ON BUSINESS || Why Are More Companies Choosing to Offshore Their Teams?

Why are business owners choosing to offshore their teams?

A few factors drive this trend, and I’ve compiled a list of the most common reasons I’ve observed after many conversations with small and medium-sized business owners. 

The Rise of Remote Work

Remote work became the norm during the pandemic and continues to stick around as companies struggle to get employees to come back to work. Given that most companies are already working either with a full remote model or a hybrid model, what’s the difference between having someone sitting at home in North America and sitting in Asia?

This is good in a way because the talent pool has widened exponentially, offering employers more choice and an easier way to test out new markets and cultural staff. 

The Ability to Offer Service Around the Clock

Another benefit of having an offshore and a local team is offering services and fixing problems around the clock. Think of it as having two shifts but in different regions. Business owners know all too well that problems pop up as soon as you’re off work, so having a remote team that works the “night shift” could provide another advantage for better customer service. 

Taxation Advantages 

Common sense would dictate that a government should support small businesses to grow through taxation benefits and other forms of support to entice business owners to hire more people and contribute to the economic activity in the country. You usually unlock more taxation benefits as you grow your business. Right? It’s the reverse in Canada. As you grow, your profits are taxed at higher rates. As you grow, you get to prepay your income tax based on your past year’s earnings every month; if you earned $1,000,000 in the previous year, the government assumes you will have another great year—you have to prepay your income taxes based on what you earned last year. So, if you have a bad year following a good year, good luck paying your advanced taxes on income that has yet to materialize.

The government wants you to hire more employees. Still, if your payroll exceeds a certain threshold (i.e., over $500K per year), you must pay another employer health tax (EHT) in addition to the EI and CPP you already pay, which is used to support provincial health taxes. The name is ironic because the tax has nothing to do with an employer’s health. If you do some quick math, it means if you hire a staff member for $60,000, the actual cost is likely to be around $80,000 after factoring in government-enforced taxes, payments, and sick days. 

Cost Savings in Skilled Labour

This one is obvious.

The infrastructure may not be as developed in the offshoring countries, but a growing talent pool is available for hire. Recruiting skilled labour from abroad also comes at a much lower cost. Although it’s a lower cost for the Western employer, the income is already a premium above what the worker would have received if they had found a local job. This could be a win-win for the employer and the offshore employee because they earn a better salary than a local job and gain experience working with an international company. It’s also a win for the company because it helps them save money on the bottom line.

Depending on the role you’re recruiting for, the cost savings could be 70-80% compared to hiring someone in Canada or the US. The amount of training required to onboard these offshore employees is roughly the same as someone sitting in the office (or sitting in their own home in North America), so it’s not a surprise companies are electing to offshore their jobs in droves. 

Offshoring will continue to grow. When I attended a conference last week, nearly twenty percent of business owners were already building an offshore team to handle administrative and other execution tasks. The remainder who have yet to offshore their staff expressed interest and intent to explore their options in the next year. With revenues squeezed due to the economic slowdown and the increase in North American salaries, employers will likely turn to offshore solutions to ensure their businesses stay afloat to weather the brewing storm in 2025. Are you prepared for the next wave of remote work and recruiting?