Outsourcing and offshoring questions

Outsourcing and offshoring questions

Outsourcing eases your burden of doing tasks that should be delegated. As a result, they can help you focus on core competencies and management of your business to make it grow. However, starting to outsource is not that easy as well since you have to plan and consider different aspects, including the budget.

The Philippines is one of the top countries for outsourcing. It offers a low cost of labor and equipment used in their day-to-day operations. At a fraction of the cost in the West, you can have a top team or freelancers that can deliver great output for your company. 

Question about outsourcing

We received an inquiry from a client that asked the following question:

“I’m wondering if you can answer a question about offshoring to the Philippines.

I constantly hear people state that they have offshored full-time employees for about $300 (US) a month, however, my experience using an offshoring company with a $500 per month seat fee combined with wage I am paying $1,500 a month for someone in a role who loads data on to websites. 

I am looking to get someone in a VA/Admin type role and interested in what you think it should cost to employ someone under this type of role (full costs), are there options that allow for a lower cost per month?”

Average salaries in the Philippines

First, let’s take a look at the average salaries in the Philippines. There is a huge range of salaries in the country, depending on the position and competence of the employees. 

Position and promotion

In other countries, you can find employees at $20,000 and $2,000,000 per year. There is a similar but even bigger variation in the Philippines. There are about 20-40 million people in the country that would jump at the chance to earn $10 per day. A college graduate with no working experience, meanwhile, can earn as low as $250 per month. 

However, the top salaries here can also be as high as in the West. As top employees climb the corporate ladder, they start to earn an international rate. So it is very common in workplaces in the Philippines for the junior staff to earn $500, senior manager around $8,000, and then senior execs at least $30,000, all on a monthly basis. 

There is a bigger spread that will reflect on people’s promotion pay scales. When people get promoted, they might get a 20-30% pay raise. It is not uncommon, because there is relatively more distance between the rungs in the ladder.

Outsourcing options

Competence

In other countries, there is a big difference between a $40,000 developer and an $80,000 one. But, at least at $40,000 or even $20,000, you could guarantee a level of competence, and certain expectations. 

With the Philippines, that spectrum is even wider. As mentioned in the section above, the difference between a salary in other countries might be 10%-20% ($40,000 to $44,000 or $48,000). Whereas, in the Philippines, the salary jumps can easily be $300, or $400 per $600 (+25%-100%).

As a side note, with any base salary, you generally need to add about 20%, on top, for their government taxes, healthcare, 13th month, and standard contributions. Generally, most people you find online will be cash-in-hand work, and will not be paying any taxes and will not be ‘legal’. 

Most people don’t mind this but it isn’t a long term, professional, scalable solution.

Outsourcing options

There are different ways you can outsource your work to the Philippines. You can either hire a freelancer or a BPO company. However, there’s a huge difference between the two so you should hire depending on your needs.

Freelancing

There is a massive world of freelancers in the Philippines. They are one of the biggest ‘suppliers’ on freelance platforms like Upwork, Freelancer, Fiverr, and the portal called OnlineJobs.ph. These freelancers can work for you full-time, but most are either project-based or part-time. 

Some of them work out fine. Their price will be somewhere around $300-$600/month.

However, at that rate, there are more disappointing ones than good ones. They might be your full time dedicated client, but they also start to juggle other work, and then even other clients. Some of them turn into ‘agents’, where they then start to manage other people under them to get the work done.

Another thing is that all of these freelancers are ‘home-based‘. This concept sounds okay in principle, but note that a Filipino home is not like a typical home in the West. They would be working in basic conditions, with usually unstable internet connections, limited electricity, and basic equipment.

Business Process Outsourcing

There is a professional version of the above, which is business process outsourcing (BPO). One of its methods for hiring is called ’seat leasing or staff leasing’. These professional firms will manage the recruitment process and will pick from pools of well-educated people with good track records. 

When hired, the staff will come into the city and into an A-grade office space. The BPO will provide this, as well as the latest hardware and good internet. Also, rest assured that your team will have proper employment, full HRIS, health insurance, etc. 

The company will set disciplinary procedures if the staff front performs. They will also provide a professional but friendly county for the staff so that they enjoy coming into work, enjoy and learn from their colleagues. It is just like a standard professional environment you would expect it.

Success of outsourcing

One of their issues in either hiring a freelancer or through a BPO company is the budget. You can potentially find a good person at $300 but it is unlikely. Even if you do find them, the great ones won’t stay long. 

If you are depending on finding ‘unicorns’ at $300 per month, then you aren’t building something that is sustainable or will scale. You might get lucky with one person. But you will more often than not, be disappointed, and can commonly get frustrated. 

That’s why you hear so many stories of people trying outsourcing and saying “it doesn’t work”. Some people take two steps forward, then two steps backward, and after a while give up. 

Hiring an offshore team

Hiring an offshore team

If you are looking for strong employees to drive your company forward, they would typically be living in major cities, have attended prominent universities, and have a stellar CV of working for blue-chip companies in the central business district (CBD). You would expect that these staff would have the routine of getting up every morning, going into the city, and working in an office alongside senior professionals and colleagues. The same applies to the Philippines. 

Having A-grade office facilities not only allows an employee to work more efficiently, but it also brings a whole host of side benefits. It creates a professional environment, an environment of routine and discipline, and healthy competition and self-improvement.

This is especially important if you aim to build a team of more than one person. It is more efficient to have all of your Philippine staff working from one office. There is an enormous benefit in having all your staff turn up to the office at the same time, have morning meetings, have those ‘water cooler moments’, and actively share the essence of your company – the mission, values, etc.

Outsourcing cost

You have to pay a little bit more, in a lot of places, which adds up to significantly more money. But you are opting for professional staff, working in a professional environment. Also, you’re typically getting someone from central Manila, who also commands a premium. However, considering all of this, you will still be saving 50%-70% compared to your at-home all-in costs.

Price structure

The typical cost breakdown in USD per month can be::

  • Base salary: $450-$600 (instead of $300)
  • Government contributions and HRIS: $90-$120 (20%)
  • The legal entity to employ and manage the employee: $150
  • A-grade facilities, hardware, internet, account management, etc: $350-$550
  • Total: $1,040-$1,420*

There’s also an option to get extra guidance from the BPO supplier. BPOs specialize in optimizing processes. They have built out and managed the process you require and are experts in recruiting and managing Filipino teams and getting the best out of them. They can help you with all this, and save you a lot of time, stress and money.

Regardless, you will get significantly better results and can build a strong, sustainable organization.

The best approach to outsourcing

As the saying goes: if the offer is too good to be true, then it probably is. Trying to find the cheapest people working from the cheapest areas in the cheapest conditions and expecting great things for them in return doesn’t work in any place. Not even the Philippines, your home country, or anywhere in the world. 

Their price might depend on the competency that they have or the quality of their service. The freelancer might not have enough expertise and skills required for the tasks. The company, meanwhile, might not have that good feedback you expect from their customers. In return, the quality of their work is sacrificed.

The best approach when doing offshore staffing is actually the opposite. Your company has a relatively enormous ‘buying power’ in the Philippines. So you can afford to seek out the best possible employee for your needs.

You can go to the Philippine equivalent of Harvard university, hire the most successful Ph.D. student, who would otherwise be hired by one of the top local firms. This is an option for you in the Philippines, whereas you could not afford this in your home country – only Google would afford this in your country.

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