Coals is to Newcastle, as Payroll Outsourcing is to Asia
25 October 2018
This article was featured in the November 2018 issue of the magazine.
Martin Stockton, business development director Europe – PayAsia, discusses the market
The global payroll outsourcing market is huge and incredibly volatile. Mostly, it’s like watching a game of corporate monopoly, leaving spectators to ponder who will acquire what, with the same heads popping up in new places every few years. Old clichés about the ‘myth or reality’ of global payroll companies being regurgitated and plagiarised regularly prove true. While the market likes to believe it’s led by innovation, the truth is, it’s still a commoditised market and extremely price sensitive.
Payroll in Asia
Consider the typical procurement process for a global payroll solution. A company will go through the request for information (RFI) / request for proposal (RFP) process, resulting in the selection of a single provider covering various countries and headcounts ranging from the large to the small (known as the ‘tail’).
The tail is generally comprised of Asian countries, some of which have straightforward taxation and regulatory obligations, while most are incredibly complicated. These large companies don’t specialise in Asia, so partner with suppliers on a country by country basis. __PayAsia specialise in eighteen countries across the region, allowing larger providers to outsource the region as opposed to single countries.
Large US or European head offices prefer providers that can provide a regional payroll solution to avoid resorting to riskier and more expensive third-party providers of in-country providers (ICP). For this reason, western payroll outsourcers operating in Asia struggle to cover all countries.
1. If a company outsources payroll to an Asian based provider, it may choose to provide services based on either their own technology or sub-contract other providers. This results in the initial provider needing to aggregate varied technologies. Additionally, the cost of the service increases with margin upon margin, ultimately paid for by the customer. This is both a risky and expensive strategy.
2. The costs charged to the customer by non-Asian based outsourcers can be significantly larger than those which are Asian based. The risks to the customer are compounded by fragmented technologies accommodating differing levels of compliance.
3. Why should Asian businesses outsource their payroll to western based companies only to see it outsourced again to Asian providers? This overlooks the significant opportunity for Asian companies to directly outsource their payroll operations to Asian providers.
4. While the concept of ‘mates rates’ for Asian companies outsourcing to Asian based payroll providers may appear crass, there is a significant discrepancy between the rates charged to a European outsourcer by its Asian ‘partner’ and the rates offered within region.
I’m reminded of a time in 1983, outside the Houses of Parliament in London. I stood in a queue for an ice and watched a Japanese tourist happily pay £10 for an ice cream…
At PayAsia, we were recently given the opportunity to compare our pricing to that of a European outsourcer for several Asian countries. This demonstrated PayAsia was roughly 300% cheaper than the pricing submitted by a major European company.