Is Malaysia an outsourcing destination for Singaporean businesses to consider?

Kevin Fitzgerald, Managing Director, Asia, Employment Hero

Paid maternity and paternity leave. The Skills Development Levy. Self-help group contributions. Customisable compensation packages. Local laws and tax requirements for remote workers. These are a mix of compulsory employer contributions and employee benefits, varying between individual companies and employees, but all with one thing in common – complex calculations when managing payroll.

It’s no surprise business leaders are choosing to adopt outsourcing solutions for back-end business functions such as payroll instead. Singapore’s labour market conditions are expected to soften in the coming months, as companies appear to be increasingly cautious in their hiring practices in light of current economic headwinds. Companies are prioritising core business activities and streamlining operations as much as possible, viewing this route as one that offers more savings not only in costs, but also time and resources – such as with admin-heavy tasks like payroll functions.

Interestingly, Singaporean businesses appear not only to be embracing outsourcing, but are trending towards using service providers abroad. From my conversations with payroll service providers in Malaysia, they have begun seeing more Singaporean companies reaching out to engage their services in recent months.

One reason for this could again be cost-effectiveness, given the favourable exchange rates for Singapore, but it’s also worth examining other factors Malaysia offers as an outsourcing destination.

Malaysia – The New Contender

Globally, China and India are widely considered the top countries for outsourcing across multiple sectors, given their large talent pool and low labour costs. Within Southeast Asia, the Philippines is also a prominent destination for service providers, with the BPO industry being one of their key economic drivers.

So, in addition to cost efficiencies, what advantages can Malaysian service providers offer Singaporean companies looking to outsource?

First, a mature industry and skilled workforce. Though not as large as other countries, Malaysia also has a long-standing outsourcing industry that has matured over the years. The National Tech Association of Malaysia (PIKOM) has a dedicated chapter aimed at developing Malaysia as an outsourcing hub. This indicator of growth and long-term stability will certainly appeal to any company.

Similarly, there is a wealth of experienced outsourcing providers and payroll specialists that have the experience needed to support Singaporean businesses. Malaysia’s ongoing efforts to drive digital transformation and accelerate the pace of its digital economy has seen the adoption of new innovative tools and technologies.

In our recent State of Payroll and Technology report, we found 86% of respondents believe that adopting disruptive technology is necessary to future-proof their businesses and their clients’ success. Malaysians were more likely to use client-servicing software in comparison to Singaporean service providers – for payroll software specifically, this was 75% of Malaysian respondents vs. 69% of those in Singapore.

While this may seem like a minor point, geographical proximity and cultural familiarity shouldn’t be underestimated. In the long run, the lack of a time difference, not to mention language barriers (be it English, Mandarin or even Bahasa), can go a long way in facilitating efficient communication as well as having an established common ground.

The Right Strategy

It goes without saying that there is no one size fits all approach to having the right outsourcing strategy, given the different needs of each company and even each individual department. For payroll specifically, this could depend on the size of the firm, wage agreements and benefit structures. The rise of remote working has also thrown geographical considerations into the mix, as companies may have employees located in different countries – which would have varying regulations and compliance requirements.

Location is just one factor businesses should consider when choosing the right provider for their needs. For external payroll providers, there are also several other criteria to look into, such as:

  • Direct access to a payroll specialist (instead of a general account manager)
  • Type of support, technology and platform used by the payroll provider, to ensure it can be integrated easily with your company’s internal systems
  • Scalability and flexibility of the service levels offered
  • Cultural fit with your company’s priorities and values

In a fiercely competitive marketplace, businesses are constantly seeking strategies to thrive and excel. Outsourcing payroll functions may be seen as solutions that can drive efficiency, ensure compliance, and foster growth, while eliminating the need for additional resources and overhead expenses. Businesses need to determine what their own specific needs are, before deciding on a platform or service provider that can address them – whether in Malaysia, Singapore or elsewhere.