Outsourcing in Thailand

Outsourcing in Thailand: Competitive Factors and Entrepreneurial Challenges

Thailand’s outsourcing industry is emerging as a noteworthy player, joining the ranks of traditional outsourcing powerhouses like the Philippines and India.

As per the World Bank, Thailand’s Gross Domestic Product (GDP) reached $544 billion in 2019, constituting 0.45% of the global economy. This growth was propelled by a thriving tourism sector, robust export recovery, and advancements in private healthcare, commercial enterprises, and industrial sectors. These developments have created abundant opportunities for outsourcing service providers and facilities management (FM) providers.

The contact center application market in the country exhibited an 8.4% Compound Annual Growth Rate (CAGR) in 2017, generating an annual revenue of $17.8 million. A 4.7% CAGR is projected by the end of 2024.

In 2017, the market size for Thailand’s in-house facilities management market and outsourced facilities management market was estimated at $1.8 billion and $1.84 billion, respectively. The total workforce in the FM sector amounts to 38 million, with 40% of the workforce engaged in outsourcing.

COMPETITIVE OUTSOURCING FACTORS

Rapid Growth of Manufacturing Sector

Under the current Thailand 4.0 policy, economic transformation is set in motion through the adoption of smart technologies, green technologies, and advanced technologies. This strategy of “growth via innovation” will significantly impact the manufacturing sector, incorporating the following cutting-edge technologies:

Cloud: Enabling companies to thrive in the digital era with low-cost options.
Knowledge Automation: Replicating skilled human work without replacing it, fostering efficiency.
Robotic Process Automation: Improving efficiency and accuracy in repetitive work across various industries, minimizing costs in managing algorithmic big data collection and analysis.
Blockchain: Facilitating data sharing for users, ensuring secure data retrieval and storage.
Internet of Things (IoT): Utilizing 5G wireless technology to support and manage technologically intensive supply chain work in smart factories, applicable to industries like electronics, automobiles, retail stock management, and healthcare.
3D Printing: Facilitating rapid design and production of goods at a more affordable price, particularly beneficial for industries such as auto parts, machinery, electronics, and fashion.

Thailand’s manufacturing sector, which contributed up to 40% of the country’s GDP in 2019, is poised for further advancement with access to a suite of advanced technologies and digital enterprise solutions. This readiness will propel companies into the digital era, making the vision of an Industry 4.0 era a tangible reality.

Notably, Thailand has made remarkable progress in expanding economic freedom. The country transitioned from a low-income to an upper-middle-income status in 2011, achieved through a four-decade commitment to economic development, a positive investment climate, and legislative reform. Based on the 2020 Index for Economic Freedom, Thailand holds an overall score of 69.4, ranking 43rd among 171 countries worldwide and 11th in the Asia-Pacific region. Improving labor freedom, regulatory efficiency, and market openness has been a key focus, aiming to attract foreign investments crucial for breaking the poverty chain, boosting growth, and enhancing overall economic performance. Today, Thailand stands as one of the most desirable ASEAN countries for foreigners seeking to expand their business activities and operations.

Generous Incentives to Boost Private Investments in Automation Industries and Technologies

Thailand has set its sights on fostering an innovation-driven economy, paving the way for an automation-driven future. A substantial budget of $45 billion has been allocated for the establishment and enhancement of smart cities, human resources, robotics innovation, and modern logistic systems. The private sector is strongly encouraged to invest in automation industries and technologies, with businesses and companies poised to receive enticing incentives, including:

Implementation of product innovations to enhance operational efficiency within their factories.
Provision of soft loans for Small and Medium-sized Enterprises (SMEs) incorporating robotics and automation technologies into their production processes.
A three-year, 50% reduction on corporate income tax, along with eligibility for exemptions on imported machinery.
Eight-year tax holidays and exemptions for taxes on exported raw materials.
Waived corporate income tax for a duration of 13 years for investments made in the Eastern Economic Corridor (EEC) area.

These attractive incentives underscore the Thai government’s unwavering commitment to making its product innovations appealing to potential overseas buyers, foreign investors, and outsourcing manufacturers.

ENTREPRENEURIAL CHALLENGES TO OUTSOURCING

Unavailability of Technologically Competent Labor

Thailand’s higher education, both in the public and private sectors, is struggling to align with the evolving demands of industries. This discrepancy is yielding graduates who lack the necessary skills for technical and vocational roles across various sectors. The failure to institute substantial changes in the Thai education system not only deprives students of the chance to acquire skills relevant to the job market but also sets the stage for a chronic shortage of skilled labor – a situation projected to be the most severe in the region, as noted by the World Bank.

‘Immature’ Digital Culture Within Organizations

The concept of digital transformation is no longer confined to multinational corporations and trillion-dollar companies; it has become indispensable for any modern business. This paradigm shift involves leveraging emerging technologies to provide customers with a more convenient, personalized, and secure buying experience.

However, for startups and small to medium-sized businesses in Thailand, embarking on this journey can be perplexing and financially demanding. Despite the widespread adoption of technology and the integration of advanced digital tools into business operations, organizations encounter a significant challenge: an immature digital culture within the company. Digital transformation goes beyond automating manual processes; it requires cultivating a digital mindset and utilizing digital technologies to disrupt existing business models.

Barriers such as limited access to broader markets or relevant investors, a dearth of opportunities for upskilling or reskilling, and concerns about data privacy and security impede genuine digital transformation. Recognizing these challenges, the Thai government is actively working to develop its tech ecosystem, aiming to foster fully digitalized organizations capable of delivering high-value products and services to consumers.

Weak Cybersecurity Infrastructure

In the absence of effective security strategies, the adoption of digital capabilities, attraction of foreign investments, and the pursuit of sustainable economic development pose significant challenges. A 2019 study by Cisco revealed that 35% of Thai businesses incurred at least $1 million in damages or losses due to cybercrimes. In 2015, Thailand was ranked as the second-worst country for cybersecurity, with 20% of cybercrime victims experiencing losses of no less than $100,000. The surge in data leaks in 2018 heightened IT security concerns among both citizens and businesses, raising questions about the efficacy of the existing Telecom Business Act in safeguarding customers’ personal data and advancing the country into digital transformation under its Thailand 4.0 policy. Presently, the Thai government is taking proactive measures to enhance its cyber-resilience and bolster organizations’ capabilities to protect personal and financial data.

Conclusion

Thailand provides competitive outsourcing advantages; however, it is crucial to carefully consider your company’s specific needs and requirements before engaging with an outsourcing service provider in the country. For additional information on selecting the right outsourcing partner for your business, you can find more information here.

Outsourcing in Thailand