Assessing Human Resources And Payroll Outsourcing

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Employee benefits and payroll administration remain the core tasks businesses tend to offload. Both activities can consume significantly more time to administer than one might expect, yet they are fairly straightforward to process. These days, business owners are buried under mountains of paperwork. Besides payroll processing and quarterly/annually tax reports, there are a growing number of federal regulations and human resources (HR) chores to consider. Nationwide, thousands of business owners are finding that full-service Professional Employer Organizations (PEOs) can provide much-needed human resources functions which focus exclusively on handling these HR matters all day, every day. PEO functions as an outsourced HR department that handles small and medium-sized businesses' personnel-related services, such as payroll processing, payroll tax fillings, employee benefits management, employer liability management, employment taxes and workers' compensation coverage and claims resolution. Additional services include recruiting which covers the whole range of activity associated with hiring, back-ground checking, starting from the development of effective job descriptions and compensation structures to the actual interviews of job candidates. PEOs are an important and variable option to help small and medium-sized business better manage the HR function. Other benefits of a full-service PFO include tuition reimbursement and management training courses. These value added tools help provide an effective training and development program, which is essential in attracting the most talented people and helping them to advance. When an employer provides for continuing education and advancement training, the business improves productivity by enhancing the skills of company's workforce.

Companies have realized a number of benefits by outsourcing their HR function, according to Micucci's survey (2006) shown that:

"68 percent of companies are very satisfied or satisfied with their HR outsourcing arrangement, while 30 percent are somewhat satisfied and 2 percent are gaining very little satisfaction from their agreement. What's more, 84 percent of organizations say they will continue to outsource their HR function, while 14 percent are unsure and 2 percent would decline the opportunity to outsource again."

Human resources outsourcing is on track to continue record growth. According to Rosenstein's study (2008), "companies worldwide are expected to spend more than $103.3 billion just on Human Resource Outsourcing this year, up significantly from the $71.2 billion spent in 2007. In the U.S., HR Outsourcing is the fastest-growing segment of business process outsourcing (BPO) and is expected to grow annually at a rate of 16 percent."

In order to be successful in the business, HR outsourcing firms will need to have an understanding of the internal and external environment to understand the present and predict the future. The results of the environmental analysis directly influence the development of the organization's mission, vision, values, goals, and strategy.

External Environment Analysis

An analysis of the external environment is an attempt to understand the forces outside organizational boundaries that are helping to shape the organization. The external environmental analysis process attempts to identify, aggregate, and interpret environmental issues. Environmental analysis seeks to eliminate many of the surprises in the external environment.

Regardless of the approach, to conduct an environmental analysis four fundamental processes are common: scanning, monitoring, forecasting, and assessing. Scanning attempts to identify signals of environmental change. Monitoring attempts to keep track of the identified issues. Forecasting seeks to predict the changes in the future direction of the issues, and assessing seeks to explain the organizational implications of the issues.

Key dimensions of the environment include demographic segment, economic segment, political/legal segment, sociocultural segment, technological segment and global segment.

Demographic Segment

The demographic segment is concerned with a population size, age structure, geographic distribution, ethnic mix and income distribution.

According to Britannica (2008):

By the late 20th century, Southeast (SE) Asia's population (including Indonesia and the Philippines) was approaching a half billion, or about one-twelfth of the world's total. Southeast Asia consists of two geographic regions: the Asian mainland and island arcs and archipelagoes to the east and southeast. The mainland section consists of Burma, Cambodia, Laos, Thailand, Vietnam and Peninsular Malaysia while the maritime section consists of Brunei, East Malaysia, East Timor, Indonesia, Philippines, and Singapore. These countries are geographically smaller than the peninsula nations, and the populations are also smaller, with the exception of Indonesia.

There are many different ethnic groups in South East Asia with various different customs, traditions and beliefs. According to Stanford study (2001), "the Southeast Asian population is far from being homogeneous. Although primarily descendants of Austronesian, Tai, and Mon-Khmer-speaking immigrants who migrated from Southern China during the Bronze Age and Iron Age, there are overlays of Arab, Chinese, Indian, Polynesian and Melanesian genes."

Most of countries in Southeast Asia are developing countries with Agricultural oriented, which influence poverty levels and low income distribution. Now a day, healthy middle-class has increased gradually.

Well-trained staff with English speaking skills is available with low labor cost except Singapore. As they have priced themselves out of the market. Salaries, rents and general cost of doing business are high

Below is salary guide for HR manager with bachelor's degree and 3-5 year experience (2009 est.) (Kelly Services Inc., 2009)

Thailand $1470 - $2730

Malaysia $1400 - $2350

Philippine $1300 - $2000

Indonesia $1800 - $2760

Singapore $3800 - $7100

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Economic Segment

In the economic environment, the organizational analysis should center on those aspects of the economic system that directly impact the type of project being considered. The purpose of economic analysis is first to appraise the overall outlook of the economy and then assess the impact of economic changes on the firm.

There is a great diversity in the stages of development and levels of performance of the economies of Southeast Asia. At one end, leaving aside the Brunei anomaly, there is the high-tech, IT-based economy of Singapore, the land of the five Cs: careers, condos, clubs, credit cards, and cars. At the other extreme is Cambodia, a land still recovering from a generation of warfare. In between, depending on how one ranges the macroeconomic indicators-per capita GDP being a popular measure-we find in descending order Malaysia, Thailand, the Philippines, Indonesia, Vietnam and Laos. Myanmar falls somewhere in the Laos-Cambodia range.

The Southeast Asian financial crisis started with the devaluation of Thailand's Bath, which took place on July 1997, a 15 to 20 percent devaluation that occurred two months after this currency started to suffer from a massive speculative attack and a little more than a month after the bankruptcy of Thailand's largest finance company, Finance One. This first devaluation of the Thai Baht was soon followed by that of the Philippine Peso, the Malaysian Ringgit, the Indonesian Rupiah and, to a lesser extent, the Singaporean Dollar. This series of devaluations marked the beginning of the Asian financial crisis. This first sub-period of the currency crisis took place between July and October of 1997.

A second sub-period of the currency crisis can be identified starting in early November, 1997 after the collapse of Hong Kong's stock market. This time, not only the currencies of Thailand, the Philippines, Malaysia, Indonesia and Singapore were affected, but those of South Korea and Taiwan also suffered. In addition, was the other important component of this second sub-period: the complete collapse of the Indonesian Rupiah that started at about the same time.

After the crisis, Southeast Asia economies are gradually recovered as most companies applies sufficiency economic concept as Mongsawad (2009) stated that Sufficiency Economy" is a philosophy that stresses the middle path as the overriding principle for appropriate conduct by the populace at all levels. This applies to conduct at the level of the individual, families, and communities, as well as to the choice of a balanced development strategy for the nation so as to modernize in line with the forces of globalization while shielding against inevitable shocks and excesses that arise. By applying this philosophy, most companies has significantly reduce business debts.

The gross domestic product (GDP) is a measure of a country's overall official economic output in a given year. The GDP growth rate is the most important indicator of economic health. If GDP is growing, so will business, jobs and personal income. Table below shows GDP growth and inflation rates of some countries in Southeast Asia (Wikipedia, 2008-2009).


GDP Growth (percent)


Inflation Rate (percent)




2008 est.


2008 est.



2008 est.


2008 est.



2009 est.


2009 est.



2009 est.


2009 est.



2009 est.


2009 est.



2008 est.


2008 est.



2009 est.


2008 est.

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Political/Legal Segment

Political, governmental and legal forces such as government regulations or deregulations, changes in tax laws, special tariffs and political action committees. National legal systems vary dramatically for historical, cultural, political, and religious reasons. The rule of law, the role of lawyers, the burden of proof, the right to judicial review, and, of course, the laws themselves differ from country to country.

In SE Asia, as there are varieties of religious and ethnic groups, conflict and disagreement occasionally occurs. E.g. the Muslim insurgency in Southern Thailand. Over the past four years, an insurgency in Thailand's southern, predominantly Muslim provinces has claimed nearly three thousand lives.

Also political uncertainty can damage economic growth and investor confidence. In most SE Asia countries, political uncertainty and corruption are still significant issues that affect all business sectors. No country in Southeast Asia, even Singapore, is immune from corruption and bribery. In some countries corruption is so systemic that it has replaced the rule of law (in Cambodia and Indonesia, for example) and the corrupt shrug it off with a sense of impunity when they are exposed. In other countries the rule of law has been corrupted to stifle democratic opposition: Malaysia and Singapore for example.

Working in South East Asia is possible yet it is often difficult to obtain long-stay visas and work permits if you coming from a country outside of the region.

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Sociocultural Segment

The sociocultural segment is the part of the environment concerned with a society's attitudes and cultural values. Social and cultural forces at local, national, and often regional levels have profound influence on the way organizations conduct their work and on what they value in terms of outcomes and effects.

Most of SE Asia cultures and believes are heavily influenced by religions. Like most other Asia cultures, values are more or less influenced by Confucianism. They are chiefly: filial piety, respect for age, seniority and hierarchy, face, deference, dignity, honor, true friendship, dislike of pomposity and arrogance, interest in learning, and belief in moderation. Children are taught from childhood to follow the advice of their elders. They are not taught to talk back or voice contrasting views.

Religion rules the day-to-day lives eg. Ramadan in Malaysia. Ramadan is the ninth month of the Islamic calendar. It is the Islamic month of fasting each day from sunrise to sunset. Fasting is intended to teach Muslims about patience, humility, and spirituality.

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Technological Segment

The technology has a major impact on the business. It affects the business prospects, cut down the profits and forces the management to change the course of the business operations. Any change is technology changes the work cultures, the methods and the systems. It affects the speed of the operations.

There are two key technological tools that play an important role in HR outsourcing; software & web-base system and payroll banking network.

Payroll software systems are designed to ensure employees are paid the correct amount, on time for the work they have done under their contract of employment. As well as ensuring staff receive it, payroll can calculate various elements of salary, including the deduction of tax and insurance from gross pay. They also provide the employee with a payslip. A key benefit of payroll software/web-base system is that the calculations can be made much more quickly than they would take to do manually. Payroll software

Payroll software can be managed in different ways. First, employers can manage staff payment in-house, using software bought from a provider, but this can bring a number of challenges. Employers will need expertise in tax, insurance and the operation of the software. Alternatively, employers can choose to outsource all or part of their payroll process. A mixed delivery or bureau system means an employer can retain a relative amount of control over employees' personal information through the software but is not necessarily involved in the more transactional elements of the process, such as printing payslips or sending payments to the bank.

Integrating payroll software with benefits software can save time and deliver enhanced levels of reporting. All data is stored in one place and does not require the duplication of work. Staff can view their own data, select benefits options, and receive statements that calculate the impact on their tax and insurance. The cost of payroll software depends on the type of system, the size of the organization and the complexity of an employer's requirements, such as the number of benefits offered to staff.

In U.S. and Europe, payroll service banking is widely practiced such as Automated Clearing House (ACH) is used to route payroll deposits electronically to the banks where employees maintain their personal accounts. Payroll direct deposits will be automatically deposited into employee bank accounts in cases of bad weather, being on vacation or out of town, or illness. Employees will no longer have to travel to the bank on payday to make their deposit. Additionally the increasing popularity of prepaid cards, and especially payroll and government benefits cards, is driving up transaction volume at two of the biggest surcharge-free automated teller machine networks. The use of payroll cards to replace paychecks and debit cards to replace unemployment checks, coupled with the widespread use of general-purpose reloadable debit cards by consumers, has expanded the universe of potential ATM users.

In SE Asia, neither payroll banking nor cards have been widely utilized. Hopefully someday banks may recognize the HR/Payroll opportunities and leverage their banking networks to corner the HR/Payroll markets in Asia and around the world. They are certainly already aware of the opportunities but as yet don't feel it's worth the investment nor is it part of their core businesses.

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Global Segment

The global segment includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global market. Globalization is the trend of countries and cultures becoming more connected through business, governmental cooperation, mass media and other sectors. As the opportunities for meaning exchange grow, businesses are able to expand their scope into new markets.

The changes in the payroll industry are strongly linked to the growth in outsourcing. Outsourcing providers expect more companies to outsource their payroll because of benefits available to their business such as, ability to focus on what they do best, access to expertise not available internally, better control and risk management, improve productivity and morale, etc. Rosenthal's research (2010) shown that Renewals are the big news in human resources outsourcing, estimates about $40 billion in contracts will come up for renewal from 2010-2012.

Global capabilities become even more important in supplier selection. In old days, clients had to split across multiple outsourcers in multiple locations/countries but now a day, they tend to prefer to consolidate it all together within a partnership that enables standardization across multiple locations, processes and clients. Clients are looking for the complete end-to-end solution where the provider can provide the process services as well as the platform with complete Human Resources Outsourcing (HRO) service package, which includes talent management, recruitment, learning, and development.

In order to provide broader services and locations, most HRO firms look for partnership as this will not increase firm's cost.

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Also please add as an conclusion on how these environment help to identify opportunity and threat in HRO in SE Asia ka

Internal Analysis

The Internal Analysis of strengths and weaknesses focuses on internal factors that give an organization certain advantages and disadvantages in meeting the needs of its target market. The goal of situation analysis is, as the name implies, to help strategic planners understand the present situation. Therefore, situation analysis is essentially a process of data gathering and analysis, so internal environmental analysis involves collecting and analyzing information about an organization's strategic capacity.

The following area analyses are used to look at all internal factors effecting a company:

Resources: Profitability, sales, product quality brand associations, existing overall brand, relative cost of this new product, employee capability, product portfolio analysis

Capabilities: Goal: To identify internal strategic strengths, weaknesses, problems, constraints and uncertainties

Core competencies: Capabilities that are critical to a business achieving competitive advantage

Competitive advantages: Position of a company in a competitive landscape that allows the company  to generate greater sales or margins and/or retain more customers than its competition


Resources are the fire-specific assets useful for creating a cost or differentiation advantage and that few competitors can acquire easily.

As a HRO firm, the company should think, plan, budget and operate locally. Keep it simple. This is easier said than done. We are primarily influenced by our home country's attitude towards business activities and success models including the activities related to company resources. Attract, recruit, train and deploy staff using local resources as much as possible. If your Asia headquarters is in Thailand, hire predominately Thai staff. Minimize foreign staff. Seems obvious but it's not. It's a common practice for large corporations with big budgets and limited experience outside their home country to build centralized regional operations centers for a whole bunch of "smart" reasons and hire staff from their target market countries with the service skills, cultural awareness and language strengths to manage their customer base from a central location. For example, a large US HR firm build an Asian operations center in Kuala Lumpur, Malaysia; then imported staff from Singapore, Japan, Thailand, Korea and Vietnam to service their clients in those countries from a centralized location in Kuala Lumpur, Malaysia. Brilliant minds put together this master plan. They're out of business now.

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Capabilities refer to the firm's ability to utilize its resources effectively. To be able to utilize resources effecivly a firm needs to refine its capabilities to the nth degree. Be known for something very specific. Don't be known as a "payroll company". Be known as a "payroll company that provides a single-point-of-contact in 10 Asian countries to calculate employee salaries in local currencies and make statutory payments to government agencies".

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Core competencies

A firm's resources and capabilities together form its distinctive competences. These competencies enable innovation, efficiency, quality and customer responsiveness, all of which can be leveraged to create a cost advantage or a differentiation advantage.

In America, product and service competencies are the central elements in delivering a successful solution. Corporations and recruiters take for granted (because they can) that basic, common qualities, skills and capabilities already exist. When building a true international operation, business leaders cannot take infrastructure issues for granted.  No matter how skilled a person is with a product or service, their chances of success are slim if they don't speak the same language as their clients or understand the local culture, traditions and practices.

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Competitive advantages

Competitive advantages are created by using resources and capabilities to achieve either a lower cost structure or a differentiated product.

Acquiring a competitive advantage is not as difficult as it may seem. In mature markets, gaining a competitive advantage is difficult if a business uses text book approaches to build a business just like everybody else builds a business. Take it one level deeper and your chances of success increase dramatically. Make your business slightly different than the mainstream competition. For example, if you are a payroll company, then the traditional business model measures success based on how many pay slips they produce monthly. Every major company uses the same means of measurement because it is the "common" practice. Make your payroll business different. Measure it based on return on investment per client. What importance is "pay slips" if the return on a single pay slip is miniscule. Focus on finding and servicing the market that produces the highest return on investment.  

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Also please add how these internal segments identify streagths and weaknesses for a HRO firm in SE Asia ka

Lastly please add overall conclusion ka.