Adopting AHP Approach on Evaluation and Selection of Outsourcing Destination in East and Southeast Asia

Abstract

Outsourcing is regarded as one of the most popular strategies whereby firms can focus on core competencies when outsourcing to the rest of their overseas partners. Before companies step beyond their country boundaries, it is vital to evaluate and select the best destination for an outsourcing service. Unfortunately, only a few studies have been done to help firms make decisions in relation to evaluating a potential outsourcing partner. The purpose of this paper is to solve this problem by constructing a hierarchy model via the Analytic Hierarchy Process (AHP) approach. In the study, seven typical outsourcing countries in the East and South East Asia (China, Indonesia, Malaysia, The Philippines, Singapore, Thailand, and Vietnam) were chosen as possible alternatives for outsourcing companies based on four main evaluating criteria. These are: (1) cost competiveness; (2) human resources; (3) business and economic environments; (4) government policies and legal framework. Each criterion includes key sub-criteria as shown in the hierarchy model. The results showed 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 price, and real estate costs respectively in the third level. For these reasons, China and Indonesia are the best outsourcing destinations. Besides, Vietnam and Thailand are emerging to be attractive countries due to their low labor costs and new government policies. Finally, the research meets the need of rational selection of the outsourcing countries and provides a great practical significance to practitioners.