To decide if offshoring is for you, you first need to understand exactly what the term ‘offshoring’ means. There are a few different types of offshoring, and they’re not all right for all businesses. They all have their own pros and cons.
Please read on for more information about each model.
Project Based Outsourcing (we don’t do this)
This approach to offshoring involves paying someone overseas (often a freelancer) to complete a project with a limited scope and duration.
This might work for you if you only have one-off projects that require specialist knowledge/skills, rather than long-term, ongoing work. We usually find this works for start-ups and micro businesses who are on very limited budgets.
The main downside is you have little control over when and how your freelance completes the work, so you’ll need to build a buffer into any timelines in case of potential delays. Plus you don’t have control over the capacity planning of your vendor, so you can never be sure who’ll be working on your project, from one day to the next. And because the vendor has to contend with varying demand for their services, they’ll be busy one month and quiet the next, and they’ll factor this into their pricing, resulting in higher project rates than you’d pay a dedicated resource. (i.e. You’ll pay more to cover their quiet times.)
Business Process Outsourcing (we don’t do this)
Business Process Outsourcing (BPO) is what most people think of when they think of offshoring. It involves paying an overseas company to handle absolutely everything related to your offshore business processes.
The benefits are that you get a very hands-off approach. You don’t need any local knowledge and you don’t have to spend time recruiting or managing staff yourself. (You could, for example, set up an offshore legal or web development team without any knowledge of those fields, whatsoever.)
But on the flip side, it’s more expensive than other models, and you don’t get any control over your offshore team’s business processes, which means quality nearly always suffers. Your offshore team isn’t properly integrated into your business, and there can be a disconnect between the two cultures. Service Level Agreements (SLAs) can mitigate these risks somewhat but, in reality, even with an SLA, there’s very little you can do if your provider fails to satisfy their obligations, because it’s usually not feasible to simply shut down and move your operations and litigation is costly, time-consuming and a distraction you don’t need.
What’s more, full outsourcing tends to be more expensive because your vendor has to factor risk into their pricing – all the things that could possibly go wrong at their end (major IT outages, staff attrition, etc.). So you end up paying unsustainably high margins to cover things that will probably never happen.
Offshore Company Incorporation (we don’t do this)
This is where you set up an overseas division of your company, and you handle everything yourself. Facilities, IT, labor laws, recruitment, HR and payroll, as well as day-to-day quality and productivity.
This approach is all about control – you do all the hiring, setup and management, from beginning to end. But because it’s such a hands-on approach, it can take longer to set up, it requires more upfront investment, and it isn’t cost-effective unless you’re doing it well, and on a large scale.
Plus, with no partner on-the-ground, you’ll need to quickly get up to scratch on local culture and regulations. In our experience, this approach only works for businesses that have a genuine understanding of the culture/country they’re offshoring in and are committed to long-term operations offshore so they can recoup their investment.
And finally, offshore incorporation is a very slow process, and all investment made in the new country are sunk. So if things don’t work out, shutting down the operation usually comes at a very high cost to the business.
Managed operations (we do this)
Last but not least, is managed operations. This model involves getting a partner in the offshore location to set up an overseas division of your company, and getting them to handle facilities, IT recruitment and HR, while you handle quality and productivity. This is the model we use, because we find it fits our clients’ needs – from quickly scaling up small businesses, to improving efficiency in larger enterprises.
The main benefits include:
- A full-time, dedicated team you can integrate into your business
- You select your staff from the candidates we present, so hiring is nearly the same as hiring local staff
- Full control over your team’s processes, tasks, KPIs and service quality
- Simple, transparent costs
- A specialist partner on the ground who understands the local culture and labor laws, and who has experience recruiting and setting up teams, and providing ongoing support
- Works well for virtually any role that can be performed with a computer program or over the phone
As far as the amount of work involved for you, the managed operations model sits in between the DIY model and the BPO model. You don’t have to do all the work on the ground to set up the team and your facilities, but you still have to be prepared to invest some time and energy into managing your team and their output. Learn more about how the managed operations offshoring model works…