🌍 Labor Arbitrage
+ different models for the offshore hiring market
yoo
Here is a hot take: in the next 5-8 years, most tech companies in the US will move 50% of their business functions offshore.
The why
COVID has shown us that many jobs can be done remotely without a decrease in productivity.
As remote work becomes more prevalent, it's hard to imagine that companies won't tap into the global talent pool to get the best return on their labor costs.
It’s already happening. Check this out:
In 2000, the business process outsourcing (BPO) industry in the Philippines accounted for only 0.075% of the country’s GDP. During the pandemic, it contributed to at least 7% of the Philippine economy. This sector grew 10.6% in 2021 alone and recorded over $29B in revenue.
Hiring offshore is a no-brainer for companies for two main reasons - 1) cost arbitrage 2) quality global talent pool
Cost arbitrage:
Let’s do some simple math.
Say you have a startup that needs 3 salespeople, 2 marketers, and 5 customer support professionals.
Here's how much you could save by hiring from the Philippines vs the US:
That's a significant amount of savings, especially in the current economic climate.
Quality global talent pool
There are good workers in every part of the world; you just have to find them.
At the startup where I work, I've had the pleasure of working with many talented people from over ten countries, ranging from India to South Africa. They are equally driven & competent as their American counterparts and often bring unique perspectives helpful to the business.
Corporate America is doomed for a rude awakening.
Who’s taking advantage of this?
Global HR software is an obvious one. Managing the benefits and payroll of international employees/contractors is challenging due to complex compliance and regulations in different countries.
Deel has emerged as one of the market leaders in the global HR software space, surging from just $4 million ARR in 2021 to $295 million in January of this year.
I have also seen many companies making a killing in the offshore talent matchmaking space.
Here are some models:
Freelance marketplaces
Managed marketplaces
Headhunting biz
1) Freelance marketplaces
Freelance marketplaces match companies with freelancers for short-term projects or part-time gigs. Many marketplaces today are quite established, including Fiverr, Upwork, and Toptal.
They are often horizontal platforms covering projects from data entry to design.
2) Managed marketplaces
This is the model where I have seen the most adoption in the past two years.
Managed marketplaces are deeply involved in the relationship between the customer and the talent. They vet the talent supply and work closely with their customers to find the right talent and serve as a mediator if any future issues arise.
One company that I am a big fan of is Lemon.io. They have a network of engineers from Europe and Latin America, and their team has already tested and interviewed every candidate.
With Lemon.io, companies can have an engineer start working on your project within a week instead of months, and they don't have to waste time on candidates that are not qualified.
Some other interesting examples are Growth Assistant, SupportNinja, and Boldly.
3) Headhunting biz
Companies in the headhunting space focus on sourcing offshore talent. They only charge a one-time fee for each talent acquisition project, and their main value-adds lie in their access to offshore talent and their vetting ability.
To differentiate, these firms often focus on a specific geography for sourcing. For example, Support Shepherd focuses on the Philippines, while Remotely Talent focuses on Ukraine.
Alright - that’s all from me. What are your thoughts on this hot take? And what are some other interesting opportunities that you have seen?
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Leo