Offshoring in sharper focus

The economic and operating environment for international businesses has become more challenging.  Business leaders are trying to navigate a path through weakened consumer purchasing power, higher operating costs due to increased energy and materials prices, employee demands for wage growth and an elevated interest rate environment contributing to an escalating cost of credit.

This challenge is reflected in our most recent Global Corporate Real Estate Sentiment Index, with the growth dynamic sub-index pointing towards reducing confidence in both the global economy and short-term corporate performance.  In particular, expectations around revenue and headcount growth over the next six months have turned negative, whilst a greater proportion of respondents anticipate restrictions on capital expenditure.

Cost consciousness is the dominant corporate mindset, and the search for financial and operational efficiencies is becoming an urgent concern.  From a corporate real estate perspective, this focus on cost and a reduced willingness to expend capital will apply brakes to capital-intensive real estate activities such as relocations or fit-outs, and this may slow momentum in major office markets within developed economies.  However, the dynamic is different in emerging economies' markets.  As our sentiment index clearly shows, CRE leaders have a growing appetite to offshore certain functions to lower-cost locations.  This indicator has been turning increasingly positive for the past three consecutive quarters. 

Invariably, this has brought markets in the Asia Pacific region into sharper focus, presenting, as they do, a circa 70% reduction in operating costs when compared to the United States of America.  Furthermore, the highly educated, versatile and multilingual talent residing in developing markets within the region means it is well positioned to provide offshoring solutions of a higher quality and further up the corporate value chain.  Gone are the days when offshoring represented simple business process outsourcing.  Today, high-value, technology-heavy functions are being relocated into the region.   With the introduction of automation and AI, more companies are establishing in-house teams in offshore locations to drive innovation.

Accordingly, Asia's offshoring market is forecast to grow at 10% annually out to 2032.  Central to this growth are four markets of global significance - India, The Philippines, Malaysia and Vietnam.  Each of these markets has its distinct value proposition - which we explore further in Knight Frank's recent report, Harnessing the Potential of Offshoring, which is part of the Asia Pacific Horizon series.

Our report assesses each market across five main pillars - growth, skills, labour price, business cost and CRE value - to give occupiers initial indications of the relative strengths, limitations and opportunities each presents.  As such, it is an essential read for anyone seeking to press the offshoring button to realise cost-savings, operational efficiencies and heightened levels of innovation within their business.

To hear experts from core offshoring markets outline the benefits and opportunities, please take a look at our recent webinar supporting the report launch.

This article originally appeared in our (Y)OUR SPACE digest. Click here to download it now.