Hiring internationally can be a good way to access more affordable labor, but if you chose the wrong destination, it could have all sorts of hidden pitfalls.
In a more global economy, the rise of outsourcing has become an inevitability. With profit margins tightening businesses have reached out beyond their borders to access cheaper talent in other countries. This can be beneficial in many ways but those companies only focusing on the bottom line of hourly wages could be in line for some unpleasant hidden costs.
The rise of outsourcing
Companies have been outsourcing certain operations such as call centers overseas for many years. As technologies have improved the range of services that can be outsourced has grown.
However, outsourcing carries certain risks including:
• Geopolitical changes: Political volatility in certain low-cost destinations can cause disruption and heightened risk to your business.
• Reputational damage: Customers often view outsourced operations negatively especially if they are in front-of-house customer service operations. Customer backlash persuaded many companies to reverse outsourcing decisions.
• Regulatory risks: Outsourcing to another country will see you working with a foreign and unfamiliar regulatory landscape. A mistake with the rules could leave you vulnerable to punitive fines and penalties.
When choosing an international location for hiring staff, therefore you need to adopt the right strategy and account for multiple considerations.
What is the cost of hiring internationally versus the UK?
The first question is cost. There is no easy answer to this. Each country will have an average cost of labor but that varies from industry to industry. When choosing employees you should try to compare like for like. Check what professionals in your chosen industry are paid in this country compared to the UK.
Generally speaking, countries such as India and the Phillippines have been seen as among the lowest-cost locations in terms of hourly wages. It was in India that companies first sought to outsource call centers in a bid to streamline their customer service functions.
However, looking at the wage only tells half the story. A low-cost country can give with one hand and take with the other. This complex economic landscape has seen some companies seek to move their operations away into higher-cost locations. They do this because while the wages might be higher the overall return on investment is better. When calculating the cost of hiring international employees, therefore, you should take a more 360-degree approach. Here are just a few things to think about.
Reaction of your customers
Customer experience is a crucial metric and one which has come to the fore in recent years. As businesses become more agile at counting their KPIs they are understanding the clear and hidden costs that come with poor customer service.
Clear costs come in the shape of direct lost custom. You don’t have to look too far online to see complaints about offshore call centers or the frustration of struggling to make oneself understood. The majority of customers say they would change their buying habits based on a poor customer experience and would actively choose those companies with a good customer service reputation.
Hidden costs come through missed opportunities. Good customer service generates further revenue opportunities through close engagement, better customer retention, and higher revenue per customer. Communication difficulties make this more difficult and lead to a much lighter touch relationship with the customer that will be more short-term and much less fruitful.
Customers aren’t silly. They understand the economic realities of outsourcing. If they receive poor service via a call center they will take it as a clear indication about just how important – or not so important – you consider their custom to be.
The combination of these costs persuaded many companies to relocate back to the UK including BT, Santander, and Aviva among others. Several companies also made the fact that they had decided to retain their UK customer service operations a key pillar of their marketing strategies.
Security and safety
Moving to another country also comes with a host of socio-economic and legal challenges that might not be in your control. Political instability will make any commercial operations in the country much more risky.
Furthermore, instances of fraud and corruption in some countries marred their reputation as destinations. When moving data between different locations, customers need to feel reassured that their information will be saved and that clear responses are in place in case of a breach.
Any problems can result in all sorts of unexpected and hard-to-control costs across operations.
Regulatory issues
Different countries also have their own set of regulations and employment laws to comply with. As a foreign company, these might be unfamiliar and difficult to understand. With rules changing by the week, you also need your finger on the pulse of shifting regulatory attitudes to make sure you don’t accidentally run into any problems with the authorities.
Noncompliance – even if you can prove it was not intentional – can attract hefty penalties.
Government support
Another factor that often goes overlooked when making decisions is the support from governments. Some authorities are more friendly to foreign outsourcing companies than others.
In places such as South Africa, for example, the government has put the business process outsourcing industry front and center of its economic strategy. As such companies can benefit from a host of lucrative incentive schemes and grants which has a material impact on the cost of hiring international employees. After taking these grants into consideration, the cost of hiring South African employees can be comparable with some of the lowest-cost locations around.
Choice of country
South Africa represents a perfect case study of the importance of multiple factors when considering international employees.
• The cost of labor is low – generally around 40% to 60% that of the UK.
• Government support is generous with lucrative grants for all companies employing local people.
• Standards are high which means a low risk of fraud. South African outsourcing companies adhere to recognized global standards.
• The country has an excellent track record in customer service.
• A good language match means agents can be easily understood making it easier to build lucrative ongoing relationships with customers.
• South Africa has a young, diverse, and highly talented workforce offering expertise across a range of different industries.
Furthermore, support organizations are common which makes the cost of setting up much lower. Rather than the traditional approach of setting up a foreign subsidiary you can engage the services of an Employer of Record (EOR) to handle all the details of your expansion.
An EOR serves as the legal employer in South Africa and will be responsible for managing everything from their PAYE to onboarding, worker classification, and meeting all legal requirements.
It gives you a low-cost and low-risk way to do business while giving you the chance to access a wide selection of highly qualified individuals across all business areas.
At Future Teams, we can provide high-quality EOR services including onboarding, recruitment, staff management software, and ongoing support. To find out more feel free to get in touch or download this handy PDF guide.
