For many years, the default approach for smaller international businesses building teams in Southeast Asia was relatively simple. Find a BPO provider, engage contractors directly, or use an Employer of Record, then worry about establishing your own company later.
Those models still have an important place. In fact, for a business testing a market, hiring its first few people or needing to mobilise quickly, they can be exactly the right solution. But from what we are seeing at Ryoss, the mindset is changing. More small and medium sized businesses are asking a different question:
If we genuinely expect to build a meaningful team in Southeast Asia, why would we not eventually own the operation ourselves?
That shift is being driven by economics, regulation, talent expectations and the fact that establishing and operating your own entity is becoming much more accessible than many businesses assume.
Southeast Asia is becoming an operating base, not simply an outsourcing destination
The first change is strategic.
Businesses are increasingly looking at Southeast Asia as somewhere to build genuine capability, not simply somewhere to access lower cost labour.
ASEAN attracted a record US$243.9 billion in foreign direct investment in 2025, up almost 10 percent on the previous year. The region now attracts around 15 percent of global FDI.
That is important because the nature of investment is changing as well. Businesses are building technology, finance, professional services, engineering, customer operations and regional capabilities alongside more traditional manufacturing and outsourcing functions.
The Philippines provides a good example of the depth now available. Its IT and business process industry already employs around 1.82 million people and generated approximately US$38 billion in revenue in 2024. The industry itself is now talking less about simply adding headcount and more about moving toward higher value capability.
That creates a very different proposition for an SME.
The question is no longer necessarily, “What can we outsource?”
It is increasingly, “What capability should we build?”
Direct contracting is not always as simple as it looks
Another reason businesses are reconsidering their models is employment regulation.
Engaging people directly as independent contractors can look attractive. There is less administration, fewer employment obligations and often a lower apparent cost. The problem comes when the relationship does not really look independent.
If somebody works exclusively for your business, has regular hours, reports to your managers, uses your systems and is subject to your direction and control, calling them a contractor does not automatically make them one. Different Southeast Asian jurisdictions approach this differently, but the direction of travel is clear.
Vietnam's Labour Code, for example, defines an employee by the substance of the relationship, including whether a person works under an agreement, is paid and is managed or supervised by the employer. The Code also extends protections beyond situations where a traditional written employment contract has been used.
In the Philippines, contracting and subcontracting are also regulated, with labour only contracting expressly prohibited and permissible arrangements subject to specific requirements.
This does not mean outsourcing, EOR or contracting is inherently problematic. Properly structured models remain legitimate and valuable. It does mean businesses need to understand what they are actually creating. What feels like a convenient contractor arrangement can become a much more complicated employment issue later.
EOR solves a problem, but it is not always the end state
We use EOR solutions ourselves and regularly recommend them.
They are particularly effective when a company needs to hire quickly, does not yet have an entity, is testing a market or wants to employ a small number of people before making a larger commitment. Where the thinking is changing is around duration and scale.
An EOR provider understandably charges a margin for assuming employment responsibility and providing infrastructure. With five employees, that may be commercially attractive. With 30, 50 or 100 employees over several years, the economics can look very different.
At that point, businesses increasingly start comparing the recurring third party cost against establishing their own entity, directly employing their people and outsourcing only the support functions they do not yet want to internalise. The calculation is not only financial.
Ownership can provide greater control over employment contracts, benefits, culture, employee communication, intellectual property, technology, management processes and the overall employee experience. For a business building a genuine long term capability, those things matter. Employees increasingly need to feel part of your company
There is another element that does not always appear in the financial model.
Culture.
A person employed through an EOR or working inside a BPO can absolutely become an engaged and important member of a client's team. But as an offshore workforce becomes more strategic, companies often want the employment relationship itself to reflect that importance;
- They want employees to work for their brand.
- They want their own HR framework, benefits strategy, career pathways and management culture.
- They want a team in Southeast Asia, rather than simply resources supplied from Southeast Asia.
- That distinction becomes increasingly important when competing for experienced professionals.
Owning an entity is no longer only for large companies
Historically, one argument against establishing locally was complexity.
The company would need payroll, HR, accounting, corporate compliance, banking, insurance, office support and people who understood local regulation. For a smaller company, that could make outsourcing everything look much easier. That assumption is also changing.
Businesses can now establish their own entity while retaining external specialists to manage payroll, HR, compliance, finance, corporate governance and other functions. In effect, they can own the company without having to build every support department on day one.
As headcount and local expertise grow, those functions can progressively move internally. This makes direct ownership much more realistic for SMEs than it was traditionally perceived to be.
The answer may be a transition, not a choice
Perhaps the most important change we are seeing is that businesses are moving away from thinking they must choose permanently between outsourcing and ownership.
A company might begin with an EOR and hire its first ten employees quickly. It may then establish its own entity while the EOR continues operating.
Employees can subsequently transition into direct employment once payroll, HR, banking, benefits and compliance are ready. External providers can initially operate those functions, train internal employees and gradually hand responsibility back to the company. This is essentially a Build, Operate, Transfer approach. It combines the speed and lower initial risk of outsourcing with the longer term control and economics of ownership.
Our view
BPO, contractors and EOR solutions are not disappearing, nor should they. They solve genuine business problems.
What is changing is the assumption that outsourcing should automatically remain the long term operating model. From our experience at Ryoss, more SMEs are now looking several years ahead and asking what happens if their Southeast Asian strategy actually succeeds.
If the answer is that you may eventually have 30, 50 or 100 people in the region, the conversation should probably extend beyond the cost of employing the first five. It should consider who ultimately employs the workforce, who owns the infrastructure, how much third party margin will be paid over time, what regulatory exposure exists and how much control the business eventually wants.
Sometimes the right answer will still be outsourcing. Increasingly, however, businesses are deciding that the best long term outsourcing strategy is actually to use outsourcing to help them build something they will ultimately own.
That is a very different mindset, and we expect to see much more of it across Southeast Asia over the coming years.