Evaluating and Selecting the Best Outsourcing Service Country in East and Southeast Asia: An AHP Approach

Over the last two decades, outsourcing has been considered a key component for business performance through which firms can narrow their business operations and focus on core competencies. Before doing that, it is vital to evaluate and determine the best outsourcing destination. Unfortunately, only a few studies have been done to help firms make decisions in relation to evaluating a potential outsourcing partner. In addition, most existing studies only emphasized a specific field at the company level, so a complete framework in this field has never been done before. This study therefore attempts to address this research gap by constructing an outsourcing hierarchy model with four levels, namely overall goal, criteria, sub-criteria, and alternative for the use of the AHP approach. In here, criteria would include the most important attributes, which are (1) cost competiveness, (2) human resources, (3) business environment, and (4) government policies. Each criterion itself also consists of several-sub criteria. With respect to these criteria, seven typical outsourcing countries in the East and South East Asia (China, Indonesia, Malaysia, The Philippines, Singapore, Thailand, and Vietnam) were selected to serve as alternatives. As a result, the weight of the higher priority, the more important the criterion or the alternative will be. The results show that cost competiveness is the most important factor in the second level of the hierarchy and it results in the dominance of employee salary, taxes, freight prices, and real estate costs respectively in the third level. Corresponding with this, China is the best outsourcing destination. Additionally, the Philippines, Vietnam, and Thailand are emerging as three attractive countries due to the positive change of government policies as well as the improvements of human resources and national infrastructure. Generally, this study not only enriches the existing literature, but also provides readers and decision-makers a comprehensive view toward the given field.