By Suchit Leesa-Ngunansuk
Wednesday, January 07 2009 10:48 AM
URL: http://www.zdnetasia.com/news/business/0,39044229,62049830,00.htm

Gartner now ranks Thailand as being among the Top 30 offshore service providers last year--but there are several urgent steps that the government should take if Thailand is to fully take advantage of the country's outsourcing potential, according to outsourcing professionals.

Thailand is one of four new countries in Gartner's Top 30 in its latest survey that assesses the suitability of 72 countries as offshore locations. The analysis shows that the dynamic nature of the market has seen a number of countries position themselves as credible alternatives to the BRIC countries (Brazil, Russia, India and China).

"Countries such as Mexico, Poland and Vietnam have continued to strengthen their position against leading alternatives, while others have forced their way into the Top 30," said Ian Marriott, research vice president at Gartner. "These countries will be seeking to take advantage of the opportunity created by the increased focus that many organizations now have on cost optimization, as a result of the current economic crisis," he added.

According to Tata Consultancy Service (Thailand) country manager Sorasak Likitrujanont, outsourcing was a global trend that Thailand had to follow--but it was lagging behind other countries by a few years because of the level of English skills here.

However, the global economic crisis had made more corporations interested in outsourcing compared to in the past, with the most interest coming from multinational companies as well as banking and telcos.

"Outsourcing helps customers focus on their core business and makes a company's balance sheet look better by making outsourcing costs an expense, which helped to reduce tax," Sorasak said.

Recently, he offered a new program called "Thailand Holiday" to global TCS employees who may be interested in working and staying in Thailand which will include an attractive hotel package and other perks. He believes that this will help attract more ICT professionals.

Accenture Thailand country managing director Orapong Thien-ngern said Thailand was an attractive country for outsourcing services because there were well-educated professionals here with a variety of technical skills.

However, Thailand still has shortcomings in language skills which the government should address in order to lift Thailand to a regional level. For the long-term, the Thai government should set the same educational standards nationwide. In the short-term, the government could raise English and technical skills at the vocational school level, he suggested.

Orapong emphasized that the government had to understand business problems and have a clear policy to serve business requirements.

"During an economic crisis, outsourcing is an attractive way of cost-cutting, and Thailand has lower labor costs. The government should have policies to encourage software companies to comply with CMMI standards, especially Levels 3 to 5, to make Thailand's outsourcing recognized at a global level," Orapong said.

Thailand has a shortage of people with the technical skills that most large businesses demand. In addition, because so many ICT projects are designed and implemented on a regional, or even a global level, not only are specific technical skills required but English language proficiency is also a must. In Thailand, this makes the shortage even more acute, said president of Bangkok-based ISM Technology Recruitment Peter Fischbach.

In order to make Thailand more proactive in attracting global ICT talent, the Thai government should enable the free movement of skilled labor as a stated goal of the Asean charter. Thailand will therefore need to be even more proactive in attracting global talent if the country is to maintain a competitive advantage in the region.

The Thai government should eliminate obstacles; the Labor Department will not allow service companies to get work permits for foreign ICT professionals. Work permit approvals are determined by a company's registered capital. Service companies, and especially SME's--the sort which would be adding value and "packaging" technology resources for larger corporate clients--do not want or need to have a high registered capital, he said.

He added if there were more foreign ICT professionals, they would train Thai staff in new technology and would also help improve their English language skills. This is especially valuable for Thai SME's whose staff, unlike the staff of large multinational companies, might otherwise not have the opportunity to work closely with fluent English speakers.

They would pay Thai taxes on a comparatively high local salary and spend money here in Thailand, generating economic benefits for other Thai businesses as well as increased VAT revenue for the government.

"A larger pool of ICT talent will help level the playing field for the many Thai companies which have yet to reap the competitive advantages made possible by technology. Even local start-ups will have a greater chance of success if there are more ICT professionals working in Thailand," ISM Technology Recruitment's president said.

In summing up the results of its survey, Gartner said that during the past 12 months there had been significant activity in many countries to consolidate or grow their positions as leading locations for offshore services.

"As a result of this, four countries have dropped out of the Top 30 and have been replaced by four that were just outside the Top 30 12 months ago. This does not mean that the four "relegated" countries have underperformed this year, but the dynamic nature of the market has seen others making strong progress," Marriott said.

The four countries leaving the Top 30 this year are Northern Ireland, Sri Lanka, Turkey and Uruguay. Along with Thailand, the other new entrants as leading countries for offshore services are Egypt, Morocco and Panama.

Strong interest in near shore locations was a key factor; language skills, cultural compatibility, time zone and travel time were important considerations.

As French-speaking countries increased their proportion of work conducted off-shore, they have been keen to find appropriate French-speaking countries, and saw Morocco "step up". The near-shore benefits of Egypt and Panama, and cost consideration in Thailand were also important, he said.

Ten countries from the Asia-Pacific region were represented in the 30 leading countries. These included the undisputed leader in off-shore services India and China. The rest were a mix of mature environments that offer limited cost benefits such as Australia, New Zealand and Singapore and emerging countries with a variety of challenges, but attractive costs such as Malaysia, Pakistan, the Philippines, Thailand and Vietnam.

Gartner also found that external service providers (ESPs) have started to target places outside the Top 30 to get closer to mature countries, such as the Nordic regions and France that show increased interest in going offshore.

"Given the current financial turmoil, cost will remain an important factor. However having the right balance between lower cost and higher risks, and lower risks and higher costs will be critical in times of recession and uncertainty," said Marriott.

Another research firm, Springboard Research, expects that both developing countries like India, China, Thailand and the Philippines and developed economies like Australia, Singapore, Hong Kong and Korea would contribute significantly towards growth of various outsourcing services segments.

Springboard believes that because of a changing CIO mindset, large multi-year outsourcing contracts are gradually transforming to a shorter services model. Even through each country in the region has a different maturity level when it comes to he adoption of the enterprise wide outsourcing model.

The company sees enterprise-wide outsourcing to grow in a year of economic downturn as enterprises look to avoid and manage risk, by bundling their IT services providers under one umbrella, with the likes of IBM and Accenture or more on established vendors to ensure services continuity if a provider struggles or exits a market or product.