As I ponder the biggest events of 2015, the 30% depreciation of the Australian dollar (Aussie) probably had the biggest impact on the Australian economy. From $1.10 against the US to now hovering at below 70 cents, the fall of the Australian dollar is benefiting our exports enormously but is making our imports like offshore outsourcing more expensive.
A major destination for Australian offshore outsourced services is the Philippines.
In 2014, the value of Australian import of services from the Philippines was $649 million (DFAT). With the 30% depreciation of the Aussie, it has become thirty per cent more expensive to now procure outsourcing services from the Philippines.
In April 2014, one Aussie was buying P41.5. On 15 Nov 2014, it was buying P39.4. On 4 January 2016, it was down to P33.8.
In 2016, the Australian dollar is forecast to further depreciate by another 10%.
WHY BUSINESS OUTSOURCED OVERSEAS
Outsourcing overseas has always been a currency play. When the Australian dollar was strong it was relatively inexpensive to procure services offshore with savings of up to 80% in some cases. For any business, it was a no brainer. It was an easy strategy to profitability. Cut expenses by up to 80% and the savings go straight to the bottom line.
For SMEs, the availability of technology and outsourcing services consolidators like Freelancer and ODesk made overseas outsourcing more accessible.
However, with the 30% depreciation of the Aussie the economics of outsourcing offshore has been eroded. Many are now asking if it is easier to just outsource locally now that the premium is a lot less. Anecdotal evidence suggests that this is already happening. I believe that this trend will accelerate if the Aussie hits .60 cents.
In real terms, the 30% depreciation translates to a mobile responsive template website now costing $953.00 when it used to cost $800.00. If you are buying seats from an outsourced provider which used to cost $700 per seat per month, this will now cost you $838.00 per month.
ARE THE COMMERCIAL BENEFITS OF OUTSOURCING OVERSEAS STILL WORTH IT
In general terms and even with the 30% depreciation of the Aussie, the savings are still there for outsourcing offshore particularly for technical and high level roles. The impact of the lower Aussie will initially be more on lower level roles like virtual assistants, administration and secretarial roles.
The table below illustrates the salary differential for supervisory roles (5 years experience} for professions between Australia and the Philippines. The table also shows the salary levels. It excludes infrastructure and operating costs which have to be included in calculating the final outsourcing cost.
|Job Title||Australia – Average Salary Level||Philippines – Average Salary Level. Exchange Rate: AUD1:P33 (Jan 2016)||Philippines – Average Salary Level. Exchange Rate: AUD1:P41.5 (April 2014)|
|Call Centre & Customer
|Administration & Office
Source: Australia: Seek Annual Pay Review June 2013-2014.
Philippines: JobStreet.com 2013
For big companies with the likes of Telstra and QBE and even though costs have increased, it still makes commercial sense to utilise skilled staff from overseas because of the accrued savings that this strategy brings. It may not be as attractive as before but the return on the bottom line is still there particularly for big companies who are looking at scalability.
The impact of the higher overseas outsourcing cost however will be more pronounced for SMEs.
SMEs do not have the economies of scale that big companies have. Their staff requirements are smaller. A lot of those requirements are also for customer service, administration and office support where the salary differential is less than for other professions. When the Aussie was strong and the cost of labour in Australia was high, it was worthwhile for SMEs to source skilled labour from overseas as the savings exceeded the “hassle” factor.
The “hassle” factor that I am referring to is the time and effort that it takes to find the right staff, train them in the way you want your work done, establish systems, pay them, the communication challenges, and understanding and working within cultural idiosyncrasies and …. train them again.
With the depreciation of the Aussie the salary differential particularly for support staff is now much less. The “hassle” factor has suddenly become more of a “hassle”. I have recently spoken with a couple of SMEs who have decided to now utilise virtual assistants based in Australia instead of overseas because for them the “hassle” factor now outweighs the lower savings.
WHAT’S IN IT FOR YOUR BUSINESS
Outsourcing overseas still makes commercial sense particularly where higher level of skills is required such as in IT, Engineering, Accounting and Legal. However, Call Centre, Customer Service, Administration and Support services are now less commercially attractive particularly when you take the “hassle” factor into consideration.
To minimise the “hassle” factor, one option is to source the outsourced services from a full service outsourcing company where they manage the work for you in Australia and then utilise a team offshore to do the work. At iSAPIENCE, we provide customised turnkey solutions as well as establsh and manage teams for our clients.
The savings may not be as great as you contracting your overseas staff directly but at least you will not have the “hassle” factor to worry about.