Local BPOs urged to tap Australian SMEs

MANILA, Philippines – Micro-offshoring services to small and medium enterprises (SMEs) in Australia could be a niche market for local business process outsourcing (BPO) firms, a new study by the Philippine Institute of Development Studies (PIDS) said.

The state think tank said the job outsourcing model may also encourage Australian SMEs to shift to more long-term offshoring models over time such as incorporation in the Philippines.

Micro outsourcing follows the same business model as traditional outsourcing but are tailored fit to the needs of SMES in a way that it is more cost-effective and not constrained by regulations imposed on traditional outsourcing.

“Captive governance approaches to offshoring such as employing host country workers directly via a host-country-based subsidiary may also not be suitable for SMEs. First, incorporation in another country requires substantial time, investment and risk, including sunk costs that the SME will not be able to retrieve if the investment does not work out as planned,” PIDS said.

Australian SMES, it said, also suffer from resource constraints and may not have the ability to cover associated subsidiary costs such as sourcing and vetting overseas-based workers and renting office space in the host country.

PIDS encourages further studies in this niche market as an increasing number of smaller Philippine-based BPO centers have been using so-called micro-offshoring models, also termed as “staff leasing arrangements,” “co-managed services” or “co-managed operations.”

Such services include the sourcing, vetting and employing of Filipino professional workers on behalf of their Australia-based clients. These workers are then  provided desk spaces in a shared office environment.

These BPOs then charge clients a monthly fee to cover these services.

“This approach produces an offshoring governance mode that lies somewhere between the outsourced versus captive governance models outlined above. Importantly, the Filipino-based BPO worker is technically ‘employed’ by the BPO center, which covers local legal requirements, as Filipino workers must be employed by Filipino registered firms.  However, on a day-to-day basis the Australian client ‘manages’ their Filipino-based staff similar to a traditional employer/employee relationship, except that the employment relationship becomes technologically-, rather than geographically-mediated,” said the paper.

PIDS  said the micro-offshoring model for Australia-based SMES is a “relatively cheap way” for upstart BPO firms to penetrate the industry.

It also allows small BPO centers to develop offshoring expertise and knowledge before shifting to a traditional offshoring model.

For Australian clients, the set-up is beneficial because they can outsource operations with a small number of workers in the Philippines. Having the ability to directly manage overseas staff also helps SMES to maintain control of operations.

Clients would also benefit from the close time zone and relative geographical proximity between Australia and the Philippines. The Philippine time zone is the same as Perth, Western Australia, while there is only two hours difference to Australian Eastern Standard time.

Australian shifts are also popular with Metro Manila-based workers, as the time difference allows them to arrive and leave work two hours before the main peak traffic times.

PIDS said SMEs employ 70 percent of the Australian workforce. Small businesses have the highest turnover rates, affecting productivity.