The purpose of this article is to explain the benefits of personnel outsourcing in the Mexican SME company and some aspects that such companies should consider to exploit this figure and access their benefits. When this figure began to have a boom in Mexico, it was primarily used in search of economic benefits, some of them were legally supported and others not. Even abuse was made of this work mechanism, because too many pseudo entrepreneurs used it to get economic benefits at the expense of the workers’ rights, which, of course, generated economic savings which were not sustainable in the long term, which were also against the Law.
With the time, different tax and labor laws were adapted in order to cover the gaps or existing and under which misuse of outsourcing was made. A lot could be said around the all what happened from the outsourcing boom in Mexico up to these days, however, these topics will not be the topic in this document. This time, all the business benefits implied in this figure shall be addressed as well as all the potential it has across the nation for the SME established in México since this is used at a minimum level.
Indeed, the use of the figure of personnel outsourcing in Mexico has been seen always as a tool which generates economic benefits for the mere fact of using legal – tax loopholes but has failed to be appreciated as a tool that may generate economic profits for the enterprises from many other perspectives which will be discussed below.
To place the reader into the Mexican business reality, it should be noted that most Mexican companies fall into this SME classification, that is, small and medium enterprises. After this large and broad segment, the micro and physical persons with business activity come and finally, the smallest number is for the large and transnational companies.
Within the SME classification, we find most Mexican companies and this segment range is very broad, that is to say, in this section we can find companies invoicing from 20 million pesos a year and having 20 employees up to those which have hundreds of employees and invoice hundreds of millions of pesos. The truth is that there is no official version of what should be considered as an SME company. There are business organizations that classify them based on their number of employees, others based on their income earned and others make use of both parameters.
For purposes of this article and with the sole aim of placing the reader in a clear and objective scenario, when citing SMEs in this article we will understand that it is any company which has the following indicators:
Annual revenues: Between 100 and 500 million pesos per year
Employees: More than 50 employees
Once having established the above parameter, it is important to clarify that not all SMEs should outsource their staff. In our opinion, those who would be suitable candidates to use this figure should be those who meet the following requirements, regardless whether they are Mexican or foreigners established in our country:
- Have well defined processes
- Have a certain institutionalization degree and make their decisions based on it
And why are these two elements considered as necessary before thinking about personnel outsourcing? The answer is relatively simple, when a company has worked to define its processes well, when its decision making has an analysis process, study, reflection and execution, implies that it is an orderly company where all its employees are clear on what to do, what is expected of them and the consequences of not meeting their goals. Therefore, if they have this order and clarity basis, it is much easier to separate one of its branches to a third party to develop it and take care of it. On the other hand, if it is a company that we say is “unordered” it will be very difficult to work with a third party involved in the day-to-day and very likely far from being a benefit, personnel outsourcing, will be something that will hinder the company operations.
Going deeper in the above, if a non “orderly” company tries to operate with a third party involved in the day to day, there will be for sure activities that will not be attended to, there could be rework, errors and functions misinterpretation where the only in disadvantage would be the company. Hence, it is recommended, before thinking about the personnel outsourcing, to “order the house”.
Due to the above, micro-enterprises as well as individuals with business activities are not subject for staff outsourcing and large or transnational companies are very likely to use this figure as a normal business practice, so the challenge is for SMEs established in Mexico, that is, the largest group of companies in the country, to start using it and exploit all its benefits. This document will precisely address that challenge facing this companies segment.
Following questions shall be answered in order to address the topic:
- What makes sense of staff outsourcing?
- Which areas can be outsourced and with whom?
- Or, can I subcontract several areas for a determined time?
- What should I expect from the service?
- What should I provide the employees under this scheme?
What a company looks for and must expect when making a decision in this sense, is to seek for economic benefits by reducing time, process efficiency or reducing risks. In other words, the ultimate goal of this decision is to increase company profits through various mechanisms. For example, let’s think of a manufacturing company which is planning to outsource its administrative support area.
The company must have it clear that this is not the best and, consequently, it is not the most economical option to carry out this type of activities whenever there are specialist companies in the field, which are dedicated to this and that by taking advantage of their infrastructure and knowledge on the subject can provide this service at a lower cost and more efficiently. There are companies Mexico specialized in billing, accounting, collection, taxes, file handling, and so very surely if they take control of these activities they will add a lot of value to the manufacturing company as they will allow the latter to focus on what their business really is.
Especially in Mexico, where fiscal legislation is so dynamic and requires constant updates of knowledge by the staff in charge of compliance with the tax obligations of companies, for example, it makes sense that a company instead of wearing down to train one, two or three people on tax issues, leave that in the hands of specialists and focus on training people in activities generating value.
Following the example of the manufacturing company, which areas would make sense to outsource and which areas should keep it? For example, areas such as administration and systems should seek to outsource support. The areas of maintenance and care of the plant such as security, cleaning, maintenance as such, etc. And on the other hand, what areas should never even consider be left to a third party? Evidently its value generation areas such as its production process, its quality control, its General Direction and Finance that are in themselves areas or generating value or criticism for the operation of the business. These areas should always be in the hands of internal staff, loyal to the company, who live and breathe their culture, who perfectly knows the company’s strategy and even has participated in its design.
The personnel outsourcing can be permanent or for certain periods of time, this decision must be made taking into account the environment lived at that moment by each entity. It could hardly be generalized when it is more convenient to do it definitively and when to do it in a temporary way. Notwithstanding the above, there are times when it may be clearly advisable to do so on a temporary basis, such as when, for example, we have a project that will be for a specific period of time and takes place in a geographical area other than the Our case may be when a foreign company is arriving in a new country, or in cases where we have a project which exceeds our capacities and just like these examples there are others in which, if we stop and well analyze the situation, the decision to hire a third party could bring us economic benefits or a reduction of unnecessary risks and expenses which, in summary, positively affects the last line of income statement.
An important aspect when outsourcing staff is to care in detail for the people who are hired under this scheme. The entry service provider should be required to fully respect the labor rights of all workers, to, if possible, grant them additional benefits to those established by law, to meet their requirements and needs as they are served by the company base employees, to provide new employees a brief induction course to the company, its specific working environment and the basic processes the employee will be facing.
Requiring the provider through which the service is hired to make employees feel, as much as possible, part of the group, to care for them, to worry for them and to have a good relationship, will cause the same employees to be loyal to the company, give an extra effort in the execution of their activities and generally feel at ease performing their activities. All of the above, will always be for the benefit of the company.
In conclusion, it is necessary to work so that the SME Company in Mexico, whether national or foreign, decides to consider the outsourcing scheme as a tool that, well used, will certainly generate benefits to the company. The paradigms like losing control when assigning tasks to a third party, that information is at risk, should be left aside, that there is no one who can do this activity better than the internal staff and, on the contrary, way must be given to the idea that it is important to identify what is generating value for my company and its shareholders and focus efforts on the achievement of these objectives, leaving in the hands of third parties, professionals and experts, those activities which are not part of the business backbone.