The State of Singapore’s ICT Offshoring in 2021

Information & Communications Technology and Media  |  12 Aug 2021

The State of Singapore’s ICT Offshoring in 2021

(June to July 2021)

Offshoring has become one of the business strategies that Singapore’s Information and Communications Technology (ICT) companies have turned to, in a bid to resolve manpower issues, take advantage of lower overheads or increase their regional market presence.

Many businesses all over the world are turning to offshoring because the last decade has brought significant changes to the consumption of IT products and resources, accelerating the need for technological transformation and adoption across industries. In Singapore’s ICT industry, there are the additional factors of rising costs and a supply shortage of tech talents.

To mitigate the lack of tech talent in the country, the Singapore government has introduced a slew of initiatives to encourage and nudge more people into the tech talent pool. However, the supply has not been enough to meet the demand and so, some businesses have understandably turned to offshoring as a strategy to remain sustainable.

READ ALSO: ICT companies with trained workforce performed better than their peers
 

“Offshoring” is a company’s practice of moving job roles/business functions that were previously based in Singapore, to another country. This is different from outsourcing work to a third party.

How prevalent is offshoring among Singapore ICT businesses? To understand the trends and driving forces of offshoring activities among ICT companies in Singapore, IndSights Research conducted a study on offshoring in June and July 2021. In this article, we also make references to some  of our industry chats with ICT business leaders.

 

Offshoring experiences of ICT companies in Singapore

The study showed that India was the top market where Singapore ICT companies were offshoring the most ICT roles to. This was followed by Malaysia and Philippines. Almost half (47%) of the ICT companies currently offshore at least some of their ICT jobs. In contrast, 48% of companies polled have never offshored, while 5% of ICT companies had previously offshored tech roles but had since re-shored the roles back to Singapore.

We further explored what were the roles that were being offshored. The top two roles that are currently offshored are as shown in Chart 1, with 61% involving “Product and Engineering” and 57% in “Implementation and Maintenance”.

Chart 1: the percentage of the top two offshored ICT roles
Example showing the percentage of the top two offshored ICT roles

In our one-on-one industry chats with ICT leaders, many have shared that their approach to offshoring was generally that jobs which were more mundane and technical were more easily offshored. Such roles included jobs involved in coding and building products based on a pre-set design or framework. Roles that business leaders preferred to keep inshore included those that required high-level strategic thinking, e.g. role of Chief Technology Officer, roles which involved intellectual property (IP), e.g. the design and architecture of the technology, and roles involved in the Research and Development of the technology.

Want to participate in our industry chats? Contact us at: www.indsights.sg/contact 

What we found through the survey corroborates our insights from the industry conversations. Other roles that were offshored were: Research and Development (26%), roles involved in understanding and using the technology for business outcomes (20%), and Leaders and Entrepreneurs (9%).

 

Key reasons for offshoring

One of the reasons for offshoring was to lower cost and this was a reason stated by 7 in 10 companies. Areas which contributed to the business and operational costs included manpower, infrastructure, utilities, or the difference in taxes.

In addition, 3 in 5 ICT companies offshored because of the availability of a larger tech workforce with certain specific skillsets or qualifications in the offshore markets. This finding supports the feedback from the industry chats where a few ICT business leaders shared their challenges in hiring tech talents, either because they do not get enough local applications, or that the local talents are much more costly to hire, even if the locals might be more productive.

 

Singapore ICT companies that re-shored

Several business leaders shared with IndSights that while some were willing to offshore to lower their cost, even at the expense of productivity, they inevitably face other challenges. Some of the challenges include:

  • workers tend to be in a different time zone, which is less convenient for meetings, and support or issues resolution may face a time lag,
  • issues communicating and understanding because of language barriers,
  • cultural differences influenced the way the communications were understood and influenced the work ethics and practices,
  • ensuring quality control is challenging as errors are caught later and feedback cannot be given in a timely manner.

These sentiments are echoed in the survey findings, where half of the ICT companies stated they had difficulty in managing resources from Singapore and had quality control issues. Unsurprisingly, 2 in 5 companies had language and communication issues with their offshored workforce.

Average period of offshored roles in the past
Average period of offshored roles in the past

From our conversations, it seems that some companies are exploring moving their offshore operations from further ashore markets such as India or China, to markets nearer to Singapore such as Vietnam, Malaysia, and Indonesia for similar reasons.

 

ICT companies which have not offshored

Lastly, the study looked at ICT companies which have not offshored before. With reference to Chart 2, close to three quarters of ICT companies which did not offshore stated that it was because their company’s size or growth does not justify offshoring activities. Of the ICT companies which have not offshored before, 14% may be likely to pursue offshoring within the next two years.

Chart 2: reasons for ICT companies not offshoring and likelihood of offshoring
Charts showing reasons for ICT companies not offshoring and likelihood of offshoring

 

Offshore trends to look out for

While offshoring was one of the common business strategies, it seems like there might be some emerging trends. Partly impacted by COVID-19, many companies have come to realise that it is possible for more roles to be remote and therefore be offshored through use of technology and collaborative tools. More might also be comfortable offshoring higher skilled roles. As new offshore locations open up, new pools of tech talents may become available, and we might also see a shift in the choice of offshore markets.

READ ALSO: How is Singapore helping businesses to transform? 

  

About the study

Our study was conducted in June and July 2021 with 475 ICT business leaders to understand the trends and driving forces of offshoring activities among Info-Communications Technology (ICT) companies in Singapore.

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