The IT outsourcing landscape in Southeast Asia is undergoing a significant shift. Local providers and cloud solutions are emerging as strong competitors to traditional outsourcing giants. This trend coincides with a growing emphasis on digital transformation and business resiliency, particularly in the wake of the global pandemic.
For years, established players like China and India dominated the IT outsourcing market. However, Southeast Asian nations like Malaysia, Indonesia, and Vietnam are rapidly gaining traction in this sector. According to IDC, the Southeast Asian managed services market, which encompasses IT outsourcing, reached a valuation of US$5.2 billion in 2020. While growth remains robust at 5.3%, it has moderated slightly compared to the 7.9% increase observed in 2019.
A booming market with diverse options
The IT outsourcing landscape in Southeast Asia is undergoing a significant transformation. Traditionally, large, established global IT outsourcing services firms held a dominant position, especially those with a strong presence in the region.
However, this landscape is being reshaped by a surge in competition from various players.
- Local Champions Emerge: Homegrown IT service providers like FPT (Vietnam), PT Anabatic (Indonesia), and Heitech (Malaysia) are no longer regional players; they're expanding their reach both within Southeast Asia and internationally. These companies offer a compelling combination of cost-efficiency, cultural understanding, and a growing talent pool.
- Asian Expansion: The influx isn't just limited to local players. Established IT outsourcing service providers from other parts of Asia are also making their presence felt in Southeast Asia. Companies like PCCW Solutions (Hong Kong), LG CNS, and Samsung SDS (South Korea) are bringing their expertise and global reach to the region, offering clients a wider range of solutions and support.
- Global Players Double Down: Recognizing the potential of Southeast Asia's IT outsourcing market, established global service providers are also ramping up their presence. Acquisitions like Logicalis' purchase of Singapore-based iZeno to enhance digital offerings and the growing footprint of Japanese cloud companies in the region are prime examples. This increased global interest further fuels competition and innovation.
- Telcos Embrace the Cloud: Telecom service providers are not sitting on the sidelines. With a focus on managed services, companies like TM One (Malaysia) and Globe Telecom (Philippines) are building robust cloud-based offerings. This allows businesses to leverage the scalability and flexibility of the cloud while benefiting from the telcos' existing infrastructure and expertise.
Looking ahead, the IT outsourcing market in Southeast Asia is expected to witness continued growth and diversification. With a growing pool of skilled IT professionals, a supportive government environment, and ongoing infrastructure development, the region is well-positioned to become a global hub for innovative and cost-effective IT solutions. Companies seeking IT outsourcing partners will benefit from a vibrant marketplace, allowing them to find the perfect fit based on their specific needs and budget.
More: 5 IT Outsourcing trends businesses need to pay special attention to
How COVID-19 has affected IT outsourcing
The COVID-19 pandemic significantly impacted various industries, and IT outsourcing in Southeast Asia was no exception. While initial concerns led to a temporary market dip, the long-term effects proved more multifaceted, ultimately acting as a catalyst for change.
Lockdowns and social distancing measures forced businesses to rapidly embrace digital solutions. This surge in online activity fueled the demand for IT services like cloud migration, cybersecurity solutions, and remote collaboration tools. This unexpected rise in demand ultimately benefited the IT outsourcing industry in Southeast Asia.
Beside, the pandemic shattered geographical barriers as remote work became the norm. This shift proved that location wasn't a critical factor for effective IT service delivery. Companies could now explore a wider talent pool across Southeast Asia and beyond, accessing a broader range of skills and expertise. This trend empowered businesses to find the perfect outsourcing partner based on their specific needs.
Another side is economic that we all saw that the economic downturn caused by COVID-19 forced businesses to tighten their budgets. IT outsourcing, with its potential for cost savings, became an even more attractive option. Companies realized they could access a skilled workforce in Southeast Asia at a competitive price point, allowing them to free up resources for core business functions.
The shift to a remote work model also amplified security concerns. Data breaches and cyberattacks became a growing threat, forcing businesses to prioritize robust security protocols. IT outsourcing companies with a proven track record of managing remote teams securely became more sought-after. Companies sought partners with expertise in implementing and maintaining secure IT infrastructure for a geographically dispersed workforce.
Overall, COVID-19 accelerated pre-existing trends in IT outsourcing, emphasizing the importance of agility, scalability, and security. Southeast Asia, with its cost-competitiveness, growing talent pool, and increasing focus on cybersecurity, is well-positioned to thrive in this evolving environment. Businesses seeking IT outsourcing partners will find a dynamic and diverse market in Southeast Asia, allowing them to find the perfect fit for their digital transformation journey.
More: Top quality IT Outsourcing companies in VietNam
Top Asian countries in software outsourcing
China
China is one of the leading software outsourcing countries in Asia. And China's growth rate has recently become stronger as it possesses a large pool of talent and high education level. Some of the outsourcing fields here are related to IT Outsourcing such as animation production, mobile applications and game software.
In order to build good relations and gain more cooperation opportunities, China has recently become friendlier to neighboring countries, more specifically foreign enterprises, by removing many restrictions and offering attractive tax subsidies.
India
India is known as a great country for outsourcing IT Outsourcing services and customer service related activities. With over 1.4 billion people, India has an abundant labor force and especially low labor costs here. One of the outstanding advantages when it comes to Indian resources is the high level of English proficiency, as it is one of the official languages of this country.
Philippines
In recent years, the Philippines has gradually become an attractive software outsourcing development area for many businesses. Typically, it has become a BPO (Business process outsourcing) powerhouse. BPO has accounted for more than 10% of GDP and become the second largest industry in the Philippines.
Because BPO is becoming important and can create job opportunities for people here, the government has developed more policies to promote and expand the scope of different processing fields.
In terms of advantages, the level of English reading and writing in the Philippines is very high. Furthermore, it is one of three ASEAN countries with data protection laws that increase security and assurance for many businesses.
Singapore
In recent years, Singapore has seen explosive growth in its IT Outsourcing sector, partly due to the government’s deliberate focus on emerging technology and innovation. A prime example is the Singapore government’s S$29.5 million investment to support 5G research, which will enable greater network connectivity, giving rise to the country’s software outsourcing industry.
As a British colony for 144 years, Singapore citizens can speak English fluently. At the same time, the country's tax policy is also very attractive.
Japan
Japan's highly advanced technologies make it a popular IT outsourcing destination, accounting for about $28 billion in annual revenue. However, IT outsourcing companies in Japan mainly provide IT services, not focusing on back-office operations such as call centers, payroll processing, and bookkeeping.
Furthermore, Japan offers top-notch infrastructure and a highly educated workforce. This attracts interest and love for American culture.
Vietnam
Vietnam has undergone a series of economic reforms, resulting in a booming modern economy with a middle class that accounts for more than 40% of the population – and that number is still growing, with an expected addition of 36 million middle-class citizens by 2030.
Vietnam has a high level of education and labor participation, and the government is constantly looking to improve IT outsourcing service capacity by opening vocational training centers and investing in online learning. As a result, Vietnam's steadily growing GDP will increase by at least 7% this year, according to the World Bank.
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