Outsourcing is perhaps not a new term, but many companies has yet to leverage on it. Companies in the U.S, U.K, Australia, and Canada cannot avoid the fact that employee expense makes the bulk of their costs. Oftentimes it ranges from 30%-50% of the total revenue for a specified accounting period with service-based industry such as tech companies and consulting services averaging mostly at the higher end of the spectrum. Hence, a lot of companies in the countries that formed the trilateral defense alliance, AUKUS, plus Canada are preferring to hire employee from countries that has lower labor cost but of comparable quality. Usually these companies outsource their needs for affordable work force from regions like Eastern Europe, Latin America, and Southeast Asia where the economy and education is vastly improving but still has a gap in terms of standard of living with the West. By using BPO (business process outsourcing) at these other more budget friendly regions, companies in the first-world western countries can save up to 50% of their operational cost. There are several reasons as to why that big of a savings are probable.
Outsourcing save cost by taking advantage of lower wage abroad
The difference between minimum wage in countries with high labor costs such as the U.S, U.K, Canada, and Australia and developing regions like Southeast Asia and Latin America are huge. For example, the cost of U.S. based startups hiring customer service agents in the U.S is about $20–$25 per hour, but the same position might only cost $8–$12 per hour in the Philippines or India. Countries like Philippines and India has a huge population of fluent-english speakers due to their background and history. In the Philippines, for example, about 50% of their population which are equivalent to about 55 million people, can speak English fluently. Likewise in India, close to 130 million people can speak English. Many startups in Western Countries have capitalizes on this opportunity. Hiring talents with high degree of skills is very expensive, however, startups can hire employee for less expensive regions with similar skills and good english but at a fraction of its costs. For example, the average salary of US fresh graduate software engineer is $147,000. But, in India it is only $9,000. What a staggering difference!
Outsourcing save cost by setting aside long-term commitment
Doesn’t maintain a workforce means startups can be more flexible with keeping or letting go of employee. Outsourcing employee also means startups are not obliged to fulfill complicated and cash draining regulations that startups who hires one’s own employee should abide to. Regulations such as insurance, pension, social security and whatnot could be put to the side. When startups need to train their Artificial Intelligence Algorithm for example, they do not know how long it would take the algorithm to be sufficiently trained. Hence, startups can use outsourced workforce as they do not require long-term commitment. Whenever the algorithm have had enough data and are ‘smart’ enough, they can choose to not extend their contract with their outsourcing partner. Sometimes, companies are at a dilemma, on one hand they want to cut off employees, but on the other hand can’t do so because they are cash-strapped and can’t pay the huge sum of severance pay requirement for laying off employees.
Outsourcing save cost by using infrastructure abroad
Office space in the U.S, Canada, U.K and Australia is very expensive compared to other countries in the world. For example, the average office space per square foot in the US is $35, while it is only about $1.76 in Manila, the Philippines. Outsourcing partner in other countries usually already have the infrastructure to handle tasks efficiently. Hence startups in the West can save money by leasing smaller office space.
Conclusion
Outsourcing activities in countries such as the United States, United Kingdom, Australia, and Canada has the potential to enable startups to realize substantial reductions in operational expenditures. By delegating labor-intensive functions to countries characterized by lower living costs and wages, startups can leverage specialized expertise and lower overhead expenses. Through the meticulous selection of outsourcing partners and the establishment of clear communication channels, startups can attain cost reductions of 50% or greater while preserving quality standards.
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