Wages will rise and so will inflation…
Asian economies are growing and this combined with monetary easing by central banks will likely continue to push prices higher next year. Rising inflation and demand for labour will lead to higher wages. According to a Tower Watson survey that received 2,900 responses from over 300 companies from 20 countries, salaries across the region are set to rise an average 7% in 2015, up a fraction from 2014, with China (5.2%) and Vietnam (4.1%) the main drivers after taking into account inflation. Japan (0.6%) will see the smallest increase.
The rise of the local talent
The number of expat packages will continue to decline in favour of local or “local-plus” remuneration schemes. There are several reasons for the shift, including the recovery of western economies and the rise of a new generation of local managers in emerging markets. Foreign executives are also generally more expensive, often requiring additional housing and schooling costs for relocated families, and are sometimes unable to adapt to local corporate culture.
Asian companies are expanding rapidly overseas and are increasingly outsourcing their payroll function to acquire instant operational expertise and experience in multi-country payroll. SMEs in Asia are also placing a greater importance on the critical challenges of talent retention and leadership development. As a result, the pace of outsourcing operational and routine HR functions such as record maintenance and timely payroll processes will gain further momentum. The global payroll outsourcing market will grow at a compound annual growth rate of 3.91% over the period 2014-2018, according to Research and Markets. Growth will be led by multi- country contracts within a single region and multi-region contracts of two regions.
The evolving HR Role
Organisations in Southeast Asia today believe their HR teams need significant reskilling. HR departments will increasingly be in charge of crafting leadership development programmes, managing data and information about people, and acting as skilled consultants. The HR role will become a strategic contributor to business success and not just a centre for cost reduction and improvement in service delivery efficiency.
Cloud-based offerings are growing rapidly in all sectors. The expectation among experts is that there will be an increased focus on streamlining payroll within an end-to-end HR-to-finance process, such as solutions provided by Workday.
In Asia, labour costs, technology infrastructure, governance and legislation, decision-making processes, work practices, culture and language differ markedly from country to country. A cloud-based solution for a company with regional operations will not only help to reduce costs, but provide a standard platform for basic payroll services such as leave application.
Rules and costly compliance
The 2008 financial crisis has triggered a flood of compliance measures to mitigate risk and improve transparency. With increased global connectivity, the regulatory and tax environment is expected to become more difficult. Asia’s varying stages of economy development will add to the complexity. For instance, in Indonesia, China and Vietnam, authorities are implementing pension and insurance reforms. The recently introduced FATCA rules have already caused an increase in reporting requirements for many Asian companies that employ U.S. citizens or have U.S. dealings.