COST CUTTING IN A GLOOMY ECONOMY

As the world economy reels under a quagmire of unending debt, low commodity prices, weak global trade and limited liquidity, many countries around the world are frantically scrabbling about in a bid to stay afloat. While several have taken to currency devaluation to boost imports and scale up their businesses, others are struggling hard to bring back jobs to their debt-ridden economies.

Companies are toying with diverse strategies to increase consumer spending and also locate new areas and ideas of improving business management. Europe and the West, with their high-labour cost, limited availability of resources and trained personnel have in the recent years witnessed many companies downsizing staff and also, shutting shop. The boom that once was, now sees countless companies disappearing in the blink of an eye.

While cost-cutting is generally perceived to be the best form of austerity measure, businesses are still in the dark of the numerous advantages they are set to gain by outsourcing their processes to external vendors. And by that, we mean in newer regions/countries, which were not commonly thought to be traditional outsourcing destinations.

COST-CUTTING FORMULA

A study done by Bain & Company’s Asia-Pacific Industrial practice in 2005, tells businesses to think “in terms of functions, not factories”. It goes on to add that “companies can reduce unit costs significantly by aggressively shifting sourcing to low-cost countries, moving out low-value-added activities and, in parallel, increasing plant productivity”.

PAYROLL OUTSOURCING

As businesses grow into larger and more diverse institutions, HR processes always prove to be a complex affair. A large employee size across departments or destinations can be a challenge; considering management of payroll, insurance, mobility and compliance.

Today many companies seek to outsource these processes instead of employing manpower and technology to manage them internally. Through this, businesses can ensure a high degree of savings and stay competitive in the market than losing out by taking the entire burden on themselves.

WHY OUTSOURCE PAYROLL?

Some of the common advantages of outsourcing payroll are:

Timely disbursement of pay and expenses
Insurance benefits, claims and medical emergencies
E-system of pay, no manual data collation required
Compliance, tax and contracts taken care of
Security assured

Besides these, payroll outsourcing also offers –

Confidentiality
Since payroll demands confidentiality, having it managed internally would be difficult as in most cases payroll offices are not separated from the rest of the office and IT technicians maintain the system. The whole function is better off being handled by a private entity that has a tighter control on security of electronic data.

Continuity
Evolution is a part of all growing businesses. There are times when a restructuring or a merger can disrupt the timely disbursement of salaries and other benefits. Outsourcing ensures no discontinuity in administrative functions, no matter what the status of the company is.

Compliance
Lack of compliance in internally-handled payroll is one of the most common complaints most outsourcers hear. It is tough to keep track of constantly-changing regulations and tax laws. Having a payroll vendor ensures that regular updates reach the client and the employees via e-mail. Apart from that, the vendor can notify clients of statutory decisions much earlier than waiting for the statutory body to get in touch.

Focus
Outsourcing payroll gives the company’s internal HR team to focus on other aspects than accounting infinitesimal people statistics.

TRENDS IN ASEAN

With companies scouting for new shores to outsource their operations wings, ASEAN has been a preferred choice thanks to spawning urban cities populated with an English-speaking demographic. Its excellent IT presence along with emerging technologies in software have further brightened ASEAN’s chances at receiving outsourcing agreements from global MNCs.

ASEAN also offers several tax brackets to MNCs setting up operations in the region. Hence if a global MNC decides to start a new plant in the region and outsources its HR operations to a vendor, the company is not just benefitting from the tax deduction, but also gets to free itself from the regional statutory compliances that affect payroll by depending on its vendor.

US-based MNCs located in some ASEAN countries, like for example in Malaysia, are still bound by the Sarbanes-Oxley Act. To comply, it requires huge efforts on the MNC’s part to deal with the documentation and processes which normal outsourcing companies are well-equipped to handle.

OUTSOURCING ALWAYS ACHIEVES THE UNEXPECTED

In the extremely competitive business world that it is today, companies take outsourcing seriously as it is fast becoming a necessity than a choice. For those who feel that outsourcing comes with risks or low-quality standards stand to lose out on critical results and industrial foothold. Outsourcing has become an imperative need for businesses not only in the way they transfer operational responsibilities but, with the deepening of ties, are also obliged to build better partnerships with vendors for the journey ahead.

Manish Mehta

Co-Founder of Propay Partners

Manish is a frequent contributor for New Straits Times, SME Magazine, The Edge and others. He has also spoken at seminars organised by the ASEAN Strategic Leadership Institute, Marcus Events and was also interviewed by Business FM radio station.

Passionate, energetic and soft-spoken, Manish is well-loved by colleagues within and outside the company for his highly systematic and process-driven work. Under his leadership, Propay Partners has grown in leaps and bounds and continues to expand in the ASEAN region.