capita was strongly and negatively associated
with favorable (low cost) financial structure.
But, administrative and regulatory burdens
associated with difficulty of employing workers
also related negatively to favorable financial
structure even after controlling for GNI.
Greater rigidity of employing workers
(difficulty in ending the employment
relationship) also related negatively to
favorable financial structure after controlling
for GNI.
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Further Results re Regulatory Burdens Reduced
regulatory burdens associated with employing
workers related positively to favorable levels of
people skills and availability even after
controlling for GNI. Lower hiring difficulty,
firing costs related positively to favorable
business environment even after controlling for
GNI.
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Validation Evidence for Cluster Analysis
Results Countries Profiled based on levels of
Financial Structure, People Skills and
Availability, and Business Environment U.S.,
Canada, the U.K., and industrialized European
countries (France, Germany) classified as
developed offshore user countries, as would be
expected. India, China, and Malaysia classified
as established offshore locations, as would be
expected. Vietnam, Chile, Costa Rica, and
Mexico classified as emerging offshore locations,
as would be expected.
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Cluster Profiles and Country Classifications
See separate slides (Tables from complete
paper)
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Offshoring Attractiveness Implications Status
of Asia Pacific Region Indias overall lead in
attractiveness has dwindled due to wage
inflation, improvements by China along people
skills and infrastructure dimensions. The
Philippines, despite weaknesses in infrastructure
and political stability, continues to benefit
from better education and English language skills
of its workforce.
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Offshoring Attractiveness Implications Status
of Asia Pacific Region (continued) Indonesia
benefits from low wage, tax, infrastructure
costs, but education, language skills, and
business environment remain ongoing concerns.
Thailand still competes mostly on cost
advantage. Malaysia government has made
substantial investments in infrastructure and
continued improvements to the technical and
English language skills of its labor pool.
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Offshoring Attractiveness Implications Regional
Strategic Threats and Responses India now
appears to lag behind Philippines and Indonesia
in cost advantage, and may wish to take action to
stem rising wage levels that go with its lead in
people skills/availability. Malaysia appears
to lead the region in infrastructure and business
environment, but needs to catch up with India and
China in people skills/availability to compete
more effectively. Philippines poses a
competitive threat Malaysia compares almost as
well on people skills/availability, but remains
well behind on cost advantage and financial
structure improving workforce skills while also
getting competitive on labor costs may prove a
daunting challengethese usually contradict!
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Offshoring Attractiveness Implications Regional
Strategic Threats/Responses (continued) Vietnam
holds a decided cost advantage over all
established offshore locations in Asia Pacific
region except Philippines, but lags well behind
on workforce skills and business environment,
areas in which it may wish to improve.
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Offshoring Attractiveness Implications Global
Strategic Threats and Responses Brazil, an
emerging Latin American offshoring site, has a
financial structure score not far behind
Malaysias but levels of people skills higher
than all Asia-Pacific countries except India and
China, and a business environment score
comparable to Indias, thus posing a growing
strategic threat.
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Offshoring Attractiveness Implications Global
Strategic Threats and Responses Similarly,
Chile and Costa Rica exhibit profiles highly
similar to Malaysia, with comparable scores on
financial structure but lower scores on people
skills and business environment. These
countries could become viable competitors with
Malaysia by improving investments in education.
These countries are in the same time zones as
the U.S., so travel times to offshore locations
could be greatly reduced, further threatening
Malaysias market share. Similar analyses can be
performed for other Asia Pacific countries and
Latin American, African, European, or other
global counterparts.
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Questions, Comments, or Suggestions?
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Thank you for your interest! ?