Outsourcing is a popular way for corporations to reduce expenses, increase flexibility and acquire additional competencies. However, it is also an effective way for expanding to emerging markets.
In this article we will show you why outsourcing should be an integral part of your market entry strategy. Either thinking of Indonesia, Vietnam, the Philippines or some other emerging country, this is the reading you need to do first.
Common services to outsource when entering emerging markets
Tax reporting is different in each country. Learning the local tax regulations and hiring qualified accountants is expensive and time consuming. This makes tax reporting an obvious process to outsource since the service provider will already have the local knowledge and manpower to ensure that your taxes are reported correctly.
For example, here is what you should report when operating business in Indonesia:
- Monthly: Corporate Income Tax, Withholding Taxes, Value-Added Tax (VAT), Luxury-Goods Sales Tax (LGST)
- Annual: Corporate Income Tax, Individual Income Tax, Land and Building Tax
Accounting and payroll
Accounting and payroll is time consuming, regulations vary per country and it has to be done correctly. As you are entering new market you can choose to invest time into building your own accounting team or outsource it to a service provider.
Here is a list of accounting services your company can outsource:
- Setting up accounts
- Maintaining general ledger
- Processing invoices and recording transactions
- Making payments on behalf of the company
- Preparation of management accounts (profit and loss, balance sheet, cashflow and income statements)
- Converting management accounts to an international currency
Here is a list of payroll services you can outsource:
- Setting up records of employees’ salaries, wages, bonuses and applicable taxes
- Health and old age saving insurance calculations
- Processing payroll payments
The main reason why to consider invoicing is that you use it instead of setting up a local company. It means that the invoices are issued and paid by a third party service provider. Remaining of the funds will be transferred to the client’s overseas office.
A separate point to consider is outsourcing Accounts Payable services for your invoicing to avoid mistakes and delays when handing out invoices. Along with following all other customer expectations, meeting deadlines and handing out correct documentation is essential.
Staff augmentation service is a very fast and lean way to enter new markets. Imagine not needing to set up you your legal entity or go through an extensive recruitment process, yet having a full time team working for you in a foreign market. A local team who knows the market and is qualified to do the tasks required. This is what staff augmentation is all about.
Depending on the needs of your business, hiring either one person or a large team is possible. While this is the service that is especially popular in the IT sector, it is excellent when planning on expanding to a new market and needing to test the area for business.
Here are the main reasons why to outsource staff augmentation service:
- Conducting market research
- Selling products
- Finding suppliers or distributors
Having the team of a local skilled professionals to support you makes it is easier to avoid any possible complications. Being a newbie in the country, it can be a challenging process to gather a reliable team. Especially in an emerging market where qualified workforce is often limited and demand for high category workforce is especially strong.
Importing is not the quickest of processes in emerging markets – in Indonesia for example, becoming an importer takes around 4-5 months (a little less in Vietnam). Investors get help from an undername importer, a company that already has the import licenses for the product you want to bring to the country.
This way, neither your own legal entity nor an import license is needed. It works as a great solution for businesses that are interested in minimizing delays, additional costs and want to start selling immediately.
It is a common worldwide practice to outsource either a full call center, one virtual assistant or web chat team to fill the positions of customer support operations. This can be even as much as a professional team fully integrating online, mobile and landline communications up to 24/7.
Main outsourcing benefit for customer support service is that there is no need to keep an employee on duty for the standard weekly working hours, only for the hours required per week. Also, no costs apply for employee benefits.
Use distributor search when exporting products to a new market while using local distributors. No need to start setting up local operations.
Find us highlighting the main reasons why outsourcing this service is a good idea for a new entrepreneur:
- Developed market knowledge and supply chain
- Relatively low cost of entry
- Lean business model, ability to adapt to new market conditions quickly
- Can handle product transportation and warehousing
- As per agreement, can assist with product marketing
- Will take care of any possible credit risks arising from product’s buyers
Protecting your intellectual property and choosing most suitable distributors for your line of business carries most weight when making the decision about this market entry service.
Find out more about three stage distributor search service.
Local content production
Outsourcing becomes useful when a company is planning on local content production. This is something that different fields of activities will benefit from, for example:
- Translating labels and packaging
- Localising website
- Translating and localising marketing materials
The need to outsource is heightened especially if you do not speak the language and can not check the validity of the work received.
If you do not need so much content production then it’s also probably cheaper to outsource it because you don’t have enough work for a full time person.
Without having professionally gathered insights about the market, you will only rely on your so called gut feeling and subjective opinions when entering the new market. In the long run, investing in market research is cheaper as you avoid costly mistakes and find new opportunities faster.
Market research phase is where an outsourced company should evaluate three key components:
- Market size and trends
- Laws and regulations
These are the steps where we gather and systemize data about the market you are about to enter. The exact activities conducted under a market research depend on the activities of your company.
It can also result in finding out that the market does not meet the business expectations and criteria, thus that you should not enter that geographical area. The faster you find out that this specific market should be excluded, the less financial damage is done and you can focus on areas where better potential lies.
Benefits of outsourcing non-core activities when expanding to emerging markets
Focus on your core activities
Many of the business processes rely heavily on local expertise. However, acquiring local knowledge is both costly and time-consuming. Instead, you could focus on doing what you are good at, leaving the rest in the hands of the professional service providers.
Without wasting extensive amount of time, the people you need are at your service and you can concentrate on your core business.
Spend your energy on doing sales and delivering client work
Every company has their limited resources in terms of time, personnel and funds. Especially in new markets its good when you can focus on growing your customer base instead of trying to figure out the local administrative tasks.
Reduce the learning curve in new market
Spend less time learning the local regulations and customs
When outsourcing non-core activities from a trustworthy provider, you skip the necessity of going through tremendous amount of legal paperwork. As the vendor is up to date with the most recent regulations it will save you and your business a lot of time and thus result in increased productivity.
Focus on what you do best
Nothing speaks louder than experience. When expanding to emerging markets you should be able to focus on what your company is great at.
Meanwhile the vendor, such as Emerhub, is handling the administrative responsibilities, you have the time to apply your skills on delivering the service and product.
Expand to more markets faster
Since your learning curve is faster you can go to more markets quicker
Since you are spending less time and money figuring out the administrative processes it is possible to enter multiple (or more) markets in a shorter period of time or even simultaneously.
You might not have enough work for a full time accountant/HR
When launching a new office in an emerging market you may not have enough work to justify hiring a full time senior accountant. Or you may not know yet how to attract the best candidates.
The same applies for hiring an HR specialist. This is a necessary pipeline in helping a company expand, however the productivity of this position is better measured project basis rather than hourly. Keeping this position actively on your payroll is costly, while outsourcing helps reduce costs.
You might not even need your own legal entity
The fastest way to enter new markets is not to incorporate a local company. At least not immediately.
By using outsourced operations model you can conduct sales, deliver services/products, earn revenue etc. without having to obtain licenses or meeting foreign investment requirements. Outsourced operations model includes:
- invoicing and billing
- staff augmentation
- undername import
- distributor search
See a full article about the characteristics of staff augmentation in our blog.
You don’t need to manage the back office team
Building and managing back office teams is both time consuming and expensive. Let your managers focus on growing the business instead.
Scale up/down your operations quickly
Outsourcing gives you the power of expanding to emerging markets with just as many forces as you need on this day. Outsourced operations model allows you to scale up as the business grows and scale down in case you need to cut expenses.
Emerhub has been providing full market entry strategy to companies since 2011 and can outsource services in both Vietnam and Indonesia, soon as well in the Philippines. Get in touch with our consultants to outsource any of the above services or ask for advice regarding your field of business by leaving your contacts below.