Offshore remote staffing has undoubtedly become a strategic solution for businesses seeking to significantly reduce labor costs while maintaining high-quality service delivery.
By leveraging a global talent pool, companies can save up to 70% on labor expenses compared to onshore costs, making this approach increasingly attractive in today’s competitive market. But how is this even possible?
Understanding Offshore Remote Staffing
Offshore staffing involves moving company roles abroad and hiring employees from countries with lower labor costs to perform tasks remotely. This means that instead of just farming out tasks (like with BPOs), you build out, say, your accounting department with people offshore and manage it with senior staff onshore. Generally, this is best done through a provider, which builds the team and takes care of recruitment and employing people legally, and also provides point persons to help onshore managers lead the offshore employees.
This practice is not only about cost savings but also about accessing specialized skills that may be difficult to find locally, and enhancing operational flexibility. However, it is important to note that lower wage rates do not equal lesser work quality—this misconception has long been debunked. In fact, if a business partners with the right vendor that can tap skilled talent with great work ethic, productivity even increases.
As businesses navigate economic challenges, the ability to cut costs without sacrificing quality becomes essential. A 2023 article by KDCI Outsourcing broke down how it is possible to cut down on labor costs by outsourcing to countries like the Philippines, where the cost of living is significantly lower than in developed nations such as the United States and Australia.
In a podcast, Agility founder and CEO Robert Brough shared how this strategy paid off well for his former DME business in the US. “I had a big healthcare company based in Los Angeles. We had six accountants, and they just keep turning over, and it was really hard getting stability. And then the other thing was, I wanted to build a team for a website that went along with our business, selling non-reimbursable items to our patients. And that was also nearly impossible trying to build a team in the US. So, I came to the Philippines, and I built out two teams that were very successful,” he said.
“Then a little later on the business suffered a massive margin squeeze. Our reimbursements dropped by 47% and we had a 17% EBITDA margin. So, you don’t need to be a math whiz to work that out. You’ve got a problem. So I then started transferring jobs from my Patient Services, Patient Care, and Revenue Cycle Management areas to the Philippines. And in the first year, we saved $4 million. On the second year, we saved $6 million. It was a huge deal for the business at the time.”
How offshoring can work for you
This smart strategy works regardless of company size. Small businesses can benefit from this to manage operating costs or even just to make sure the owners are able to focus on core functions. Bigger, more established companies, meanwhile, can aim to scale up or put back funds they save into running the business.
For a fully operating business, this can be seen as a long-term strategy. Instead of building up teams like Finance, Human Resources, Customer Support, setting sights offshore will significantly lower overhead costs associated with maintaining an in-house team, such as office space, utilities, and equipment.
As a tip, Brough notes in the same podcast, “If you are moving jobs (offshore), if you’re chasing margin, I recommend you keep 20% of your staff ultimately in the US. Let’s say you have 100 people; I’d recommend no more than 80 of those people would be moved offshore, say, to the Philippines. But I recommend you start small, start with a pilot.” This can be about 5 or 10 people, and should be focused on the biggest pain point for the company. “Get some experience in running the team, get them settled, and when you are happy with your vendor, you can start adding people to the team.”
“At the same time, make sure that the 20 people that you’re keeping in the US are your employee experts. Your more senior managers, perhaps. And they become the trainers for those people in the Philippines so that you’re managing the institutional knowledge, if you like, rather than throwing everyone offshore, which I don’t think is a good plan. That’s exactly what I did when I engaged in doing this for myself,” Brough points out.
How much will offshore staff really cost?
The cost of hiring talent offshore would largely depend on what you need—and the savings are also bigger for more senior roles.
A recent article on Outsource Accelerator, which provides independent, unbiased information and education on outsourcing, notes that the average all-in employment costs in the Philippines is way lower than in its Western counterparts. For instance, they peg a Software Developer’s annual salary to be just above $7,000 compared to a little over $81,000 in the US. They also pegged an Accountant’s annual salary at nearly $6,000 while the same role is paid at almost $73,000 in the US. That’s just two of the most sought-after roles. And while the comparative rates may be estimates, the difference cannot be denied when comparing hiring costs for the same expertise.
Other factors
Building remote teams offshore through a reliable vendor has other benefits that may not be immediately obvious, but does offer a lot of advantages to a company. Here are a few:
Operational efficiency
Firms that have adopted offshore staffing strategies report improved operational efficiency due to the ability to hire skilled professionals who can work around the clock across different time zones. This reduces additional costs like overtime pay or hiring more onshore staff.
Streamlined recruitment
Offshore staffing vendors can find people based on your business requirements. They have developed a proven recruitment process where they require shortlisted candidates to submit pre-hire documentation like educational qualifications, background clearances, and others. This effectively takes the burden away from onshore companies and reduces onboarding costs.
Legal hiring
Problems may arise if US companies hire people abroad directly. With a reliable vendor, you can be sure the remote staff is hired legally, that taxes are paid, and local labor laws are followed, ensuring less headaches for the hiring company. If companies run into legal issues with direct offshore hiring, imaging the cost it would take to settle that.
Tax incentives
Offshoring delivers savings through various incentives. The Philippine government, for instance, gives tax holidays, exemptions, and reductions to encourage foreign companies to invest in the country. This further lowers the cost of doing business in the country.
Low churn
Companies experiencing high turnover rates have to repeat the hiring process every time it happens. This can be costly. Not only does a reliable offshoring vendor ensure less business disruptions, working with the right offshore staffing partner with low churn rate ensures operational stability.
Offshore remote staffing presents a viable solution for businesses aiming to reduce labor costs while accessing high-quality talent. The potential cost savings enhances operational efficiency and provides flexibility in scaling operations. As companies continue to seek innovative ways to thrive in a competitive landscape, embracing offshore staffing will likely remain a key trend in workforce management. By strategically leveraging offshore talent, in particular from countries like the Philippines, businesses can position themselves for sustained growth and success while optimizing their operational expenditures. The future of work is undoubtedly global, and those who adapt will benefit the most from this evolving landscape.