How offshoring is the easiest way to scale up your business

By Arnab Bannerjee Mar 05, 2019
How offshoring is the easiest way to scale up your business

How things are

One of the biggest challenges that a small business or startup faces is scaling up. While the financial and operational realities of small businesses are vastly different from large corporations who have a bigger cushion, the rules and regulations for both are at par and hence rather undemocratic. In a market where both are vying for the same customers (and whose numbers are finite), the small business owner is at a distinct disadvantage. This adversely impacts economic growth and the economy as a whole is bound to stagnate. While it has become customary for every policy maker to pay lip service to small businesses by calling them “…..the backbone of the economy”, the reality is vastly different.

Of course, it will be grossly unfair to say that only the policy makers are at fault. The reality is often a few shades greyer than what is perceived. Interests of other related groups must be taken into account and regulations must strive to be fair to everyone, a task much easier said than done. Often what is perceived as fair and balanced ends up making pretty much everyone unhappy. Then again there are socio economic realities which render the concept of right or wrong pretty redundant, realities like the fact that the majority of Americans for instance have moved away from blue collar jobs to white collar ones, thanks to the increase in the number of graduates, the IT revolution and an expectation of higher standards of living. So while topics like offshore staffing has been a rather passionate subject in many political campaigns and terms like “reshoring” have been added to the common parlance, it will be interesting whether Western economies are left with enough hands to work such jobs or not. Economies evolve, as do their constituents. If someone tells me today that Western economies are prepared to take back all the existing jobs which are offshore without significant addition to immigration numbers, I will say, look again; closely! There is a dearth of talent in the developed economies and it is due to these three primary reasons:

  1. The economy is generating jobs at a higher rate than the growth in commensurate labor.
  2. A greying population
  3. A traditionally immigration-based economy suddenly sees a decline in qualified immigrants due to existing political scenarios, unfriendly local reception etc.

If you look around the world, these three issues are omnipresent in almost every single developed economy, maybe not always all three together, but they will make themselves heard in pretty much every scenario. For regions like the US and the EU, all three are pretty much manifested within their societies. Thus, for a small or medium business to function in such economies can be a task. The expectations of the local workforce might be beyond the capacities of such businesses, which then leaves such enterprises in a state of limbo./

How things can be- Why offshore?

Offshoring is primarily perceived as a money-saving option, which is absolutely true. However, being a great deal less expensive has led to a few other benefits as well, which have ended up making offshoring as arguably THE SOLUTION for small and medium enterprises in markets like US and EU, when they look to scale their business up.

More bang for your buck

The biggest hindrance in your plan to scale up will always be money. A developer of any decent pedigree hired locally may blow a hole in your budget that might otherwise be big enough to fit a couple of other employees. Talent is scarce is the first world; there are simply way too many jobs being created everyday by a system which is often too good to have any space left but for the biggest, baddest and most gluttonous wolves. A good way to judge the health of an economy is to see who are queuing up? Is it the corporations or is it the fresh graduates. Where does this then leave you? Certainly not in any shape to compete. The likes of Facebook are prepared to pay upwards of $1, 50,000 to deserving freshers. For most small business owners, they will feel pretty chuffed if the business is able make that much as a whole!

Developing economies like India have the opposite scenario going on. An ever improving education sector is bringing more talent to the fore than the number of jobs being created by a still maturing economy, which transitioned to an open market only about 30 years ago. The result is that more and more highly qualified and skilled Indians look West for jobs, a number which is still extremely finite, leaving thousands eager for employment. Intense competition hence keeps salaries extremely competitive. Suddenly, as a small or medium business owner in the US, EU or Australia, you are in a position to hire two, even three resources for the price of one locally. This goes a long way in levelling the playing field between larger corporations and smaller enterprises with similar products to offer.

The ability to go bullish

Agencies and Vendors located in Malaysia, Philippines etc. that cater to a Western audience regularly quote huge savings as a value proposition. In fact, offshore companies in India often quote as much as 70 percent savings on what one would generally spend on an average resource in the US and other similar economies. What this basically does is, it makes an average small business owner the king of the market in these offshore economies. While with an amount X, one could compete for at best mid-level talent locally; the same X translates to a massive amount in developing economies. The incredible power currencies like USD and Euro have kicked in. With that kind of purchasing power, the very best talent in developing economies is available to you, the “client”. Suddenly, you are not competing with corporations in the US or EU, but with corporations in a country like India, who cater to a domestic audience and budget accordingly. In one fell swoop you become an absolute monster when it comes to hunting talent. You don’t just scale up numerically, you scale up in terms of quality as well.

The economics of speed

One of the biggest laments that I have heard from VE clients is that how long it used to take for them to hire locally. Many businesses are unsure about offshoring, especially if the requirement is fairly small. Hence they are keener to fill the vacancies locally. However, as many of VE’s clients found out, even when they are prepared to foot the significantly larger bill for a local talent, they are left waiting for months and in some cases more than a couple of years before the right candidate turns up. I am sharing a few examples here which show how difficult it has actually become to hire skilled resources in developed economies.

Robert Hess, Founder of Paragon Print Systems in the US, had difficulty finding qualified developers locally” while Nick Ray, Head of Innovation at Priva in the Netherlands, minces no words saying that it would take as much as 6 months for his local HR to find the proper talent, and even then he would be unsure of his/her capabilities. Despite employing over 500 workers locally in the Netherlands, which makes Priva a pretty large company, and having the purchasing power that many don’t, finding talent for them locally is a task, to say the least!

One senses the same frustration while listening to GigaCom MD, Ludwig Vleugels

and a mixed sense of gratitude and incredulity in the words of Optimatic CEO Chris Pfluger at the speed with which he has been able to scale up with virtual employees in India

Offshoring enables you to play the game at the same pace as your locally bigger and more established competitors might do.

The benefit of a few thousand miles

In the very beginning, I had talked about how the playing field is tilted uphill for smaller players and newbies. Strict employment regulations often force businesses to think twice before scaling up. Many businesses are “seasonal” in nature and would prefer to not hire employees full time. Scaling down often becomes a huge problem and the business often gets mired in employee lawsuits while laying off extra employees. Offshoring solves the problem completely. Since virtual employees are based thousands of miles away in countries like India or Philippines, a business’s local regulations don’t apply to them, making scaling up or down an easy decision.

How things will be

Businesses will continue to seek answers offshore if the local labor market keeps failing them. It is but natural. Ultimately, true globalization can only happen if markets stop having boundaries and services and goods can flow seamlessly across borders. There are detractors who will continue insisting that the quality of talent available in countries like India, where the majority of the offshoring takes place, is poor. They will say so conveniently disregarding the fact that Indians make up the largest group outside Americans to head Fortune 500 companies. The simple truth is that organizations globally are striving to be counted in a market dominated by large corporations; and offshoring is their weapon to level the playing field and make it a fair battle. And if there is anything one can be sure of, they are here to play!

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