What is Offshoring?

Offshoring can be defined as relocation of business processes (including production, distribution, and business services, as well as core activities like research and development) to lower cost locations outside national borders. The term “Offshoring” assumes the perspective of the country of origin.

In today’s flat world, Offshoring is no longer looked upon as a mere option, it now has a significance not only limited to control/reduce costs, but also to combat global competition & go-to-market strategy for any business.

Offshore Lifecycle

Offshoring cannot be undertaken on an ad-hoc basis, it needs to be planned out and then executed to precision. In order to achieve that, it is imperative to understand the key links of its lifecycle –

• Knowledge
  • Offshore Market Research
  • Offshore Workshop
• Plan
  • Offshore Strategy
  • Portfolio Assessments
• Source
  • Build, buy or outsource
  • RFI/RFP Management
  • JV/Supplier Due Diligence
  • Location/Supplier Selection
  • Contract Negotiations
• Manage
  • Transition Management
  • Program Management
    • Financial
    • Contract/Operations
    • Performance
    • Relationship
  • Benchmarking

Outsourcing growth is at a fast pace

What started as a “need-of-the-hour” activity with the Y2K problem has now snow-balled into a paradigm shift in the way business is done. No wonder outsourcing, more specifically offshore outsourcing, is on a fast-track growth path with the IT industry registering a double digit CAGR year after year across the globe

Offshore Locations Abound, where do you decide & go?

Well, now the next question is how to decide and where to go for offshoring? Should you offshore to a single location or should your offshoring strategy multi-locational?

There are plenty of destinations, but only some may actually meet your criteria and/or specific need. Typical criteria on an offshoring strategy matrix is a fine balance between Labor cost arbitrage and the Quality of supply.

Participation Options Abound

Various partnership models are available for offshoring with each model presenting its own merits and challenges. The balancing act to be performed again is between what Value you realize and what Control you exercise on your offshore location(s).

Market … Inhibitors of Offshoring

Offshoring is now in vogue but still, most firms are not offshoring due to some major concerns -

• Overall IT Spending Growth is Either Flat or Down
• There are fundamental concerns about Risk…
  • Geopolitical
  • Intellectual property
  • Optimal offshoring solution
  • Vendor performance
  • Financial
  • Career
• …and Practicality
  • Infrastructure
  • Language differences
  • Physical distance
  • Time zone differences

And…Such Concerns Are A Sober Response To Actual Challenges.

Offshoring is Difficult; There are significant challenges to maximizing returns, but then, who said business itself was easy!!!

Critical Success Factors

For any offshoring initiative to be a success, there are a few key factors which, if not understood and worked upon diligently, could make that critical difference between success and failure of the whole initiative –

• Executive Sponsorship – “Strategic vs Opportunistic” – it has to be Strategic all the way.
• Designing an Offshore Solution
  • Assessment, Phased Offshoring
  • Supplier Knowledge, Due Diligence, Mapping
  • Multiple Suppliers, Asset / Resource Acquisition
• Local Program Management
  • Transition Support & Management
  • Performance, Financial, Contractual and Relationship Mgmt.
  • Operational Reviews and Annual Benchmarking

Best Practices

Though there are no hard and fast formulas for ensuring the success of your offshoring initiative, but there are some time tested practices that have proven their worth again and again –

Preparing the organization

• Learn about offshoring and other benchmark experiences
• Test the waters
• Get buy-in early
• Document internal processes
• Assign a dedicated project manager
• Select a program management and collaboration tool

Establishing the Offshore Operation

• Pick methodology for selecting projects/processes
• Expand supplier selection criteria
• Engage in detailed supplier due diligence
• Ensure organizational fit
• Use Subject Matter Expert for negotiations and contracting
• Document everything
• Establish secure infrastructure
• Enable knowledge transfer
• Two-way cultural understanding
• Establish tight program management
• Use third party for program management and/or periodic reviews