Report: India, China most popular

And, Singapore is third most popular destination for companies in Asia that outsource their business processes, finds KPMG study.

The world's two most populous countries--China and India--were named the most popular outsourcing destinations by companies in Asia, according to a recent study KPMG.

Results of the report, titled Asian outsourcing: the next wave, were released last week and revealed that India and China emerged as the top two most popular destinations by many companies in the region which outsource their business processes. India earned top ranking at 55 percent, followed by China at 36 percent.

At 20 percent, Singapore takes third placing in the survey, which covered a total of 305 senior executives from companies in the Asia-Pacific region. About 43 percent of respondents were based in Singapore, Hong Kong, Malaysia, Japan, Australia and New Zealand. Just under 50 percent of participants were based in India and China.

Singapore was closely trailed by Hong Kong at 16 percent, far ahead of fourth-placed Philippines, at 7 percent, which has been traditionally regarded as a lower cost alternative to India.

Lim Yen Suan, Singapore-based director of risk advisory services at KPMG, said: "While not the lowest priced, Singapore offers strong intellectual property protection, a well-educated talent pool, and overall a more secure and stable pro-business environment."

"This translates to a higher value," Lim said.

Contrary to conventional wisdom which suggests companies that outsource typically come from higher-cost and labor-short places such as Australia, Japan, Hong Kong and Singapore, companies based in China and India--where labor and operational costs are low--are also outsourcing, the KPMG report said.

The survey found that 55 percent of Indian companies currently outsource their business processes, with another 33 percent planning to do so in the next three years.

Lim said: "Companies in Singapore should learn from the Indian experience by focusing their own resources in areas that are business critical, and outsourcing non-core activities elsewhere.

"If done right, [this would] allow a company to focus on its core competencies while accessing skills that are lacking in-house," she said.

Next outsourcing wave
According to the KPMG report, the next wave of business process outsourcing (BPO) will grow far greater than it is now and will "catch up with the levels of IT outsourcing".

"[BPO] will be increasingly pervasive as companies in Asia become more comfortable with entrusting some finance, accounting and human resources functions to outsiders," Lim explained.

Key criteria for companies selecting service providers include language support, as well as country or organizational culture, the report noted.

The survey found that companies in the region outsource a diversity of functions, including IT solutions (54 percent of all respondents), accounting, debt collection and tax processing (35 percent), data collection and report writing (26 percent), human resources (22 percent) and supply chain management (19 percent).

Meanwhile, companies in India are "far more open to outsourcing all kinds of business functions" compared to their peers from the rest of the region, according to the study.

Edge Zarrella, KPMG's global partner in-charge of information risk management noted that "outsourcing is gaining steam and companies with no plans to outsource may soon find themselves at a competitive disadvantage".

However, the report said that even though outsourcing is on the rise, there were certain areas where respondents indicated no plans for outsourcing, including strategic planning, sales and marketing.

Another area that can never be outsourced is accountability, the consulting firm said.

According to Zarrella, "outsourcing business processes doesn't mean [companies] can outsource risk", adding that "in-house executives now, more than ever, need to take responsibility for setting policy, direction and strategy and for seeing that [these are] executed correctly".

The report also predicted that "an explosion in demand may occur if companies start to outsource strategic services such as research and development, engineering and risk management, to remain competitive".