Is offshoring really cost-effective?

Wage bills are often a major barrier to growth for Australian SMEs, but does employing offshore workers for some tasks really deliver significant cost savings?

After all, when looking at offshore employees, it is not just their wages that come into play. Additional costs need to be factored in, such as recruitment fees, management fees (if you use a local representative or an outsourcing company), office and facilities costs, as well as travel expenses for you to visit these workers periodically, and possibly additional communication costs if email simply won’t cut it.

As Tom Cragg of Philippines-based employee leasing facilitator KMC Solutions explains, offshoring is just like any other investment you make in business or in life – you get what you pay for.

“If you're just looking for the cheapest guys, then typically the work ethic isn't going to be there or they're not going to be as well trained or educated as some of the slightly more senior [people],” he says.

“If you're not careful and you just go purely on the price, then the output is just not going to be there.”Weighing the costs

With this in mind, it is important to look at the seniority of a prospective employee and the skill sets that you require for the job, and, with the additional costs outlined above, compare them on a like-for-like basis with a local employee.

“Particularly with that Australian market, the way that the salary ranges are in Sydney, for example, at the moment, people will see the benefits anyway from a cost perspective,” says Tom.

Another expense associated with people management is that of engagement and fostering employee loyalty.

Tom suggests that small investments in the wellbeing and social engagement of employees in offshore markets like the Philippines go a lot further than they do in Australia.

“For example, the healthcare packages [that are optional extras]: it won't cost you a huge amount as the employer, but goes a huge way for [Philippine] employees and makes sure that they're getting the best possible healthcare and they're back at their desk a bit quicker for you guys,” he says.

“For young grads who are coming out of university [in the Philippines], who have traditionally had to look for employment opportunities overseas or have had to go to the Middle East or have had to go to Australia … this whole growth in the outsourcing industry has provided them opportunities here in Manila where they don't have the emigrate. They can actually stay here, be close to their families.

“To score a job for a foreign company working in Manila, as a young person coming out of college, who wouldn't want that?”

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Hear more insights about offshoring on the latest episode of the My Business Podcast.

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