Selling Thai outsourcing to Japan?
By Jon Fernquest[Introduction|Vocabulary|Article]
[Reading Questions|Answers]
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It is difficult to see very far into the mists of Thailand's future.
Agriculture will remain strong in Thailand for a long time.
Will farming ever completely disappear like it almost has in South Korea?
What will Thailand become famous for in the future? Tourism? Fine hotels and restaurants? Resorts and retirement communities? Outsourcing IT? Outsourcing business processing? Manufacturing automobiles or motorcycles? OTOP products?
Will Thailand ever work more closely with neighboring countries in one gigantic ASEAN market?
Today's article explores one possibility: business process outsourcing to a quickly greying Japan searching for lower cost alternatives on the other end of a fast internet connection.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. Why does Thailand have potential for outsourcing from Japan?
(Note: Search the whole article for reasons and then formulate a complete answer)
2. What conditions within Japan give outsourcing from Japan good business potential?
3. Where is Japan doing most of its outsourcing now?
4. Why hasn't Japan outsourced to Thailand yet?
5. What problems is India currently having in its outsourcing industry?
6. What kind of outsourcing work is India finding increasingly difficult to do? What are they doing to alleviate the the problem?
7. What kind of training does business process outsourcing require?
8. What kinds of tasks does business process outsourcing consist of? (Hint: Read forward a bit. These tasks are listed in two places in the article)
9. What is the problem with Thailand's focusing on IT outsourcing exclusively?
10. Is there already proof that outsourcing is a viable business in Thailand exist? Provide details.
11. Why might Thailand's internet connectivity be an issue?
12. What recent steps to improve Thailand's connectivity might help?
13. What kinds of BPO tasks does the Gartner report suggest focusing on initially? What about later on?
14. How was a public-private partnership important in India's development of an outsourcing industry?
15. How might the old Don Muang airport be used for outsourcing? What precedents are there for this in other Southeast Asian countries?
Article
Why it's time to tap into Japan
Gartner report points to Japan as the best market for Thai outsourcing services DON SAMBANDARAKSAThe result of a study into the potential of Thailand's business process outsourcing industry by Gartner Research has identified the Japanese outsourcing market as the most promising for Thai businesses to tap into.
The reasons cited were the close ties between the two countries, lack of animosity during the Second World War and the fact that at any one time, there are around 200,000 Japanese executives living in Bangkok and Chiang Mai who can provide guidance and training.
Presenting the findings here recently were Gartner researchers Bob Hayward, Sujay Chohan and Charles Chun.
"It is still the second largest economy in the world, the costs of doing business there are the highest in the world and their population is declining at half a million people a year," Hayward said of Japan.
He said that while the Japanese seemed to think they could solve their labour shortage through the use of robots, the reality was that they would have to outsource and to offshore. So far, they have outsourced to China, in spite of the tense relationships between the two countries.
Hayward said that the only reason they are not outsourcing to Thailand was that no Thai company had gone there offering BPO services. He said that Thailand and Japan were the only major Asian countries not to have been colonised, shared a respect for the Buddhist religion and for a monarchy, and most importantly had not fought each other during the war.
"Japan is Thailand's largest investor by far and at any one time there are up to 200,000 Japanese executives here, many of whom refuse to go back to Japan after their assignment. That is why parts of Chiang Mai and Bangkok look a little bit like Tokyo," he said.
Chohan spoke of his own experience with the Indian IT explosion - themedia hype through to the backlash in the US on how it was taking jobs away. He noted that today India was suddenly facing a severe shortage of skilled IT workers and said it would take them a further three to four years for new universities and vocational institutions to balance out demand and supply.
This means that today India can no longer take on low-end work and businesses are looking for partners in countries such as Thailand to meet the shortfall.
However, business process outsourcing was a different story, Chohan said. Unlike IT outsourcing, BPO only needed vocational training.
Typical business processes are transcribing application forms for credit cards through to basic processing, such as for insurance claims.
BPO is no longer a matter of the US sending forms to India or the Philippines. It is as much about Japanese companies outsourcing business processes to the Japanese-speaking community in Dalian, China or the Spanish speaking community in the US outsourcing to Ireland and Spain.
Chun noted that Ireland and Spain had reaped enormous benefits from relaxing their immigration policies, allowing for a multinational, multi-lingual workforce to come and settle very easily. For example, it has led HP and Dell to set up massive, multi-lingual call centres there.
Chohan noted that education and sustainability were the most important things that investors looked at, especially given the skill shortage India was now facing.
"Infrastructure is also important, with 99.999% connectivity uptime crucial," Chohan said. "Government support becomes critical. They are keen to know what are the incentives and will these incentives survive political upheaval."
Another issue that the study looked at was cultural compatibility, not so much of cultures themselves, but of how well Thai people would fit in with foreign business practices. Any BPO partner would also have to comply with the data and IP security laws of the outsourcing country and, in the case of US-based companies, must now be subject to audit by US regulators.
Chohan said that the proofs of concept that BPO worked in Thailand already existed, with 10 major multinationals having BPO centres in Bangkok supporting their corporate needs worldwide, each with 200 to 500 people.
In order to move forward, the analysts from Gartner said that a top-level policy must be put in place. Commitment here must also come from the very top and the government must invest in Thailand's image as a destination for BPO investment, not just as a tourism destination.
The other major issue is Thailand's limited international connectivity. Gartner said that the NTC's approval of a new Internet gateway licence to True was a good step but much more had to be done to overcome the image of Thailand being an expensive and unreliable destination.
The analysts recommended that Thailand focus on repeatable, rule-based tasks that are standardised across many companies. For instance, data entry, data transcription and basic rule checking for insurance claims. Later, the companies could move up the value chain.
Thailand should also continue to focus on English. Chun noted that all of the Lenovo meetings in China were now conducted entirely in English and that by 2008, it was expected that China would be the world's largest English-speaking nation.
Hayward noted that while Thailand had many good government policies, many fell apart on a practical level. He cited his personal experience, having moved to Bangkok four months ago, with immigration. The policy was to simplify procedures and have a single form to fill it, but the result was one of the longest and most complicated forms he had ever seen.
The most important thing was that experience in India had shown that it had to be a public-private partnership, with the government helping to invest in the Thailand brand and ensure adequate supply of vocationally trained workers, he said. "When we did the study and talked to people, it was surprising how few people knew what BPO was or how it was a viable career choice," Hayward said.
Chohan said that it would not be too far-fetched to think of converting the old Don Muang airport into a BPO city, as the Philippines had done the same with the former US Clark Air Force Base. He also noted that having the right people in leadership roles was also important.
Hayward said that there was little point in continuing to promote the Thai IT industry the same way that it has been promoted due to labour shortages. "People who today complain that it is hard to find Java programmers will find it even harder tomorrow," he said.
Sipa president Arvuth Ploysongsaeng gave a closing speech promising that he would immediately set up a task force to tap into this 1.7 trillion baht industry. The taskforce would comprise members from Sipa, the ICT Ministry, the Board of Investment and the Finance, Commerce, Industry, Interior, Education and Foreign Affairs ministries to look into the Gartner recommendations and fix the weaknesses while building on the country's strengths.
"We need to remember that this message [from Gartner] may have pointed out some embarrassing points but the important thing is that we need to listen to this constructive criticism and change, rather than feel resentful of it," he said.
Vocabulary (in discussion above)
Gartner Research - a company that sells consulting services and research reports on technology (See Wikipedia on Gartner)
tap into x - make use of x (to get something you need or want)
animosity - a strong feeling of anger and hatred
y in spite of x - y happened when x happened and usually you wouldn't expect that
media hype - when media coverage of an event is greater than the real importance of the event (See Wikipedia on Media Circus)
a backlash - a strong sudden reaction against something in society (for example a male backlash against feminism)
low-end work - not using advanced work skills, like the things they teach you in university
meet the shortfall - when there is a shortage (shortfall), increase the supply, so that the shortage disappears
business process outsourcing (BPO) - everday business tasks such as taking phone calls, data entry, and paper work (See Wikipedia on Business Process Outsourcing)
vocational training - training for a recognized trade or occupation like an automobile mechanic, welder, chef, or baker (See Wikipedia on vocational education)
reaped - gained
sustainability - can continue to do successfully over a long period of time, over the long-run
uptime - the time that a computer or communications system is up, working, and functioning without problems
an upheaval - a big change that causes a lot of trouble, confusion, and worry
cultural compatibility - when two cultures are similar in a way that makes it easier for people from these cultures to work together
subject to audit - will be investigated to make sure they're following rules
proofs of concept - when someone takes an idea about a product or machine and actually makes a small model of it that works
insurance claims - when a bad event happens to someone and they try to get money from the insurance company (make a claim)
a value chain - all the activities that add value to a product or service (some of these activities are supplied by the organisation and some of them come from suppliers or are outsourced)
move up the value chain - move onto productive activities that add more value and thus make more of a profit (See Wikipedia on the Value chain)
Lenovo - the largest manufacturer of personal computers in China (See Wikipedia)
viable - will work out, will work the way you expect it to work (for example a career in computers is viable if you expect computers to be important in the future)
far-fetched - unbelievable, difficult to believe
not be too far-fetched - what I'm saying is actually believable, even though it seems like it isn't
constructive criticism - comments that find fault or problems (criticism), but are made to help solve the problem (be constructive)
feel resentful - feel anger and bitterness about something
Answer Key:
1. Why does Thailand have potential for outsourcing from Japan?(Note: Search the whole article for reasons and then formulate a complete answer)
Thailand may be more culturally compatible with Japan than other countries. China has conflicts with Japan over autrocities committed during World War II. The United States has a very different culture. Both Japan and Thailand have a monarchy and are largely Buddhist. Many Japanese businessmen have chosen to relocate to Thailand permanently, so there is already a large Japanese business community in Thailand. The fact that Thailand and Japan were not enemies during World War II and continue to have good relations is also cited as a reason.
2. What conditions within Japan give outsourcing from Japan good business potential?
a. Japan is the second largest economy in the world.
b. Japan has the highest "cost of doing business" in the world.
c. Japan's population is decreasing, which means the fraction of retired people is increasing which means they have to cut costs to support this part of the population which is no longer productive.
3. Where is Japan doing most of its outsourcing now?
China.
4. Why hasn't Japan outsourced to Thailand yet?
No one in Thailand has tried to sell outsourcing services to Japan yet. This business opportunity is waiting to be exploited by creative future entrepreneurs.
5. What problems is India currently having in its outsourcing industry?
a. There is a "backlash" in the United States. Many Americans believe that outsourcing is taking jobs away from Americans.
b. India is facing a shortage of skilled IT workers which new graduates from universities and vocational schools won't alleviate for three to four years.
6. What kind of outsourcing work is India finding increasingly difficult to do? What are they doing to alleviate the the problem?
Low-end outsourcing work. India is searching for partners in countries such as Thailand to meet the shortfall.
7. What kind of training does business process outsourcing require?
BPO only needs vocational training.
8. What kinds of tasks does business process outsourcing consist of? (Hint: Read forward a bit. These tasks are listed in two places in the article)
BPO consists of tasks such as data entry, data transcription, transcribing application forms for credit cards, and insurance claim processing tasks such as basic rule checking.
9. What is the problem with Thailand's focusing on IT outsourcing exclusively?
In Thailand there is a shortage of skilled IT labour such as Java programmers, for instance.
10. Is there already proof that outsourcing is a viable business in Thailand exist? Provide details.
Yes, ten multinational corporations have BPO centers in Bangkok that support worldwide operations. Each of these employs 200 to 500 people.
11. Why might Thailand's internet connectivity be an issue?
Thailand has limited internet connectivity compared to other countries. Fast internet connections that are available all the time are important for outsourcing. ("99.999% connectivity uptime crucial")
12. What recent steps to improve Thailand's connectivity might help?
The NTC has approved a new internet gateway license for True.
13. What kinds of BPO tasks does the Gartner report suggest focusing on initially? What about later on?
Gartner recommends that "Thailand focus on repeatable, rule-based tasks that are standardised across many companies."
After they've mastered this sort of business, they suggest that "companies could move up the value chain."
14. How was a public-private partnership important in India's development of an outsourcing industry?
a. Government educational policy must ensure an adequate supply of vocationally trained workers.
b. The government must develop and promote a national brand for Thailand.
15. How might the old Don Muang airport be used for outsourcing? What precedents are there for this in other Southeast Asian countries?
Gartner suggests that Don Muang be transformed into a outsourcing center. The Phlliipines transformed the old US naval base at Subic Bay into an outsourcing facility.
