Despite the differences and difficulties, in the current global scenario, it is extremely tough to not outsource or offshore. Firstly, in outsourcing, there is a comparative advantage – the ability to manage services at a lower opportunity cost. Clients can divert their pool of resources, both human and financial, to processes that add more value to the client. Also, vendors have expertise on the subject and therefore, have a clear edge over client in their particular field. It only makes sense to get the work done by the experts and at a lower cost.
Secondly, even if not for outsourcing, large companies might have to deal with cross-cultural risks if they are planning to expand to other countries. In such cases, if there is a stark cultural difference between the companies and its customers, it is better to have a local team that can act as a liaison. Also, having an offshore center helps immensely in popularizing the brand even before its launch in the countries. Sometimes, having an offshore facility helps in bringing product faster and cheaper to foreign markets. In addition, developing nations also offer lucrative incentive programs to attract foreign investments. For example, BMW has announced to manufacture more cars and increase its localization in India by 50 percent after the “Make In India” initiative by the Indian government. According to Philipp von Sahr, President, BMW Group India, following their approach of ‘Production follows the market’, they had accelerated their localization program in India and it created a win-win situation for their customers with a wide range of exclusively authentic luxury products and enjoyed equally attractive value proposition with ‘Make in India’.
Therefore, it can be seen that outsourcing/offshoring can be turned around as an advantage if strategically sourced. It is important to understand what can be sourced and what must not be sourced. With the previous cited examples, we can infer that services or products that do not require interactions with customers from other cultures can be considered for outsourcing. In some cases, processes that do not add value to the end customers are outsourced while others outsource services that are high-cost and/or unmanageable. To get the best out of sourcing, organizations must ensure that their sourcing is aligned with their business strategy and is in sync with customer expectations. Alternatively, organizations can consult an advisory service that specializes in outsourcing and has a strong knowledge base. Neo Group is a trusted voice in the services sourcing space, a reputation built over 15 years of successfully helping clients in Global Services Sourcing.
Research and Analysis:
After thorough planning and narrowing down on the services that can be outsourced, firms need to analyze potential vendors (in case of outsourcing), and locations (in case of offshoring). Various factors like cost advantage, cultural match, employees with required skill sets in the location, government policies, geographic distance, and natural disasters in the location must be analysed. Also, companies must decide on the level of authority to make decisions and the amount of data that can be shared with the offshore team.
To make informed decisions, companies can also contact SupplyWisdom; our proprietary 10-point risk scale simplifies cross-target comparisons by providing standard risk ratings across eight categories for each vendor, country and city.
After offshoring, it is essential to get the offshore employees up to speed on the project, business, key values and culture. Companies must pay attention to recruiting the right candidates who are smart, can understand the company’s culture and can be moulded to fit in. Clients must understand that the employees are from a different background and must make sure that the conversations are explicit. To confirm both clients and employees are on same page, during initial couple of months, conversations must be more frequent and requirements need to be summarized at the end of it. Practices and events that take place in the parent company must be followed in the offshore center as well, and the offshore employees must be made aware of conferences, news, partnerships that the onshore company takes part in.
Irrespective of all the efforts, it is still possible for the offshore company to malfunction. Therefore, monitoring its growth financially through revenue, profit and cost saving is necessary. As mentioned earlier, some of the offshoring processes can look like cost saving but might actually increase costs through “hidden cost parameters”. So, parent companies must track the offshore company’s risk across various information areas.
SupplyWisdom provides real-time alerts on new opportunities and potential service disruptions. It provides expert analyst insights and actionable guidance on strategic opportunities and risks across key indicators, including financial, geo-political, scalability, and more.
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