Rising budget constraints and economic uncertainty have caused many companies to rethink their strategies before hiring new employees. However, rather than placing a freeze on recruitment drives or cutting costs elsewhere, many organizations have found they can take advantage of the unprecedented opportunities that have arisen in the labor market during the last two years.
As huge numbers of the global workforce were forced to set up offices from home, the rise of remote working practices during the COVID-19 pandemic signaled a permanent switch to remote, hybrid, and other flexible working models. With such ‘new normal’ working arrangements, employers now have greater opportunities to hire employees in parts of the world where the cost of living is lower enabling them to benefit from lower labor costs as well as new pools of talent.
Remote work is just one of the ways businesses are able to benefit from global labor arbitrage practices. This article will discuss global labor arbitrage further and see how it can benefit your company.
What is global labor arbitrage?
Global labor arbitrage is an economic practice where companies seek to take advantage of lower labor costs by hiring workers or sourcing production to countries with lower wages than their own. Traditionally, this meant substituting labor from a more prosperous country for one where goods or services could be produced at a lower cost. With the arrival of the internet, video conferencing, and project management software the barriers to trade that previously existed have been reduced significantly making it easier for companies to communicate and collaborate with employees in foreign locations instantaneously.
Global labor arbitrage comes in many forms which include foreign outsourcing, immigration, and the importation of foreign labor through work visas. While global labor arbitrage enables companies to lower their labor costs and gain access to highly skilled workers in other parts of the world, it has also been criticized for creating an unequal development between central and peripheral countries and for contributing to job losses and lower wages in the company’s home country as work is outsourced elsewhere for less.
With cultural and communication barriers as well as the potential for negative perception, it is important to carefully consider your organization’s goals and objectives to ensure they align with global labor arbitrage practices.
How can your company benefit from global labor arbitrage?
Below are some of the ways your company can benefit from global labor arbitrage:
How can a global employer of record enable labor arbitrage?
A global employer of record (EOR) can enable labor arbitrage by assisting businesses to take advantage of lower labor costs in other countries without the need for them to set up their own legal entities or handle local employment laws and compliance obligations. An EOR will be responsible for hiring workers on behalf of a company as well as ensuring all payroll, tax, and legal matters are complied with.
Outsourcing these responsibilities to a global EOR allows companies to direct their focus toward their core business activities whilst taking advantage of the lower labor costs in other countries.
Whether you are looking to increase your overseas expansion or simply assemble a global team, Horizons can help your company with hiring employees globally and in accordance with local laws.
As a Global PEO, we take care of all recruitment, payroll, and tax compliance matters for your global workforce helping you to enter a new foreign market quickly and without the costs of setting up an office in your chosen country.
Contact us today to see how we can support your company in hiring top talent abroad.
Frequently Asked Questions (FAQ)
How is global labor outsourcing an arbitrage?
It is an arbitrage as the purchaser of the labor is benefiting from the differential in wages/salaries in different countries.
Does labor arbitrage always involve hiring internationally?
Not necessarily. For example, hiring contractors rather than employees can sometimes be an effective labor arbitrage when hiring domestically.