Building an offshore presence

...specific location, before taking everything back in-house, whilst retaining the offshore centres.

Strategic partnering, or a joint venture, occurs when the outsourcing organisation establishes a presence in the specific location where the outsourced work is to be performed. Thus, it sets up its own operation in that particular location, with the help of a local company. An outsourcing provider organisation would offer its partner local knowledge and local management skills in order to get the operation up and running. According to Business Insights the biggest challenge with a joint venture relates to the merging of two different cultures, and this means that only larger organisations tend to look at strategic partnering, to extend their onshore functionality.

The final option for organisations looking to use the offshore model is the wholly owned subsidiary, whereby an onshore company would set up its own offshore extension of the business, and Microsoft is just one example of a company that has done this. As one might imagine this is the most complex of all the offshore models as it requires full commitment and expertise, and thus is slower to ramp up. The company needs to be aware of local culture, laws, and bureaucracy relating to business and employment in the chosen location. If done well, however, this can be a very rewarding approach, but it is of course a very long-term commitment.

The bad press that offshoring has received not only in the UK but in other countries as well has prompted some organisations to abandon the idea of offshoring completely, and others to take a very cautious approach, building their own offshore teams instead of using third-party organisations. There are, however, good reasons for purchasing third party expertise, as well as good reasons for building one's own offshore presence.

Reasons why organisations would buy offshore expertise include the fact that offshore resources are widely available — India is the most well known offshore location, but countries such as the Philippines, China, Hungary, and Russia are all producing high-quality IT graduates. This should be tempered by the fact that there tends to be a high attrition rate, particularly in India, with staff frequently moving from company to company to get the best package. These individuals do look to work for big-name companies — in India these include TCS, Wipro, and Infosys.

At the beginning of this article I talked about the fact that many offshore companies push improved service as being a reason for offshoring — it is true that there is a great deal of investment by big-name companies in intellectual property to be able to service their overseas clients. These providers are very keen to ensure that they are doing everything possible to retain existing customers and attract new ones, thus although this is not the main driver for offshoring, it is one of the reasons for buying offshore expertise.

This is probably a point of some contention, but the performance of many offshore providers can lead customer organisations to a speedy Return on Investment (ROI), a lower failure rate, increased customer satisfaction, and a lower cost — all of these when compared to strategic partnering or developing a wholly owned subsidiary.

Cost remains a big driver for offshoring, and indeed...