Mike O’Hagan – How Outsourcing Saved his Business in Australia

Hi and welcome to another episode of the Outsource Accelerator podcast. This is number 72 and my name is Derek Gallimore and today I’m talking to Mike O’Hagan. He owns a big moving company in Australia called Mini Movers and he’s been in business over 40 years. He is a business adviser. He’s been on commission bodies from the Australian Government. He does a business talking circuit. So, he’s a great guy to know in business. Not only that though he has been living in the Philippines now for about four years and he’s been outsourcing to the Philippines for about six, seven years. So, we talked to Mike about how he has come on this journey and how outsourcing has changed his life. So, I’m sure you will learn a lot from this. This is number episode 72. So, if you want to get in touch with Mike, want any information, go to our show notes which is at outsourceaccelerator.com/72.

Derek: Good so, welcome back everyone and today I am joined by Mike O’Hagan. Hi Mike.

Mike: Hi there.

Derek: And Mike O’Hagan is a man of business. He’s been in business decades now has been, owns Mini Movers, which is a moving company in Australia dozens of other sort of entrepreneurial interests and he knows a huge amount about outsourcing here in the Philippines as well. So, it’s great to have you Mike. I suppose Mike do you want to first give the people in the audience an introduction to you and how you got to be here in the Philippines.

Mike: Yeah sure, sure. Look just to sit the same with me as a Kiwi that went to Australia many, many years ago. In my mid-30s I set up a company called Mini Movers. Short distance furniture moving. That company grew and had a fantastic growth over about 20-25 years. Telstra sold business all year and all sorts of things like that. It grew across Australia operating in Brisbane, Gold Coast, Sydney, Melbourne, Adelaide and Perth. What it does specifically is just simply short distance direct door to door furniture moving. The business processes like we market ourselves like all home services. Customers call us. We answer them on a call center. We explain what we do. We booked the job then we hire people that we own the trucks. We hire people and train people to move the furniture. We send them out on his tab. They do the job at the end of the job they build it up and come back again and that’s the process. I started that business 32 years ago. And. As I said just a minute ago fantastic continuous growth for 20 plus years. Then in this part of the story it comes into what we’re talking about now is that in 2009 it got very much hit by the GFC all the big downturn, the global downturn that we all experienced. I can say that we were moving nearly a thousand house loads a week in Brisbane alone at that point. We were large we were doing some phenomenal numbers in that market. Contracted overnight by 60 percent. And there was a second change that happened at the same time that people don’t often talk about. And there was a major change in consumer behavior. In 2007 we had a massive bright yellow pages book budget. I think we were spending 1.2 million dollars a year in the yellow pages book. That was working for us of course in 2009-10 come around that has stopped working. So, the market contracted chromatically. And so, the marketing that we’re used to, the old-fashioned marketing that we’d been born and bred with change radically with the Internet and then and.

Derek: That’s, that’s an interesting observation because you had very much a bricks and mortar, a traditional e-commerce business but you were really shaken up by the rise of the Internet because of the marketing and distribution and getting in touch with the clients.

Mike: Absolutely. We’re caught in a crossfire. And because I don’t openly admit that we were quite old fashioned in our thinking and it took us two or three years to sort out what had happened and where we needed to go. And it took us a while to work it all out and that’s what led us to the Philippines. I had other management of the company, I’d stepped out of the company a number of years before. I owned the company, but I was on doing other entrepreneurial things around the place. And I had other management in place and we misran for two or three years after the downturn trying to fix it using old fashioned methods, I suppose. One of the better description and then one day I decided I’m gonna have to come back into my company and I’m going to have to reinvent the wheel. I’m going to have to take on and meet the challenges. We had red ink. We were locked up badly with the bank. So, we were in financial strife. We were probably quite, quite dangerously in financial strife. So, I stepped back into the mold and I did a number of things. But the big thing that I really did was I started moving backend processes to the Philippines. Originally to save money to get back get it from red ink into black ink. We had 500 staff for this stage we’d shed 300 we would down to 200 staff. So, 300 Australians have already lost their jobs and the other two were going to lose their jobs if I didn’t do something. So, moving the backend to the Philippines was more like my desperation thing to try and drop overheads and.

Derek: What was the initial catalyst for that? Obviously, you were needing to save costs you are looking for efficiencies but what made you think of the Philippines at that stage.

Mike: Well, I had an Odesk PA, a Filipino PA. So, I had a young lass on Odesk her name was Kate and she was my full time PA working for me 40 hours a week. And I’d had her for a number of years, so I’d got used to the Philippines, I’ve never been here. She’d worked for me for years she knew everything I was doing day to day and I, we got into it. You know you should form a good relationship with your staff when you work that closely together. So, it sort of made sense to me that this PA working for me is such a low wage, she is so clever. Why can’t I do that with my other staff in Mini Movers, so I went to her and asked her to go out and find out how we could go about it. Thinking that she would do as you would incorporate a company, rent office space and do that. And of course, I discovered the co-manage or staff leasing solution. And the rest was history. I started day with one or two people and it worked brilliantly for me. It really did. And over time it’s ramped up dramatically.

Derek: We can actually discuss this a little bit later but there’s actually a very common journey isn’t it with a lot of entrepreneurs they kind of, a lot of people might test the water with Upwork or Odesk or Freelancer get used to remote working and then they kind of progress, they might try outsourcing and then eventually they have a team of 10-20 and then they want to incorporate and then they want to get their own BPO you know it’s quite a journey that a lot of people make.

Mike:  As I realized I like to compare it to heroin and once you get on it, you can’t get off it. It works so wonderfully and it doesn’t work the way you think it’s going to work, the vast majority of jobs I have here today aren’t jobs from Australia. The early first jobs were, that were jobs said of Australian that were designed to do very quickly drop our overhead. So, we could get black ink in and save everybody else’s jobs. When we discovered how clever they are. How they are really focus on their productivity levels. It wasn’t about pros any more it was about being able to do a lot of stuff for our customers and clients that nobody else could do. And we could really develop some real competitive advantages in our business. So, that’s what it all began about. So, you know today we’ve got 45 staff in the Philippines. Over half of those staff are not jobs out of Australia they are jobs. They are new marketing processes that we developed to counteract the new marketing that we had today. None of those jobs would have ever been in Australia. They’re not a result of them.

Derek: One of the main messages I preach is that you can save 70 percent on staff cost but the actual gain is by driving innovation and growth because you can actually when you have more access to affordable good skilled staffing the sky’s the limit.

Mike: Yeah.

Derek: In terms of innovation.

Mike: And well I’ve got exact numbers and numbers including office costs and computers and everything else and wages is all added up together. The operations in the Philippines is 78 percent lower than the cost in Australia. However, this is with the twist is we have some way between two or three times the productivity level.

Derek: Right, right.

Mike: So, we were replacing one Filipino to three Australians at one stage and it was quite amazing that they were working a lot harder and the productivity was a lot higher. So, it’s not just the wages that was the risk of it as well. And to me as an entrepreneur I just whilst I did short term to gain profit. I very quickly realized hey I can do this to actually do a lot more in my market to have a better product for my clients. And of course, that’s what we did. We used it to change the way we do things.

Derek: Right. And a nice story maybe is actually how we came to meet Mike. We met way back in 2011 and I think I’m a pretty bright guy for a relative early adoption of BPO into you know as an SME but it was actually you that I met at a business networking event that said why not give the Philippines outsourcing in the Philippines a go because maybe as you started I had been using an Indian guy of Upwork or whatever. And the results aren’t that great. And you suggested coming over to the Philippines and doing outsourcing properly using a BPO. And so, I have you to thank for that and I did actually start that within about a month and then I think within about a year I had about three staff and I came to the Philippines and met you, met your teams did a tour with you. And that was the beginning.

Mike: it’s a journey that we’re all on and we all learn as we go along. It really is. And you were already pretty globalized then you were living in Sydney running a business in England which was I found quite fascinating at the time and then we managed to do it here. The reason the Philippines is better than anywhere else in this and I’ve been to Poland, and I’ve been to Thailand, I’ve been to India many times I’ve been to a lot of, Vietnam, Malaysia and Philippines. Philippines stands out for these reasons and these reasons only. We’ve got a hundred million people. We had a very, it was an American colony for 40 to 80 years depending on how you measure it. The Americans came in here put their education system and made it compulsory have a literacy level of 97.4 percent. And they made it compulsory in English so it’s an English-speaking country. The Spanish were in here before the Americans they gave them Christianity. It’s a devout Christian country of all the countries in Asia, it is the only Christian country. When I mean Christian, the core values are the same as ours. We think the same. We have the same, it’s just the same, we’re very similar. So, you’ve got a well- educated population. You’ve got an Americanized educational system. It’s an English, third largest English-speaking country in the world. And you’ve got unfortunately they still have the Spanish political system here which I think has led to the problem I’ve got with the poverty and the low wages. And so, you’ve got these phenomenally low wages with probably the average wage here is for an educated person with the uni degree is probably about $100 a week Australian roughly thereabouts. Compared to what we’re paying in Australia which is you know $900 a week or some way thereabouts this phenomenally different better education system English. And that just makes it and there’s no other country that can line up with all those factors.

Derek: Yeah there’s a lot of ducks in a row really doesn’t it. You know there’s a huge amount of. And I think if the infrastructure can keep up with the evolution of this BPO thing there is a grand future awaiting for the Philippines.

Mike: Well, the government here of course have welcomed offshoring or outsourcing. It’s a vital now, vital part of their economy that’s done the right thing. They’ve built special economic zones that put in really good Internet and all of the things that are in place so all that’s working quite well. So, it’s there it’s permanent it’s not going to go anywhere. I think it’s just part of mega trade in the world.  This, a major game changer in the same way that many, many other game changers through history this is a big one.

Derek: And it is a win-win as well isn’t it because when I, when a lot of people venture over here they have a concern that there’s a bit of a sweat shop kind of mentality or people are being abused over here and people are being underpaid. You know you mentioned a hundred dollars a month. But actually, the BPO is bringing opportunity and training and white-collar jobs and upskilling.

Mike: BPO industry here is creating a middle class. A hundred dollars a week is in fact twice their local rate of pay. If the normal Filipino working for the Philippine government or a large organization in Manila, you’ll be on $45-50 a week $100 a week here, industrial relations legislations here is stricter than Australia. They have all these commissioners at once I’ve settled into minimum wage in Australia and I have a lot to do with the sort of things and I can tell you here that the industrial relations system here is stricter. However. It is in many ways fairer. There’s only one set of rules and providing you abide with those exact set of rules and you might not have any problems with it. And so, there are strict guidelines in place. There’s strict rules in place. Most of the offshoring industry is controlled by square meter inch rates that they get special concessions and tax and all sorts of things by having workers with so many workers per square meter and they’re very liberal. They’re pretty spread out.

Derek:  And they will get Health insurance. And there’s good.

Mike: Yup

Derek: Services here.

Mike: Absolutely. The backups there, the workers are doing well out of it and everybody is doing very well, and it is well regulated. It’s not a backyard operation. Little sweat shops. It’s far from it.

Derek: And I suppose then just to wrap up. You mentioned that when people start their outsourcing journey it’s like heroin. Once they start they kind of get more and more into it and use it. And, you as an entrepreneur you have had a lot of different fingers in different pies and, yet you see this huge attraction in outsourcing. What is it exactly about outsourcing. Why is it a heroin? Why is it so exciting?

Mike: I think the future of business for all entrepreneurs is now a global thing. I think when you have a business you need every component of your business. What I call world’s best value. You need to be producing your product at the best value you can. You need to be managing it the best value you can. And you need to be selling it in the markets with the best money using the best value and that is in the end of it. And then all that together comes in and often that’s overseas. Nowadays when the globalized world and it all comes back to Australia because it’s tax residence so whatever country we live in. And that’s actually good for our countries so I think that’s just the way it is. We’re now you know the Internet has allowed connectivity. We’re now sourcing things, purchasing things when they’re selling things and the new one now is we’re now employing people anywhere anytime within minutes and that is just the reality of the world.

Derek: It’s amazing. The technology’s just making the whole world borderless, isn’t it? So, equal opportunity. Great. Thank you very much, Mike.

Mike: Thank you very much.

Hope you enjoyed that. That was Mike O’Hagan. I have known Mike for many years now and I always learn a lot from chatting with him so I’m sure you did too. If you want any of the show notes or if you want to get in touch with Mike directly then go to our show notes at outsourceaccelerator.com/72.