If you choose to engage an offshore outsourcing company for your business, it is important that you understand the outsourcing model that will best meet your business goals. Choosing the wrong business model can be a risk to your business especially if you are outsourcing a critical function. The types of offshore outsourcing business models can be looked at from two perspectives – Ownership or Relationship structure and Geographical location.
The Ownership structure is further subdivided into three different areas – pure contract offshore outsourcing company, joint venture and captive offshore subsidiary. Pure contract offshore outsourcing involves the full control of the business functions by the 3rd party. The provider fully controls the operations offshore with the use of cheap labor only delivering the product or service to the client. A joint venture allows the combination of resources from two or more companies to produce a single business entity that is established to carry out a certain project within a given time frame. Usually, a joint venture is created by businesses in the same industry. For instance, a group of financial services providers may opt to establish a disaster recovery site that caters for their diverse needs as opposed to each firm setting up and maintaining its own disaster recovery site.
A captive offshore subsidiary is created by a parent company located in a different country. The subsidiary is owned solely by the parent company. When it comes to geographical location, a business can outsource to an offshore outsourcing company, an onsite outsourcing company or an in country offsite outsourcing company. Each of these models has its strengths and weaknesses. But let us first look at the meaning of each of these models. An onsite outsourcing company provides the services from within their client’s premises. The service provider brings their own workforce. This is ideal where product needs to be delivered to the client relatively fast and the client requires to have close supervision of the process.
In country offsite outsourcing is where the processes are moved to an outsource service provider based in a different location but within the same country. The service provider is responsible for obtaining premises to carry out the task. The third type is the offshore outsourcing company. In this case, the service provider is in an entirely different country. Offshore outsourcing is often the most complex but also stands to provide the most benefit for an institution in terms of cost, access to a highly skilled work force and growth in the international reach of its products.
Daven Michaels Author of the book Outsource This!