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Offshore Outsourcing – Factors To Consider

Companies face various issues and concerns when they choose to outsource work to offshore destination which establishes the need for them to perform a cost-benefit analysis. Although offshore outsourcing helps the company to save substantially on cost of operation and helps it to focus on its core competency, there are several factors which a company should take into consideration before considering offshore outsourcing as its business model.

1. Legal Implication – Before zeroing down on the choice of a country to serve as its outsourcing partner, a company should take into consideration the legal aspects of outsourcing in that particular country. Different countries have different laws and governance policy due to which they might react differently to issues pertaining to compliance and contractual agreements between the two parties. Evaluation of local laws becomes an imperative for any company seeking to outsource as such laws have a direct bearing on entry and exit from a partnership of such a nature. Generally the Doctrine of Proper Law should be followed which is a system of law applicable to private International law in case of a foreign contract. Decision regarding the choice of law governing the contract should be taken beforehand by the two parties entering into an outsourcing contract. Besides different countries have different trade laws governing issues pertaining to intellectual property rights such as technology patents, copyrights, designs, trademarks etc. Besides these, having complete knowledge of the country’s tax laws, its dispute resolution body and dispute resolution mechanism becomes an imperative for any business seeking to outsource its business or IT services. Company’s should ensure that their offshore vendor abide by the prevailing laws and is transparent during audit.

2. Data Protection And Privacy – Different countries have different regulations governing data protection and privacy issues. Companies seeking to outsource should evaluate the robustness of the IT infrastructure of their offshore vendor to determine the degree of security and privacy it can offer for the shared data. Besides it is always advisable to determine and evaluate the network security policy of the offshore vendor beforehand to avoid any privacy issues later.

3. Project Risks– Location of the offshore vendor plays an important role in the success of a project. Factors such as time zone differences, language and cultural issues, training have direct implication on the level of communication between the two parties thus making project management difficult. Lack of a well-defined process and capability plan can lead to improper integration between the company and the offshore vendor which can hamper requirement analysis leading to poor project execution. Risk related to technology transfer, service level, quality check and project life-cycle management should be evaluated beforehand to ensure successful project delivery.

4. Vendor Selection – Choice of appropriate offshore vendor should depend upon carefully analysis of the vendor’s past projects and business relationship with its previous clients. Prior to selection, steps that should be taken involve seeking recommendations from the vendor’s previous clients, doing a SWOT analysis of the vendor, evaluating its key competencies, analyzing its long and short-term goals, evaluating the vendors readiness to make the necessary changes for synergistic integration, requesting for a proposal and then selecting the final offshore vendor. For maintaining a long-term relationship with the offshore vendor, the service level agreement should clearly specify points related to financial obligations, budget, timelines, quality check and confidentiality.

5. People Management – Personnel management process of the offshore vendor should be evaluated to ascertain the attrition level and its management, the quality and experience of the offshore team. Besides the offshore vendor’s policies related to hiring, training and performance appraisal of their employees helps in determining the ability of the vendor in delivering the projects on a timely basis.

6. Ethical Implications – Companies choosing to outsource should evaluate whether their organization is ready for the change or not. They should plan the possible after-effects of outsourcing and effectively evolve strategies to mitigate the negative fall-out of outsourcing. Companies should plan out assistance or alternate placement scheme for ‘affected’ employees.

Keeping these concerns in view offshore outsourcing if addressed properly can help a company to cut down on its operational and infrastructure costs to a great extent. Apart from shifting focus to core competency, a key rationale for offshore outsourcing has been a reduction in labor costs which falls in a range of 25 to 40 percent for US and European countries. The offshore related risks could be damaging and under serve the entire logic for outsourcing, therefore risk mitigation strategies should be planned before going for offshore outsourcing.

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