Outsourcing to low cost countries grew in popularity as more companies from developed countries wished to scale their businesses cost-efficiently.
This smart strategy allows them to hire third-party agencies to meet their business needs like customer support, production, etc.
So how will outsourcing to low-cost countries benefit you?
Despite some communication issues and hidden costs, outsourcing can benefit your business by lowering raw material, transportation, and labor costs – resulting in affordable low cost country sourcing.
In this article, we’ll discuss the pros and cons of outsourcing to low-cost countries in detail. We’ll also explore the top five destinations to outsource your business.
Table of Contents
- 5 Advantages of Outsourcing to Low Cost Countries
- 4 Disadvantages of Outsourcing to Low-cost Countries
- Top 5 Low-Cost Outsourcing Countries
5 Advantages of Outsourcing to Low Cost Countries
Here are five advantages of outsourcing to low-cost countries:
1. Low Cost Production
This is possible due to two main reasons:
- Lower salary expectations in low-cost countries.
- The difference in currency rates between the low-cost and home country.
The production processes in developed countries like the United States, United Kingdom, etc., are also costly due to expensive infrastructure, machinery, high wages, etc.
For instance, the cost of basic software development in the United States may average around USD 86,800/year. In comparison, a software developer in low-cost countries like Malaysia may only charge 79,300 RM/year (USD 18,872).
Moreover, the low-cost countries have special regulations and provisions like economic incentives, tax cuts, etc., to encourage multinational corporations to outsource mass-scale production into their countries.
So outsourcing to a low-cost country will allow companies to improve their bottom line cost-effectively.
2. Skilled Labor
Companies from developed countries hire employees from low-cost countries for processes like software development, manufacturing, customer support, etc. This is due to the affordable, skilled labor these countries provide.
The governments and private offshore outsourcing companies of low-cost countries ensure that their employees are skilled and specialized in handling outsourced projects.
Many low-cost countries’ governments also promote technical education and language proficiency to encourage offshoring. As a result, nearly all these countries boast high literacy rates and English proficiency.
Moreover, the outsourcing firms stay updated as they work with multiple clients. They’ll also know more about technological advancements and cost-effective methods to work smartly.
So by outsourcing jobs to a low cost country, you can access skilled labor at a low cost, save yourself the trouble of building an efficient team from scratch, and enjoy a competitive advantage over your competitors.
3. Cheap Raw Materials
Outsourcing allows companies from developed countries to manufacture right next to the source of raw materials in the developing countries.
Both countries benefit from this strategy. Here’s how:
- Developed countries no longer have to tackle transportation costs or export procedures that make their production process more expensive.
- At the same time, low-cost countries generate employment opportunities and boost their economic growth.
So if your company is based in a developed country, you can adopt LCCS to benefit from cheap raw materials and cost-saving manufacturing processes.
4. Round-the-Clock Availability
Outsourcing jobs like customer service, call centers, etc., allow your company to offer 24/7 service to your clients.
For example, India and the US have a time gap of nearly nine and a half hours. So if an American company outsources its call centers to India, the different time zones will allow the Indian call centers to cater to foreign clients far from the US. It’ll also help the company handle calls at odd hours in America.
With round-the-clock availability, a company can also finish some of its business processes earlier than in its home country. This allows the company to have a competitive edge over its rivals and enjoy an uninterrupted workflow stream.
5. Scope of Scalability
When you outsource to foreign countries, you immediately get access to new and emerging markets.
For instance, American companies offshoring their marketing departments to Latin American countries can save costs and use the opportunity to reach out to a new market audience. These companies can then tap into nearby global markets as well.
Many companies start by sourcing one department. Once the companies find consumers in the new market, they outsource more departments like manufacturing or R&D to the same country to cut transportations costs, labor costs, etc. Or they try to explore more global markets by outsourcing to new destinations.
However, you should be aware of certain downsides of offshore outsourcing to a low cost developing country. So let’s check them out.
4 Disadvantages of Outsourcing to Low-cost Countries
Here are a few things you should consider before outsourcing your business to a low-cost country:
1. Language Barrier
English may not be the first language of employees from low-cost countries like Thailand, Vietnam, Mexico, etc., leading to miscommunication disrupting the smooth running of your business.
Although the employees may be well-versed in English, slight accent differences can also cause problems in communication with native-English speaking clients.
You may even find it difficult to give constructive feedback or accurately convey company goals, affecting the quality of your business’s customer service.
Have open conversations with your outsourcing team about these issues to find solutions or reach a middle ground. For example, if you’re outsourcing customer service, ensure that your team has undergone training like accent neutralization to communicate better with your clients.
2. Inability to Monitor Employees
The physical distance and time differences may make it difficult for you to monitor your team’s performance. You may not have the same control over your outsourced team as your in-house team. As a result, it may:
- Be difficult to ensure if they follow similar quality standards as the parent company.
- Encourage employees to slack off their work, resulting in inefficiency.
So to deliver consistent quality work, you’ll have to look for measures to keep a check on your outsourcing teams in low-cost countries.
Luckily, today, there are many productivity management tools like Time Doctor to help monitor the outsourcing team’s performance and ensure quality service delivery.
Such tools can help you track your outsourcing team’s working hours, generate insightful reports, and provide real-time updates on your team’s productivity.
3. Security Concerns
You may not be able to monitor or protect your warehouses in another country properly. There’s also the threat of disclosing sensitive information like client data, company prototypes, etc.
So how do you ensure your business’s security?
Here are a few things you can do to ensure your business’s security and privacy:
- Choose a credible company to outsource your business.
- Sign non-disclosure agreements (NDA) to protect your IP (intellectual property) rights, ensure privacy, and secure your data.
- Use surveillance technology like CCTV cams in your warehouses and storage facilities to give you live feedback in your home country.
4. Hidden Costs
Consider the hidden costs of outsourcing business activities like:
- Local taxation.
- Transportation costs.
- Costs due to miscommunication.
- Security maintenance costs.
- Export and import costs.
- Infrastructural costs.
- And so much more.
The outsourcing company must take into account these costs before offshoring to low-cost countries. Ideally, the chosen outsourcing destination should have the least hidden costs.
Now that you know the pros and cons of outsourcing to low-cost countries, let’s look at a few popular low-cost outsourcing destinations.
Top 5 Low-Cost Outsourcing Countries
Here are the top five low-cost countries you can outsource your business to:
Mexico is one of the most popular outsourcing hubs in North America.
- A literacy rate of 95.2%, with around 120,000 engineering graduates joining the workforce every year.
- The country offers all sorts of services, from specialized IT hubs to non-core services like human resources, call centers, etc.
- You can increase your profit margin via lower costs, tariffs, restrictions, etc., as Mexico holds around 13 free trade agreements (FTA).
Mexico will be the best choice for you if your target audience is the American consumer.
Many large organizations like Apple and IBM prefer Malaysia. Some of the popular industries that Malaysia supports include:
- Knowledge and business process outsourcing such as HR services, content creation, etc.
- Information technology outsourcing such as software development, technical support, etc.
- Energy and logistics such as repair and maintenance, risk assessment, etc.
Malaysia’s labor cost is low as its annual average salary is only 79,000 MYR/year (USD 18,749). When compared to the average yearly salaries of developed countries like the US (USD 94,700) and the United Kingdom (USD 93,293.65), it’s very low.
Employees are well-versed in English, too, as the government has been keenly promoting the language. As a result, it’s the third-largest English-speaking country among Asian countries.
As a result, Malaysia ranked 12th out of 190 countries on the World Bank’s Ease of Doing Business Index in 2019.
Surrounded by Europe, Asia, and the Middle East, Turkey has become one of the most sought-after low-cost outsourcing destinations.
The country can act as a bridge between European and West Asian markets for your business. It’s also close to large economies like Russia and Germany.
Turkish people are also well-versed in languages like Dutch, German, Arabic, etc., allowing you to outsource services like customer support and explore nearby countries’ markets.
Additionally, Turkey has a nearly 97% literacy rate. Out of these, 17% of the graduates specialize in STEM (Science, Technology, Engineering, and Math).
These efforts made Turkey the third-highest ranking innovation economy among North African and West Asian countries in the Global Innovation Index, 2021. It ranks high in attributes like regional diversification, research talent in business, labor productivity growth, and many more.
As a result, Turkey is well-equipped to handle your business’s non-core operations, R&D, and technical support at a much lower cost.
4. The Philippines
The Philippines is one of the fastest-growing low-cost outsourcing economies in South Asia.
As a former colony of Spain and the United States, the country has embraced western culture as well as the language, making it the third-largest English-speaking country.
The Philippines also offers a world-class telecommunication system equipped with submarine cable networks and satellite systems. Here are some other incentives offered by the government :
- Tax cuts.
- Industry development funding.
- Special economic zones for outsourcing companies.
All of this allows you to do your business cost-efficiently.
Vietnam’s tech workers may be cheaper to hire than India or China.
Vietnam successfully combated epidemics and pandemics like H1N1, SARS, COVID 19, as well as occasional typhoons with the help of excellent mitigation measures. This displays immense resilience and dedication to business continuity.
According to MarketInsider, it’s the fifth-best country to outsource your business to. Several US companies have claimed that they could save up to 90% of the total cost while outsourcing to Vietnam, especially in software development.
Some of the services you can outsource to Vietnam are Information and Communication Technology (ICT), finance, supply chain management, human resources, and shared services.
Low-cost countries offer lower labor costs, cheap technological infrastructure, multilingualism, and a conducive business environment.
These elements make them the best outsourcing destinations for your business. When done right, outsourcing to low-cost countries will help you grow your business sustainably without burning your budget.
So go through the advantages and disadvantages of outsourcing to low-cost countries before you decide to take your business worldwide!
Andy is a technology & marketing leader who has delivered award-winning and world-first experiences.