Outsourcing to Thailand: Pros, cons, top industries

by Andy Nguyen
Outsourcing to Thailand

Thailand is the second-largest economy in Southeast Asia and one of the fastest-growing economies globally. 

While low-cost manufacturing activities were commonly outsourced here, the country has recently devoted itself to becoming an IT leader. As a result, it’s witnessing a steady increase in IT and other Business Process Outsourcing (BPO) services.

But is outsourcing to Thailand the right choice for your business

In this article, we’ll discuss the six advantages and three disadvantages of outsourcing to Thailand. We’ll also discuss five commonly outsourced services to Thailand. 

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Let’s get started. 

6 key benefits of outsourcing to Thailand 

Outsourcing refers to hiring an external company, team, or individual to handle specific tasks and save costs. 

Some of the largest companies in the world, such as Samsung and Ford, routinely outsource to Thailand. 

Let’s explore how you can benefit from the same. 

1. Low labor costs

Thailand has one of the lowest labor costs in the Asia Pacific region. 

The average yearly salary for an employee is 1,160,000 THB (Thai Baht) or 35,871 USD, according to the August 2021 exchange rate. 

What does this mean for you? 

An IT Project Manager with over a decade of experience in the US would typically have an average annual salary of $102,362. On the other hand, Thai IT Project Managers with that experience earn about 19,20,000 THB/year ($59,373). 

Since the compensation packages are low, Thailand is an attractive outsourcing destination for cost savings. 

However, lower costs don’t mean lower service quality. Usually, the outsourcing vendors in Thailand provide high-quality services at par with your country’s domestic vendors. 

2. Highly literate workforce 

The Thai government provides its citizens 15 years of free education, from preschool to high school. As a result, Thailand has a high literacy rate of 93.8%

The government also understands the role of English proficiency in a global world. 

That’s why, while English has been a core subject for many years, schools are also encouraged to create bilingual departments. Here, each core subject is taught in English to increase familiarity with the language for everyday conversation. 

3. Strategic location 

Located in Southeast Asia, Thailand is perfectly positioned to act as a gateway to the world’s largest and fastest-growing economic market — Asia. 

Thailand also has a world-class transportation infrastructure that connects it to other ASEAN (Association of Southeast Asian Nations) countries like the Philippines, Indonesia, and Vietnam. 

The country allows easy access to almost 4.6 billion Asian consumers, making it the perfect investment destination for western countries. As a result, many multinational companies have established their Asian or even international headquarters in Thailand. 

Some of these are: 

  • Toyota.
  • Nestle.
  • Huawei Technologies.
  • Dow Chemical.
  • IBM. 
  • Sony.
  • Chevron. 
  • ExxonMobil. 

4. Steady economic growth 

According to the World Bank, Thailand moved from a low-income to an upper-middle-income country in just 40 years. That’s less than a generation!   

Its consistent economic growth also helped reduce the poverty rate from around 60% to 7% in just 30 years. 

An important factor contributing to this economic growth is universal free healthcare in Thailand. As the quality of life improved, so did contributions by the working population, leading to steady economic development. 

This has been possible due to the Thai government’s socio-economic planning. Their Thailand 4.0 plan outlines a 20-year economic strategy for the future. 

It will help transform the country from a low-value-added production-based economy into a value-based economy driven by technology, innovation, and creativity. 

5. Ease of doing business

In the World Bank’s Ease of Doing Business (EoDB) index, Thailand ranks #21 out of the 190 surveyed countries. 

It ranks fifth in East Asia, ahead of China and Vietnam. 

Thailand enjoys this high ranking due to its commitment to:

  • Streamlining company registration processes for new businesses.
  • Providing reliable electricity.
  • Revising rules and regulations to keep up with changing market conditions. 

It is also the second-best East Asian country for resolving insolvency (bankruptcy) issues, right behind Taiwan. And when it comes to protecting minority investors, Thailand ranks higher than offshore outsourcing leaders like Taiwan and Hong Kong. 

These factors make Thailand the preferred destination for expanding foreign businesses. 

6. Incentives for private investments 

Thailand views the future as a fully automation-driven economy.  

As a result, the government has allocated $45 billion to create and develop smart cities. These funds will also help drive innovation in robotics and modern logistic systems. 

Additionally, the government has outlined many tax incentives in its Thailand 4.0 digital transformation plan for private investments, particularly in automation. 

All foreign companies investing in automation will receive the following incentives:  

  • No import duties on machinery or essential materials used for export or R&D (Research and Development). 
  • A 50% reduction in corporate income tax within ten years. 
  • An additional tax allowance on net profit within ten years but limited to 70% of the invested capital.
  • Waived corporate income tax for up to eight years in targeted industries as outlined in the Seven-Year Investment Promotion Strategy.
  • A maximum 13-year corporate income tax exemption for firms investing in the EEC (Eastern Economic Corridor). 

The Thai government has also added a competitive 15-year tax exemption for any foreign investment made in the research and development of new, high-impact technologies. 

There are many good reasons to outsource to Thailand. Yet, nothing is perfect.

3 major challenges of outsourcing to Thailand 

Let’s look at three significant challenges of outsourcing to Thailand and how you can take steps to mitigate their effects. 

1. Language barriers 

According to the English Proficiency Index, Thailand ranks #89 out of 100. 

It scored 419, considered a “very low” proficiency score, narrowly topping Myanmar (#93) in the ASEAN region. 

Such scores could make outsourcing complicated as it may lead to inconsistent communication. 

Even if employees know the language, they might not be fluent enough to carry professional conversations successfully. 

However, you can sidestep this issue by interviewing your chosen company through video conferences and voice calls. These will help you gauge if the employees are sufficiently proficient in English. 

2. Skilled labor shortage

While Thai citizens are highly educated, their education system doesn’t always prepare individuals for the skillsets they need in the professional sphere. 

The result is that graduates are ill-equipped to deal with industry demands. 

According to the World Bank, Thailand may face the worst skilled labor shortage in the ASEAN region if the government doesn’t significantly improve the education system. 

Keeping this in mind, the Thai government launched the AWARE 2 program (Accelerated Work Achievement and Readiness for Employment 2). 

The program aims to help Thai youth gain the necessary technical and vocational skills required for professional advancement. It’ll also better prepare graduates for the world’s growing digital economy. 

To ensure you’re choosing the right outsourcing partner, you should browse through different outsourcing companies in Thailand. Ask for their portfolios and make an educated decision about whether their team’s skillsets align with your needs. 

3. Lack of cybersecurity infrastructure

In 2018, Thailand’s software piracy levels were at a staggering 66%. Such widespread cybercrime caused safety concerns regarding both customer and company data. 

The country is also facing a distinct cybersecurity talent shortage. As a result, companies are exposed to cyberattacks and often have to take matters into their own hands. 

However, the government has prioritized cyber-resilience in its Thailand 4.0 plan — with Thailand’s first data protection law, the Personal Data Protection Act (PDPA), slated to come into effect in May 2022. 

Thailand is also amending its Copyright Act to prevent unauthorized use and access of online creative work. Stronger laws in this field will help the nation access the World Intellectual Property Organization (WIPO) Internet Treaties and strengthen their cybersecurity measures. 

Now that we’ve explored the benefits and challenges of outsourcing to Thailand, let’s see what activities are usually outsourced to the country. 

Top 5 commonly outsourced services to Thailand 

Here are five commonly outsourced services to Thailand and how they can benefit you.

1. IT (Information Technology)

Thailand is committed to becoming a leader in the IT outsourcing industry through constant innovation and a friendly business environment. 

The country has a lower population (66 million) than other Asian countries like India and China.

While it may seem that such low numbers would drive up hiring costs, Thailand’s IT-advanced industry is still in a growth phase. 

These advanced technologies, also outlined in Thailand 4.0, refer to: 

  • AI (Artificial Intelligence). 
  • IoT (Internet of Things). 
  • VR (Virtual Reality). 

As such, you can outsource these IT services now at competitive costs.

Currently, Bangkok is the leading software outsourcing destination in the country. 

It also hosts most of the country’s technological workforce and IT parks. 

Some commonly outsourced IT services are: 

  • Blockchain technology.
  • Business analysis.
  • Digital marketing and social media services. 
  • iOS and Android mobile application development.
  • Management IT consulting.
  • Project management.
  • Software development. 
  • Software quality assurance and testing.
  • Web application development.
  • Web design.

One of the most significant advantages of Thailand over other competing outsourcing countries is its stable electricity and internet infrastructure – mandatory for the IT industry. 

2. HR (Human Resources)

Human Resources (HR) is one of the most important and resource-intensive divisions in any company. 

Outsourcing your human resource tasks to a Thai service provider can help boost productivity, cut costs, and standardize processes.

You can outsource the following tasks to a vetted Thai HR outsourcing service: 

  • Analyzing organizational structure and staffing needs.
  • Background checks during recruitment.
  • Benefits administration (paid time off, pension funds, etc.)
  • Employee induction and engagement programs.
  • HR audit outsourcing.
  • Immigration services.
  • Payroll outsourcing.
  • Performance appraisal management.
  • Policy compliance management.
  • Hiring and talent acquisition. 

You can rest assured your company will always comply with changing labor laws in your country since the HR and staff outsourcing service will keep itself well informed of the same.

3. Payroll management 

Payroll registration and management are highly complex fields. 

Since the rules, policies, requirements, and taxation laws constantly change, outsourcing your payroll processing can be a cost-effective solution. 

Some commonly outsourced payroll services to Thailand are:  

  • Cross-jurisdiction payroll service coordination.
  • Direct electronic salary payment.
  • Year-end and ongoing revenue requirement compliance.
  • Corporate tax returns generation. 
  • Payroll processing and Benefit In Kind (BIK) calculation.
  • Tax, social security, provident fund, and other statutory deductions calculation. 

4. Financial accounting 

If you wish to grow your company, you need to pay close attention to your books. 

By doing this, you can identify weaknesses and correct them in time. 

For instance, a financial analyst can help determine if you have an inconsistent cash flow and locate new revenue streams. 

Outsourcing your bookkeeping allows you to save time and money. 

You can also set up an accounting member firm in Thailand to gain a foothold in the region and further reduce costs. 

Some of the commonly outsourced accounting services to Thailand include:

  • Accounting process design and organization.
  • Accounting record review for past reporting periods.
  • Bookkeeping services (preparation and maintenance of account books and registers).
  • Cash requests and supplier payment management.
  • Financial administration and analysis.
  • Generating financial statements, tax returns, and management reports.
  • Invoice issuing and credit collection.
  • Statements for social insurance, national banks, or the general statistical office.

5. Manufacturing

Due to its natural rubber resources, Thailand is the world’s largest rubber producer and exporter. 

Thailand can manufacture electronics and automotive products at a low cost as rubber is a staple in these industries. As a result, many high-end companies such as HP and Sony often outsource their product manufacturing to Thailand. 

In fact, Thailand is the world’s second-largest exporter of computers and their components, following China. Electronic appliances and machinery, in general, make up about 31% of the nation’s exports. 

Similarly, pickup truck manufacturing bases by Ford, Mitsubishi, Mazda, and more have helped cement Thailand’s position as the top automotive and transportation producer in the ASEAN region. 

Wrapping up 

With a highly educated workforce, low-cost labor, and a commitment towards constant innovation, Thailand is becoming a popular country for local and foreign business. 

Additionally, the Thai government’s proactive approach towards mitigating potential outsourcing risks makes Thailand an attractive outsourcing destination.

Use the information we covered here to help you decide whether outsourcing to Thailand is the right choice for your business.

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