Wages across many Asian countries are still low by the standards of developed nations. Therefore, the idea of quality (and expensive) goods in these economies has been poorly understood—few people domestically could afford to buy them. But this is changing.

As wages begin to rise, some of the advantage of outsourcing jobs and processes to these developing markets is beginning to be questioned. In fact, Chinese companies are already moving jobs within the country to access lower wages in new provinces. And some of China’s jobs are being moved to other countries entirely. Clothing production is increasingly moving to Bangladesh and Indonesia, as well as other developing countries outside of Asia.

Jobs can continually move to lower-cost countries, and for some industries and positions this will make sense, but businesses are increasingly finding the need to create new competitive advantages. Working smarter, not just harder and cheaper, is now the way forward.

In almost every Asian market, competition is increasing, fueled by both local and foreign investment. Skills shortages are a constraint on most firms in the region, and are also one of the major drivers of higher costs. How businesses respond and create new competitive advantages, instead of simply looking for cheaper labor, will be one of the biggest challenges for the region.

This post is part of the white paper: Making the Shift: Quality and Service in the New Economy.