Build vs buy: EOR or in-house setup?

To fully invest in building and implementing strategies, businesses need to optimize time and cash flow, requiring the human resources apparatus to be streamlined to operate smoothly and effectively. Outsourcing is a solution. In this article, let’s discuss cost of EOR vs setting up a company.

1. When to choose EOR over local entity in Vietnam.

In recent years, Vietnam has always been considered a promising land for outsourcing services, especially in the IT sector. In the 2017 Spotlight on Vietnam report by international consulting firm PwC, Vietnam surpassed China to become the second largest outsourcing service provider for Japanese technology companies with 20.6% market share, just behind India with 31.5%. The Business Process Outsource (BPO) market alone has grown at 25-30% per year over the past 10 years, making Vietnam a strong competitor compared to India and the Philippines.

According to Ms. Le Thi Kim, Director of Outsourcing and Labor Leasing Services at ManpowerGroup Vietnam, the outsourcing trend is very popular abroad. Many companies are established but use virtual offices or hire only 1-2 employees, the rest are using external labor sources. Due to legal risks of setting up foreign entity, multinational or foreign-invested companies when coming to Vietnam are also very interested in outsourcing from local human resources with the specific goal of outsourcing half of the employees.

EOR vs Entity Setup in Vietnam: Compliance & Cost Insights

2. Outsourcing for what?

A 2016 survey by multinational service company Deloitte (2016 Global Outsourcing Survey) shows that the rate of companies using outsourcing to cut costs is still high (59%). Although this purpose is not wrong, it makes the outsourcing solution not fully exploit its advantages.

First of all, outsourcing services are divided into two types: staffing (hiring third-party personnel to carry out a certain part of the business), and outsourcing (submitting a certain part of the business’s work to a third party). However, in the Vietnamese market, these two concepts are generally understood and called outsourcing.

The role of EOR vs setting up a subsidiary is not to cut costs but to use cash flow effectively, through the transfer of human resource costs (HR costs) – which are a form of fixed and permanent costs, into operating costs – which are variable costs that can change, have a flexible term and can be easily cut when the business has a need…

Second, build vs buy: EOR or in-house setup provides flexible human resource solutions, including both short-term and long-term. For example, company A’s mooncake lines are popular with consumers and in the 3 months from July to September every year, this business has a large demand for labor (an additional 1,000 – 2,000 people) to meet market demand. They cannot rely on one or two HR staff to recruit that many people in a short period of time. Only professional outsourcing service providers are able to meet such typical and short-term needs.

Third, outsourcing helps companies share part of the risk costs with the service provider. To recruit an employee, in addition to salary and bonuses, businesses also face many other costs to train and develop that employee. With outsourcing, the risks of recruiting the wrong person for the right job, or falling behind due to a cumbersome business apparatus, etc. will be partly shared by the service provider. They will also be fully responsible for employee training programs.

Fourth, having access to a high-quality labor source, selected and trained, and flexibly changing to suit each stage of the business’s development helps companies increase the productivity of their staff.

How to Choose an Employer of Record (EOR)

3. Time to hire via EOR vs entity

Any business, regardless of industry or size, whether it is a global corporation with hundreds of years of experience or a newly established start-up, can consider outsourcing.

Young businesses tend to focus on business development, attacking the market to determine their position, finding ways to achieve growth goals to ensure cash flow. During this period, the goal of stabilizing the human resources system is often ranked after other business goals; outsourcing solutions will help harmonize goals and minimize the risk of imbalance between business growth and human resources organization.

Large corporations that are on the path of strong development are the same, at some point they realize that the current human resources organization structure does not meet the rapid and wide development of the company. Outsourcing and labor outsourcing services can help the company immediately balance without spending too much time stabilizing human resources before each stage of applying a new business strategy.

Currently, in the Vietnamese market, because outsourcing services are still new, domestic enterprises have only experimented with outsourcing simple tasks and rehiring workers for positions that do not require high technical skills, or low-level and middle-level management positions. Higher positions such as CEO, CFO, CPO, etc. are not many and are highly confidential.

4. Build vs buy: EOR or in-house setup

There are three most important factors that enterprises need to implement before deciding to implement outsourcing.

The first is to change prejudices. Domestic enterprises often have the view of doing it themselves or having to see and hear it to feel secure, meaning that business owners always want to see employees present at the company, signing all documents… According to tradition, business owners believe that this is the only way to ensure their leadership is clear and consistent. However, in the era of high technology and continuous digitalization, businesses need to monitor and control by process.

Second, businesses need to define goals to optimize the advantages of this type of service. Outsourcing is not just to cut costs or completely transfer risks to a third party. If that is the prominent goal, employees transferred to the form of re-hiring will feel insecure, affecting the quality of work. This can also negatively affect the process of building corporate culture and cohesion in the organization.

Third, businesses need to choose a professional and experienced outsourcing service provider. When considering third parties, management should consider (i) the supplier’s staffing capacity, whether the supplier’s team of consultants is well-trained, (ii) financial capacity, and last but not least, a track record of experience with professional management processes (iii) to address issues related to outsourcing staffing activities.

Is it the time to hire via EOR vs entity? Through this article, we hope you can find an answer for that question. If you need any support, please contact us.

>>>Read more: Payroll services in vietnam – Tax reduction programs for FDI enterprises

S4B Vietnam

• Address: Unit 701B – 701C, Tower A, Handi Resco Towers, 521 Kim Ma Street, Giang Vo Ward, Hanoi, Vietnam
• Tel: +84 24 3974 4181
• Email: service@s4b.com.vn

——————————————–
We Will Show You The Way To Success!