According to The Scotsman, saving money is the main reason the Philippines continues to be the top outsourcing destination. But how much does it cost to outsource to the Philippines? Outsourcing can significantly reduce the cost of material expenditures such as office space, infrastructure, technology, and other equipment, as these become the BPO provider’s responsibility. In addition to that, companies also save on employee costs like salaries, health care, and other benefits. All in all, companies outsourcing to the Philippines can save up to 60% on labour and 40-50% on operating costs, savings that can go towards resources that will contribute to healthy and substantial growth.
In the Philippines, outsourcing is one of the legs of the economy. The Philippines is one of the fastest-growing nations in the outsourcing industry, with a staggering 30% growth within the last decade alone. In fact, business process outsourcing (BPO) accounts for one of the biggest boosts to the Philippines’ economy and currently employs more than 2 million people in several sectors, boasting a net worth of $24 billion. The Philippines is among the top outsourcing countries Western countries outsource to, and with benefits such as low cost of labor, an English-proficient and highly skilled workforce, as well as cutting-edge technology and infrastructure, there really is no doubt that the country has emerged as the world’s largest—and leading—top outsourcing destination.
Pricing model for outsourcing in the Philippines
connectOS emphasizes how much does employee costs equate to a role in Australia or the US – in the Philippines, the standard pricing model is that they are generally 30% of an equivalent role. For every role you have in Australia, you can typically hire three people in the Philippines for the same cost. This is achievable due to the Philippines having one of the lowest costs of living among its regional neighbors. Offshore staffing is highly sought after – an employee working in an outsourcing/offshoring role earns, on average, more than double the minimum wage – AUD$770 – AUD$930 per month. It is also worth noting that there are a few other fees and government related factors that may affect the overall standard pricing model and costs of outsourcing in the Philippines such as 13th-month pay, night differential, social security, and insurance.
Labor costs in the Philippines
A monthly salary of USD 300 can provide a person with a good standard of living. According to the Philippine Statistics Authority, a family of 5 needs a minimum of USD 177 per month to cover their food and non-food needs. In another 2015 survey, the agency revealed that a Filipino family spends an average of 4,150 per year or USD 345 every month, as revealed by Outsource Accelerator.
According to Manila Bulletin, the affordable hourly rates for Philippine call centers, where hourly rates are another consideration that can guide a company’s hand in choosing a BPO provider. On average, contact centers in the Philippines charge US$8–$16 per hour for their services. When compared to hourly rates charged by centers in the US (US$24–$32/hour), Latin America (US$14–$20/hour), Western Europe (US$25–$35/hour), Eastern Europe (US$18–$26/hour), or Australia (US$28–$40/hour), outsourcing to the Philippines is by far the most cost-effective option.
Factors that affect the cost of outsourcing
Work type
Outsource Accelerator explains how in the Philippines (and in other countries as well), basic wages usually range differently for different types of jobs. For Non-Agricultural members or workers who live or work in the National Capital Region (ie Makati), the basic wage as of October 2017 is $10 per day. For NCR workers who are working in Agriculture, Retail/Service Establishments who has 15 or fewer workers, and manufacturing establishments employing less than 10 workers, the basic minimum wage is $9 per day. According to PayScale, Customer Support Representatives or CSRs get about $3,000-7,000 per annum. Operations Managers that are working in the BPO Industry ranges from $7,000-27,000 per annum. For Data Analysts, the range is about $2,000-8,500 per annum.
Level of skill required
JobStreet defines junior executive level positions as those that require less than 5 years of work experience. According to Payscale, an entry-level tech support specialist based in the Philippines can earn USD 4,487 per year. Entry-level technical support representatives can earn an average of USD 4,142 annually. Customer support representatives who are just starting out in their careers take home USD 4,098 per year. Information technology specialists earn USD 4,534 on the average.
Supervisor level positions refer to jobs that require 5 to 10 years of experience. According to JobStreet, experience in the same line of work has generally increased in the past year. Still leading the list of highest paid workers are IT specialists at USD 1,305 monthly. Law and legal services is in 3rd place with an average of USD 912 monthly, and banking and finance services is in 5th with USD 738.
Managerial positions require more than 10 years of experience, and those in corporate strategy are the highest paid in this category, with an average monthly earning of USD 2,392, followed by those in IT-related professions at USD 1,730. Customer support-related managerial positions occupy the 5th place in the highest paid in this category, earning USD 1,535 per month.
Project size
Once you determine your project parameters, you can also then determine how much help you need from outsourcing companies. In IT outsourcing, if you’re building complex software from the start of the software development lifecycle, you can enhance the development process with outside experts. You can also outsource a major part of your project, such as developing functionality or upgrading a legacy solution. In essence, these costs will depend on your project size, but they will also depend on the price of the project management software you choose to use, which also has to be included in the budget.
Project duration
Establishing procedures for work transition, documentation, and coding is essential for gauging a project’s duration when outsourcing services. A fixed price agreement is suitable for short-term projects with clear requirements that are unlikely to change. According to Onix, landing pages and simple WordPress sites are good examples where the project’s scope and deadlines are set in a contract. If it takes longer to complete, the extra work the developers have to do is free for the customer. However, it should be noted that outsourcing companies add 20-30% to the project’s estimated cost to cover that risk – changing the requirements after signing the contract will cost more than what you originally planned due to additional charges for that work.
Additional costs consideration with outsourcing
Training costs
According to the Association for Talent Development, organizations spend an average of $1,252 per employee on training and development initiatives. eduMe elaborates that smaller businesses underinvesting in training is a discernible worldwide trend. In Europe, companies with 10-19 employees spent only 1.5% of labour costs on training, in contrast to the average of 2.3%. Just one-third of small firms in Australia provide structured employee training versus 70% at medium businesses and 98% at large enterprises. When outsourcing, existing roles and responsibilities will need to be handed off or reprioritized for transitioning. The costs of transition are rarely considered in project costs but in reality, if they are not accounted for, the resulting issues can be costly.
Communication costs
The costs of project initiation have an inverse relationship with project risk, as explained by Rod Aburto. The less you spend on project initiation, bringing the teams together, assessing process and methodology, assuring communication, respect, and team collaboration is strong, and that there is a shared understanding of project goals, the greater the risk that the project will fail. But even knowing this simple fact, some vendors and buyers will decide to cut the project initiation phase in favor of “getting to productive coding” quickly. The downside of this choice is a longer time to reach full productivity, more risk of rework to meet expectations, and increased costs for project oversight and team management.
Management costs
For Rod Aburto, if the outsourced team and vendor cannot navigate a company’s cultural norms and organizational environment then it is likely to make project management very difficult. Bringing a team from a hierarchical culture into an organization with a flat structure can be very disorienting to team members with different expectations for interaction and responsibility. Merging a small team into an enterprise system with many silos and layers of control can be very difficult. The new team in either case will require additional time to reach full productivity and oversight to ensure they can fully participate as expected – and it has a real, corresponding cost included in your operating expenses.
How much can you save by outsourcing to the Philippines?
Outsourcing to the Philippines should cost you between $500-$1500/month depending on the type of staff you hire, saving you about 70-80% savings in salary costs – which can greatly improve your experience in outsourcing in general. In addition to being more affordable than full-time employees, the Philippines boasts a highly-skilled workforce with a huge pool of professionals who are university-educated – hundreds of thousands of university graduates enter the workforce each year with western-influenced training, excellent communication skills, and the unique resourcefulness only Filipinos can deliver. Colliers also adds that the Philippines is considered a top-tier destination for the BPO industry; it is a market leader in terms of voice-related services, and it is rapidly expanding its capacity to provide non-voice Business Process Management (BPM) and IT services for the expanding list of global clientele.
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