The term “offshore outsourcing” refers to the processing
of work flow from large organizations by outsourcing companies halfway across
the globe. In past decade rapid growth in the BPO trend is evidenced by more
and more companies offshoring to destinations like China, the Philippines and
India. Cost reductions, improved quality standards and greater productivity are
the key factors empowering offshore outsourcing strategies.
However, the facts of business process outsourcing reveal
a somewhat different reality. Before
finalizing any BPO contract, management must make complex decisions when
selecting the right offshore models that fulfil their business requirements.
The selection process involves considering several factors such as:
· International business strategy.
· Selecting the best outsourcing
location.
· Scanning the landscape
·
Deciding
upon a BPO strategy.
The three popular and successful
models currently in use among large business enterprises are joint ventures,
subsidiaries and outsourcing to service providers. Given below are details on
how these models work and what their benefits are.
·
Joint
Venture Offshoring
In a joint venture (JV), one company
ties itself with another organization or local firm by either forming an
independent company or taking an equity stake. The aims of a joint venture are
to benefit from the individual strengths of each party
involved, scale up value chains and overcome market risks. Joint venture
contracts mostly include build-operate-transfer (BOT) clauses to encourage both
parties to work together on defined strategies to achieve business milestones.
The JV model offers several benefits, especially if the company wants to learn
intricacies of managing business customs directly from the domestic partner.
·
Subsidiary/Captive
Development Center Offshoring
Common
terms used to describe the subsidiary model are offshore development center
(ODC), captive development center or local office. Subsidiaries are independent
business units or branch executing projects and programs for onsite teams. The
main challenge faced by subsidiaries is managing expert staff, technical
experts, line workers and line supervisors from multicultural backgrounds. This
model is quite popular among high tech companies that have adapted to new
technological developments and consider offshoring as an innovative way to
achieve increased diversification of their strategies.
Large software companies such as
Microsoft, Oracle and IBM have already developed a reputable position in the
global marketplace. Outsourcing some of their projects to other destinations is
an effective way to extend their geographic foot print.
·
Service
Provider Offshoring
Joint ventures and subsidiary models require strong
commitment on the part of the client organization. To remove risks tied
with these models and to maximize benefits of offshore outsourcing companies tend to outsource their projects to offshore
service providers. Interestingly enough, service provider offshoring is
the most commonly used model as it encompasses a wide range of jobs from small
projects to multi-year contracts.
In summary, offshoring can be a
complex decision which directly impacts a company’s market reputation. Business
leaders need to consider both the pros and cons of each of these models before
implementing a specific course of action within their organization. These days
many companies are using customized hybrids which incorporate various principles
from all of these models in order to stand out in a competitive market.
