Popular Offshore Outsourcing Models

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.