Offshore outsourcing is simply defined as outsourcing to outside countries. Some people may think that the process of offshore outsourcing is a walk in the park producing large sums of profits. This notion however is erroneous. It takes a lot of work and initiative to make offshore outsourcing work and produce desirable results. It involves choosing the right model of offshore outsourcing that would fit a particular business need or situation.
Choosing the right model of offshore outsourcing is a very critical phase that companies undergo. Any decision made can either make or break their business options offshore. Making the decision on what model to choose involves aspect of selecting which country, economic conditions of a country, international business strategy, and outsourcing strategy.
There are currently three models of offshore outsourcing that are popular among businesses. These three are outsourcing to a service provider, joint ventures and subsidiaries.
Outsourcing To A Service Provider
Outsourcing to a service provider is the most evident offshore outsourcing model. It has a lot of coverage that range from small projects to multi-year contracts that amount to millions of dollars.
The simplest form of outsourcing to a service provider is onsite subcontracting. In this form, a company assigns its skilled personnel directly at the client’s site. The people assigned will then become part of the client’s team. This form of offshore outsourcing is perhaps the simplest and is commonly used by small organizations that are tied with the client company.
Another form of outsourcing a service provider is pure offshore projects. In this form, the scope of the functions is properly defined and work can be done remotely that requires little to no supervision. A good example of this is assigning work to small organizations or even to individuals, freelancers as they are commonly called. With the help of online tools, projects can easily be sent and received by hired firms or individuals all over the world.
Offshore outsourcing individual projects is another form wherein a certain function is subdivided into smaller chunks to be outsourced to vendor companies. This is usually assigned to vendors with whom the company has close ties with.
Joint Venture Offshore Model
In this model of offshore outsourcing, one organization establishes a relationship with a local company wherein both companies contribute to their resources. The main purpose of this goal is “I lend you my strength and you lend me yours.” This creates a win-win situation wherein both companies can gain something from the tie up. With this kind of setup, the client organization will be able to minimize the risks of offshore outsourcing while on the other hand the local firm is given the opportunity to work with a large company scaling up their value chain.
The joint venture offshore model is sometimes considered as the stepping stone of the client organization to move on to the next offshore outsourcing model which is the subsidiary offshore model.
Subsidiary Offshore Model
From the joint venture model, a company may transcend to the subsidiary offshore model. However, it is also possible for the client company to move directly with the subsidiary offshore model without passing through the joint venture model given that they have enough confidence and are comfortable with tackling the local market. The most challenging part in this kind of offshore outsourcing model is the general management of the onsite units especially the staff.
Offshore outsourcing is not as easy as some people may think it is. It needs thorough planning as well as making the right decisions. This includes choosing the right offshore outsourcing model that your company needs. It is even possible that a hybridization of the models is needed just to suit the needs of your organization. So plan well and choose well.