Introduction
The pandemic truly has changed the way companies have approached their operations and workforce management. While various industries have long ago outsourced talents and services, our collective experience from the past two years truly highlighted the importance of remote work as a way to manage the health crisis.
In fact, experts claim that the pandemic sped up the digital adaptation of global companies. With tech innovations allowing collaborative remote tasks to be just within everyone’s reach, many more companies have come to realize how beneficial outsourcing is, especially for certain tasks and business demands.
As such, different regions in the world have come to be known as top outsourcing destinations. Favorable conditions have made them sought-after as the practice of business processing and outsourcing continues to grow leaps and bounds. Having said that, no country is perfect and each destination likewise faces some hindrances that investors need to take into consideration.
India
Pros
You wouldn’t have to worry about conversing in English with an outsourced Indian staff as they have been taught the language from a young age. In fact, India has the largest English-speaking population in the world. This makes the South Asian nation a top choice for those looking to set up outsourced customer support operations. This is also made possible by the country’s strong technology infrastructure, allowing the industry to thrive.
Cons
The time difference between India and the US may pose a hindrance. India-based outsourcing firms are also notorious for having high attrition rates, which can prove costly as the need to hire and train new people is always on the horizon.
Philippines
Pros
Like the Indians, Filipinos are well known for their high English proficiency. In fact, the country ranked 18th among 100 countries in the European Fellowship’s (EF) English Proficiency Index for 2021. The low cost of living in the country also proves to be attractive for companies who want to save on their expenses. Likewise, favorable laws benefiting outsourcing companies make the Philippines a favorite for many foreign investors.
Cons
While existing laws in the Philippines have made it easier for international companies to set up shop in the country, its Labor Code also contains provisions that would prove to be costly for outsourcing companies. The Philippines, for example, has 16 official public holidays in 2022, which is more than the US’ 11 federal holidays. While outsourcing companies can definitely follow the American calendar to make their operations more efficient, Philippine labor laws require both local and foreign companies to pay their employees premium rates if they come to work during the country’s national holidays. The Philippines is also a disaster-prone country, subject to an average of 20+ typhoons each year, often resulting in emergency work closures, significant flooding, and power outages.
China
Pros
China’s place as a global manufacturing hub means buying products is easier in the country than in other markets. Businesses wouldn’t have to import much as what they need can be sourced locally, and at much lower expenses too. Another bonus is that the country ranks high globally in innovation. This means businesses who choose China will have easy access to the latest and most innovative technologies, putting them ahead of competitors who are based outside the country.
Cons
A big roadblock to China’s rise in the ranks as a top outsourcing destination is their natives’ limited proficiency in the English language. Likewise, its large size means not all areas would be suitable for setting up an outsourcing company. Port cities would be much more preferable, especially if you’re involved in exporting goods.
Vietnam
Pros
Corporations looking for a young, well-educated workforce should set their sights on Vietnam. Seeing the demand for software development outsourcing, the government invested in STEM education. With a sizable portion of the working population (40-45%) all under the age of 35, this translates to a healthy supply of highly skilled tech talents, ready to take on the demands of the outsourcing industry. The country’s low cost of living also proves to be an enticing factor for foreign investors.
Cons
However, the same young workforce faces a stumbling block in terms of language skills as the country scored low (66 of 120) on the EPI English Proficiency Index in 2021.
Poland
Pros
Poland is a top European outsourcing destination for its relatively affordable labor and operations costs. In fact, when compared to the rest of the EU, the average rate for Poland is only €11/hour ($14.44) in Poland to the Union’s €28.50/hour ($33.88) rate. In terms of attitude, Poles are known for having a strong work ethic, coupled with a no-nonsense outlook, all while delivering top-notch outputs for their clients.
Cons
The complicated payroll and taxation laws of the country are certainly a deterrent to foreign investors. Likewise, European Union Laws on personal data transfer place restrictions when transferring outside the Union. While this won’t be a problem for other EU-based companies engaged in outsourcing (or “nearshoring” which is the practice of offshoring to a nearby country) with Poland, non-EU nations may face difficulty in complying with the rules.
Brazil
Pros
Brazil’s growing digital infrastructure has slowly turned the country known for its stunning beaches into an emerging tech powerhouse in the Latin American region. It now boasts of having 90 technology parks that feature cutting-edge digital infrastructure and house several international tech firms and offshoring development companies. The country’s business-friendly policies have led to this, with both local and foreign IT services companies getting tax incentives and financial aid at the federal and state levels.
Cons
While Brazil is most certainly the more affordable option than European countries and its neighboring South American nations, going for an Asian outsourcing destination such as India would still be the less costly option. There’s also a significant language barrier amongst the country’s workforce when it comes to English proficiency (ranked as having “low proficiency” by the EPI English Proficiency Index in 2021).
Mexico
Pros
US firms would have no problem when it comes to managing their nearshoring operations to Mexico as the two countries share the same time zones — the Pacific, Mountain, and Central time zones, to be specific. Certainly, this is an enormous advantage that Mexico has over other outsourcing destinations, adding to the fact that its proximity to the US means the country can host outsourced manufacturing facilities with relative ease.
Cons
Corruption prevails in Mexican society as crime syndicates known as cartels have an overwhelming influence over the authorities. While these criminal elements tend to avoid foreign companies, overseas investors must be wary of their potential threats. Likewise, delays with securing business permits are also common in the country.
Argentina
Pros
Like its neighboring country Brazil, Argentina is another power player when it comes to digital infrastructure in the region. Tech hubs continue to prosper in the nation, with several international companies having a stake in their growth. As such, it has established companies that focus on software and mobile development, cloud computing, and engineering, staffed with a highly educated workforce that matches up to global standards.
Cons
While it is comparatively much more affordable to hire here than in the US or UK, choosing other destinations can still save investors a lot more. Likewise, political and economic instability in the country proves to be a deterrent for foreign investors. Risks include high inflation rates and complex tax and credit systems.
Chile
Pros
Having a large talent pool is always a plus in investors’ eyes and Chile has certainly got that covered. Their government has invested in improving its educational system, with local universities being named centers of excellence in several fields. This results in a fresh new crop of highly educated and well-trained graduates, ready to take on the challenges of a global job market. For companies based on the East Coast of the United States, Chile would also be an attractive option as an outsourcing destination as both share the same time zone. Other firms in other areas meanwhile don’t have to adjust much as the difference would just be an hour or two.
Cons
Complex labor and tax policies may prove to be difficult for a new foreign investor to understand and will require the help of a local lawyer for guidance. Missing out on a key detail may mean problems in your company’s operations. Likewise, limitations set by the law regarding background checks of employees may prevent employers from thoroughly vetting their candidates.
Conclusion
As with any other business destination, weighing the pros and cons should be imperative to avoid risks and minimize problems from the outset. Choosing the right outsourcing destination should make sense of the company’s capabilities, products, services, infrastructure, and needs.
The continuous growth of the industry shows that more and more countries are becoming outsourcing hubs, offering their own distinct advantages and disadvantages to investors. Studying each carefully will help any company make the best decision, ensuring a healthy and well-managed outsourcing experience.
Connext Global Solutions is a service provider based in the Philippines that helps companies build custom, dedicated support teams in the Philippines. Learn more about Connext Global Solutions.
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