Entrepreneur's Guide to Outsourcing, Part 1: Emerging Markets
Outsourcing is one of the top trends in business today, a near-necessity in the age of a globalized, increasingly networked world. Often, outsourcing done right can be the difference between profit and loss, a critical factor that can make (or break) your business.
To that end, entrepreneurs seeking to maximize efficiency and offshore effectively shouldn’t just stay with stalwarts like India and China. Instead, they should look further afield to other emerging markets, destinations with a booming economy, a large population, and a hunger to prosper and consume.
Common characteristics of emerging markets
Before we take a deeper look at emerging economies, it’s important to understand some key criteria that give emerging markets such vibrancy and energy. These factors include a large, young population to fill out the ranks of the nation’s workforce, a fledgling middle class that will provide the foundation for future consumption, a large domestic market, reasonably strong government institutions, and a middling level of infrastructure (enough for basic operations to keep the economy running, but with opportunities to build more).
The last two factors are a little harder to pin down. While institutions do need to be strong enough to carry out routine duties like enforcing laws or collecting taxes, legal institutions and norms cannot always predict economic success. In some business environments, bribes can be an advantage, while in other nations, compliance regulations can add to the cost of doing business.
As for infrastructure, emerging markets do need some basics such as roads, airports, and harbors to begin their economic expansion. However, opportunities to build new infrastructure can further fuel economic growth and development. For instance, from 2011 to 2013, China alone consumed more concrete than the United States did during the 20th century, as part of its quest to build not just new malls and apartment buildings, but also roads, airports, dams, and subways.
With these factors in mind, let’s take a look at three prosperous emerging markets that you should consider moving your business process operations (BPOs) to.
Though this island nation has been making headlines lately for its colorful, populist leader Rodrigo Duterte, its economy has thrived. In Q3 2016, the Philippines won the distinction of being the fastest growing economy in Asia, its GDP expanding by an impressive 7.1%, beating out regional rivals like Vietnam and India.
Much of this growth is due to rapid expansion in two sectors: industries, which grew by 8.6%, and services, which grew by 6.9%. Within the services sector, information technology (IT) and business process management (BPM) were the the leading areas, forecasted to grow at 30% in this decade alone. This category includes key outsourcing mainstays like call centers, technical support, and even coding and technical design.
The stunning success of the Philippines’ BPO sector rests on two important factors: first, a highly literate, young population that speaks American-accented English (a legacy of the nation’s history as a former American colony), and second, the creation of special economic zones (SEZ) with incentives for BPO firms. In fact, there are signs that the Philippines is fast beating out India, long a powerhouse for BPO activity: in 2012, the Philippine BPO sector employed 400,000 call center workers, about 12% more than India.
It’s true that the nation still faces a number of social and political problems, such as wealth inequality and corruption. Still, all things considered, the Philippines is on the rise, a healthy and growing economy in the process of shaking off its tumultuous past and emerging into the 21st century.
Though it hasn’t been as celebrated as the Philippines, the Vietnamese economy has posted a stunning 6% growth rate, along with a GDP increase of 6.4% in Q3 2016 alone. Key factors for this strong performance include generous foreign direct investment, a high volume of exports, a resilient agriculture sector, and most of all, a powerful manufacturing sector, which grew 11% from January through September 2016 alone.
Because of its young population and relatively lower salaries, Vietnam has slowly gained a reputation as the new manufacturing superpower, becoming the largest Southeast Asian exporter to the United States in 2014. Much of this is due to demographics: while other ASEAN nations have an elderly population of about 10%, Vietnam’s elderly only comprise 6% of the population. In fact, 40% of Vietnamese are aged 15-49, providing a huge workforce for factories.
That’s not to say that there may not be difficulties in Vietnam’s future: for instance, while the nation strongly supported the Trans-Pacific Partnership (TPP), which would allow its textile factories and other manufacturers to capitalize on free trade and looser import protocols, the TPP does not look likely to pass, especially given strong opposition from President-elect Trump.
Yet even without the TPP, Vietnam’s economy is still strong. For one, foreign direct investment (FDI) from other Asian nations, particularly South Korea, hit nearly $15 billion in 2016. Tech giant Samsung employs nearly 110,000 Vietnamese alone, while rival LG has just opened a $1.5 billion factory in the country.
Clearly, whatever trade agreements are passed (or vetoed), Vietnam’s economy will still remain a manufacturing powerhouse, as it can always rely on regional trade to make up any shortfalls.
Though it is mainly known in the West for the disastrous genocide of 1994, Rwanda today is a far cry from the war-torn nation struggling to heal the deep rifts between its Tutsi and Hutu populations. In fact, Rwanda is the fifth-fastest growing economy in Africa, though much of this expansion has been due to small-scale, local businesses and subsistence farmers.
While the nation’s growth is impressive, averaging 7-8% from 2001 through 2015, Rwanda is still beset by a number of issues, namely a lack of infrastructure and a heavy reliance on foreign aid. There’s also the matter of South Africa and Kenya, traditionally the two other African economic powerhouses, particularly where it concerns tech.
But don’t be fooled. Kigali, Rwanda’s capital and largest city, is on track to become Africa’s startup hub, thanks to government incentives and construction projects. Perhaps the most notable undertaking is the Kigali Innovation City, a massive tech complex that will be home to incubators as well as the local branch of Carnegie Mellon University.
The proof is in the profits: Rwandan incubators, most notably the collaborative, innovative kLab, have fostered a slew of successful startups, the best-known of which is Torque, a SaaS platform that counts Heineken as among its clients. Further, Rwanda’s tech sector has drawn investment from IBM, Microsoft, and Intel.
Additionally, the Rwandan government is not sitting idle; it’s funded the construction of a $95 million, 1,380 mile fiber-optic cable network and hosted entrepreneur challenges like the Rwanda Startup Cup. As TechCrunch notes, Rwanda’s approach recalls the Singapore model: central government intervention and the creation of economic incentives to spur development and innovation.
After all, Rwandan President Paul Kagame is a fervent admirer of the late Lee Kuan Yew, Singapore’s premier and a pioneer of a particular, peculiarly successful mix of soft autocracy and economic prosperity. While only time will tell whether Kagame will succeed in his endeavors, for now, the economic picture is quite promising.
Emerging Markets Beyond the Headlines
Take a glance at the news today, and it’s easy to focus only on the BRICS nations. However, entrepreneurs, CEOs, and COOs seeking inexpensive, quality manufacturing and BPOs should look beyond the BRICS nations, and instead turn to the emerging powerhouses listed above.
As in the case of China or India, early adoption and expansion can mean the difference between successful, profitable outsourcing and coming late into an already-developed, increasingly expensive market.