Written by Allie Delos Santos
Have you been stuck wondering whether to outsource your business processes offshore, even though it is cheaper to handle them in-house? Your hesitation likely stems from not having enough information on the benefits of offshoring.
For many decades, businesses have engaged offshoring providers in the Philippines to innovate different processes and enjoy the advantages of offshoring. Although it started with manufacturing, offshore outsourcing covers information technology (IT) solutions, customer service, and back-office operations.
Read on to discover the top 10 reasons companies outsource to the Philippines.
10 Advantages of Offshoring to the Philippines
Many use the terms “offshoring” and “outsourcing” interchangeably, and that’s incorrect. To engage in the strategy, you must understand its key differences. Although the two strategies are similar, their execution makes them different.
Outsourcing involves hiring a third-party firm to manage a specific business process or provide services at a lower cost. Companies typically outsource specific tasks to BPO partners if they can’t do them in-house.
Offshore outsourcing—or offshoring—involves delegating work to a service provider in a faraway country to leverage cost savings. Outsourcing clients can contract with, for instance, BPO companies in the Philippines.
Here are the advantages of offshoring to the Philippines:
1. Lower Labor Costs
Finding skilled talent at a reasonable cost is more challenging in developed countries because of their high cost of living. Thus, businesses tap workers in the Philippines since the country has a lower cost of living than the U.S. and the UK. The U.S. also has a higher minimum wage of $7.25 per hour compared to the $9.78-$10.47 per day rate in the Philippines.
Let us illustrate this difference in labor costs. An American developer earns an average of $116,112 per year, whereas software developers in the Philippines make $8,499.19 annually. Compensation in the two countries is vastly different.
Moreover, offshore outsourcing minimizes the cost of recruitment. Your BPO partner already has the necessary resources and expertise to find the best candidate for your company.
Offshore outsourcing means getting the same quality service at a lower cost. Companies benefit immensely from this labor cost differential because they can reallocate funds to other parts of the business.
2. Significant Real Estate and Operational Cost Savings
One of the advantages of offshoring is that businesses can save more on operating expenses. As mentioned, companies can cut costs on the workforce, achieving up to 70% savings. Outsourcing to the Philippines is also generally more cost-effective for labor-intensive sectors such as contact centers.
Keeping operations in-house means higher real estate costs. Companies would need to invest a considerable amount in maintaining their offices. The cost of utilities and business taxes is also high.
A third-party team reduces the need for office space and increases savings on real estate expenses. Moreover, you need not pay for social security benefits, taxes, Medicare, or insurance when outsourcing since that is the BPO provider’s responsibility.
Offshore outsourcing offers more growth opportunities. With the money saved, you can invest more in critical business needs, such as enhancing marketing strategies or improving core functions. Besides the financial impact, you can increase productivity by hiring a skilled workforce.
3. Improved Control of Core Operations
Although back-office functions are crucial, they are not your core business. They do generate profit or gain clients. As such, it is better to offload secondary business operations to improve the management of core operations. Since the BPO firm handles your back-office tasks, you can take back time and control more important activities.
With Philippine outsourcing, you only need to provide the BPO vendor with instructions and training materials. Thanks to the country’s long experience, local BPO vendors have no problem performing the work the way you want.
Partnering with a Philippine-based BPO company gives you liberty over core operations. Your core competency remains your top priority while your outsourcing partner executes secondary functions according to your will.
4. Continuous Business Operations
Part of the advantage of offshoring is the capability to work around the clock, regardless of time zone differences. You can operate 24/7 when teams are dispersed across different time zones. Your remote team on the other side of the globe could work as you sleep.
Outsourcing to the Philippines improves productivity, as the offshore team will work shifts not covered by your in-house staff. If the in-house team has incomplete tasks, they can hand them over to the third-party team to ensure a continuous project workflow. The uninterrupted workflow between tasks enables faster delivery and enhanced customer satisfaction.
Here are a few reminders for managing both in-house and third-party teams:
- Establish a proper handover process so both parties can work smoothly and stay operational round-the-clock.
- Promote work-life balance for both teams.
5. Considerable Financial Incentives and Tax Benefits
The Philippines provides financial incentives and tax breaks for foreign investments. Doing so drives more global companies to create opportunities, invest in the workforce, and stimulate business growth.
One industry that receives strong government support is business process outsourcing in the Philippines. As such, the country has a set of business regulations favorable to BPO companies. The Philippine Economic Zone Authority (PEZA) provides fiscal and non-fiscal incentives to outsourcing vendors.
Fiscal incentives include:
- Availing of a 5% Special Corporate Income Tax (SCIT) or Enhanced Deductions (ED) for ten years
- Four to seven years of income tax holidays (ITH)
Non-fiscal incentives include:
- Duty- and tax-free import of capital equipment, spare parts, raw materials, or accessories
- Up to 30% of the domestic sales allowance
- Exemption on value-added tax (VAT) for Importation
- VAT zero-rating on locally purchased products that are directly related to its registered activity
Financial incentives, such as tax breaks, make costs more affordable for BPO providers. Providers can maximize profit thanks to these tax benefits. This enables them to offer their services to clients at a more affordable price.
6. Better Access to Qualified Talent
A big limiting factor in business is finding qualified workers. The ongoing talent shortage in the IT and accounting sectors in the U.S. makes hiring the right employee more challenging.
According to the IMF, the IT talent shortage will increase to more than 85 million by 2030. Meanwhile, a 2022 Deloitte survey found that 82% of hiring managers for accounting and financial positions struggle to retain talent.
The Philippines readily supplies skilled IT technicians and accountants. Both sectors flourish in the country thanks to strong government support and relevant programs. Furthermore, universities in the country produce thousands of employable graduates each year.
One of the advantages of offshoring is access to pre-vetted candidates. For example, partnering with a BPO company such as Unity Communications lets you connect with pre-screened candidates. Thus, you gain access to qualified workers without recruiting them in-house.
7. Sustainable Scale
Expanding your business’ footprint requires your uninterrupted attention and strategic planning. It is challenging work. You must be smart about where you spend your money, especially when recruiting workers.
Suppose your team of developers is in the middle of a sprint, and one quits. With one developer gone, project timelines will be affected, so you must adjust and replace the staff immediately. Your team would divide the leftover work while your recruitment team would look for a replacement who would need training and onboarding afterward.
Hiring and training candidates in-house save you significant money on maintaining the recruitment department. Offshoring with a BPO firm in the Philippines helps solve this problem immediately.
One of the advantages of offshoring is that BPO companies have a database of pre-vetted talent for you, which makes scaling more manageable. When one staff member leaves, you can replace them with a third-party professional with the right skill set. Doing so saves time and money compared to maintaining the recruitment team.
8. High Proficiency in the English Language
Having open lines of communication is essential when working with a remote team. It ensures smoother collaboration and prevents misunderstandings. With that in mind, pick an outsourcing destination with a reputation for its proficiency in English or any other language your customers use.
The Philippines ranked 22nd among 111 countries in the Education First English Proficiency Index. It scored 578, placing it second only to Singapore in Asia. The nation’s ranking shows how skilled most Filipinos are in English.
The majority of vendors in the offshore outsourcing market come from English-speaking countries. They want external teams to be able to communicate with in-house staff and end users with ease. Filipinos’ high language proficiency rate is one reason companies should outsource to the Philippines.
9. More Opportunities in New Locations
Part of the advantage of offshoring is the opportunity to explore the market in your service provider’s country. For instance, if you want to extend your market to the Philippines, your BPO partner and the remote team can help you find and connect to new perspectives and markets.
Culture plays a big part in how you connect with a target market. The offshore team in the Philippines better understands the people in their country. They know more about market trends, regional trends, and business risks.
The offshore team can offer you insights into the buyer persona and assist you in determining profitable markets in the country. Their knowledge and input can help you identify future investments for your next venture.
10. Minimized Training Needs
One reason to consider customer service outsourcing in the Philippines is the country’s long experience in the sector. The country was not named the “Call Center Capital of the World” for no reason. Businesses of different sizes and industries trust Filipino BPO companies to manage their customer service teams and contact centers.
Given their experience, Filipino call center teams already know how to fulfill the tasks you delegate to them and can be deployed immediately. However, you can provide customized training if your business requires it. Once the offshore team completes the training program, the BPO provider will continue to hone and nurture their skills.
The uninterrupted work due to minimized training enhances productivity and efficiency. Moreover, hiring dedicated offshore teams is similar to having in-house departments, only in another location.
The Bottom Line
You can successfully build a profitable business by taking advantage of offshore outsourcing. Hopefully, the advantages of offshoring listed here can help you make the right choice when scaling your business.
Offshore outsourcing offers many benefits that promote business growth. Before deciding, consider the pros and cons of outsourcing to the Philippines. However, know that you can easily overcome the disadvantages by using the right tool and implementing the correct strategies.
At Unity Communications, we provide best-in-class back-office and front-office management services to global clients. We work with you to help you focus on your core competencies.
Ready to scale your business? Let’s connect to develop a custom solution for your needs.