Offshoring is the business process of contracting certain functions from one country to another far-off foreign country. Typically, companies adopt this process to acquire better services at lower costs.
However, the process of offshoring can be prone to certain pitfalls like communication and cultural gaps.
Fortunately, you can avoid these by adopting offshoring best practices.
In this article, we’ll cover 13 smart offshoring best practices for business owners to get the most out of an offshoring arrangement.
Let’s get started.
13 proven offshoring best practices
Offshoring is the practice of relocating operations overseas, usually by companies from industrialized countries to countries with a larger talent pool but lower cost of living.
Check out these examples of offshoring to understand the process better.
If you want to make the most out of this process, here are 13 smart tips to ensure successful offshoring:
1. Determine why and what you want to offshore
Companies offshore business functions for several reasons like:
- Cost savings.
- Resource constraints.
- Effective end-user support.
- Efficient network management.
- Supply chain and other infrastructure challenges.
However, deciding to offshore due to short-term pressure can impact your long-term goal.
A lack of a clear perspective, reason, and expertise can complicate the deployment process significantly and limit the savings potential.
Usually, companies offshore core business operations like manufacturing or non-core processes like customer service, financial services, etc., depending on their requirements.
Here are the Benefits and Disadvantages of offshoring.
2. Pick the right service model
While offshoring, you have two options:
- Set up your own team of offshore employees (captive model): In this model, the company offshoring its services owns the offshore entity. It is suitable for large corporations who want to have a presence under their own name in the chosen destination.
- Subcontract the task to a third-party offshore provider or freelancer (outsourcing model): In this option, the company subcontracts the work to an offshore partner and may negotiate service levels to maintain specific standards in the work quality. Small to medium-sized businesses opt for such a model since they don’t need to maintain full-time employees.
You need to carefully study both these alternatives and choose the one that fits your immediate business needs. You may choose to select a different model as your business requirements change.
3. Pick roles to offshore
While relocating your business processes to an offshore location, you should first assess which functions must remain physically close to your onshore team. Tasks that require close monitoring and supervision, like research, are best kept onshore.
You can offshore roles that are sufficiently stable and require minimal supervision.
For example, while offshore outsourcing IT services (Information Technology), you might not outsource your highest level of technical support like RnD engineers. That’s because they may occasionally need access to confidential business information.
4. Look beyond traditional offshoring destinations
Developing countries like India and the Philippines are some of the popular offshore outsourcing destinations due to their skilled talent pool and lower labor costs.
Here’s all you need to know about offshoring to Asia.
However, with the rise in global offshoring in recent years, many other new and emerging offshore locations are available.
Depending on your needs, you can explore an offshore partner in Latin American countries like Brazil, Costa Rica, etc., or Eastern European countries like Romania, Poland, etc.
For example, Brazil is an excellent offshore destination that boasts of skilled talent, economic stability, and government support. Some business operations that you can outsource to this offshore location include:
- IT and software development.
- Contact center services.
Moreover, offshoring to countries in Eastern Europe like Poland is rapidly gaining popularity due to advantages like a fast-growing economy and robust infrastructure. You can outsource services like:
- Offshore software development.
- BPO (Business Process Outsourcing).
That said, you should keep in mind the legal aspects related to outsourcing and offshoring. For instance, some countries like Mexico have certain strict laws regarding offshoring.
Compare the average salaries worldwide to make an informed decision about your offshoring destination.
5. Choose an experienced offshoring partner
Experience is an important consideration if you want to hire a separate company to offshore your processes (outsourcing). You need to focus on the core competency of the offshore service provider while selecting the vendor.
Looking at what kind of projects the offshore outsourcing company has completed in the past will give you an overview of their main skills.
You’ll also be able to understand if they have done similar projects to the one you are about to outsource to them.
Some questions that you can ponder upon are:
- Were their clients satisfied with the results accomplished?
- Are any of them still using the company’s services?
- Why did a particular client stop using the services?
Moreover, most outsourcing providers have a list of references from a variety of clients as well as case studies on their websites. You can go through them to further solidify your decision.
Here’s an extensive list of the best offshore companies in India, UAE, the USA, and the Philippines.
6. Understand different contract models
Due to different timelines and resource needs, a contract for call center offshoring will be very distinct from a software development offshoring contract. You need to choose the one that best fits your offshoring needs.
The offshore vendor may offer any one of these three offshore outsourcing agreements:
A. Fixed price contracts
This contract describes the project’s requirements, usually in the form of an RFP (Request for Proposal).
What’s an RFP?
It is a formal document that details the offshore development project and asks the vendor to submit proposals that describe how they’ll meet these requirements.
The contract begins once you accept the offshore company’s bid and agree upon a fixed price.
This contract is commonly used in IT outsourcing and doesn’t offer much flexibility as the requirements from both parties are defined beforehand.
So if the project scope changes, you need to change the contract. Once both parties agree to the new effective date and compensation, it becomes a part of the existing contract.
B. Time and materials contract
In this contract, time refers to the prearranged hourly rate for each team member, while materials refer to offshore resources such as specific software engineering equipment.
You should opt for this offshoring contract if you have a long-term project requiring a lot of flexibility. If you do, it’s essential to keep manageable milestones and routinely analyze progress reports.
The contract ends when the offshore company delivers the goods/services as per the requirements.
C. Dedicated team contract
Here, you hire a dedicated remote team to act as an extension of your in-house team. The team works exclusively on your projects and can handle multiple tasks simultaneously.
Rather than pure give-and-take, it focuses more on business growth and creating a long-term offshore outsourcing relationship.
Ideal for projects requiring continuous collaboration, such as web development, this contract typically doesn’t feature an exit strategy or clause.
7. Define clear responsibilities
If a company uses a vendor for application development and maintains the IT infrastructure onshore, the company must ensure that the two teams don’t interfere with each other. For example, the IT team shouldn’t keep instructing the application team about the processes to follow, the software to use, etc.
However, in case of any snags, each party should ensure responsibility for their actions. If there are issues that fall in a gray area of infrastructure and application management, they can collaborate to resolve the problems.
8. Set service levels
Whether it’s a third-party or a captive environment, there must be an agreement about the expected performance and the agreed service levels.
For example, the service level for an offshore call center could be the percentage of KPI goals the organization has reached or surpassed.
It can include the number of incoming calls answered within a predetermined threshold.
You can use service level agreements as a formal agreement to ensure that the customer service provider offers a certain standard of service level.
9. Launch pilot projects
If you’re hiring an offshore company, you can launch a pilot project that is smaller in scope with clear guidelines of the project objectives and deliverables. This will help determine how dependable an offshore organization is.
The main idea is to set clear boundaries while you hire your outsourcing partner to tackle a project. A good tip is to start with a project small enough to quickly measure the success of the outsourcing relationship.
And once all goes well, you can start outsourcing more significant and more lucrative assignments to them.
10. Ensure security of the offshore Project
Companies transferring their projects to offshore suppliers should think carefully about the security of their data.
In addition to common legal interventions outlined in contracts, there are a number of practices businesses can use to protect intellectual property.
For example, you can offshore your project in parts to different countries or suppliers. This can ensure that no supplier knows the rest of the pieces of the puzzle, protecting your sensitive data.
11. Integrate the local and offshore teams
Maintaining good communication with your offshore team is one of the most important parts of your relationship. However, long distances can make it more difficult to travel around for regular updates than in a local office environment.
That’s why team members from your side need to get along smoothly with the offshore employees assigned as points of contact. They need to interact flawlessly, as this has a huge impact on the overall success of the business relationship.
You can conduct video meetings once a week or once a day. You can also encourage employees to get on one-on-one calls for quick and direct resolution.
12. Invest in training
Training your offshore team can stop or minimize most problems before they cause mid-project stress or even test project failure.
Even though your offshore team may be technically skilled, you still need to train them about your business culture, expectations, and standards.
Let’s take a look at an example of software development offshoring and how you can train your offshore team.
In a software outsourcing environment, you can train your product development team in all aspects of your test process like:
- Communication methods.
- Status reporting.
- The build process, etc.
Investing in this sort of training will help the offshore development team understand your company’s work culture and will be able to provide better outcomes.
Additionally, sometimes BPO providers conduct cultural awareness training with the offshore team.
And if there’s any need for organizational cultural compromises, both parties must decide on common grounds for the relationship to work out.
13. Measure team productivity
When working with remote teams, it’s important to know how the employees spend their work hours.
You can also consider investing in productivity training for your employees. It will help specify your expectations and standard of work.
But how do you monitor if they’re maintaining (or improving) their productivity?
By using a productivity monitoring tool – Time Doctor. It’s a time tracking and productivity tool that’s used by small and large companies to boost productivity across their organization.
Check out Time Doctor’s amazing features and sign up for a free trial.
As businesses turn to offshore some parts of their operations, it becomes essential for them to understand the nuances of this process. Knowing the best steps to take for successfully offshoring their tasks can go a long way in the overall growth of the organization.
You can follow the best practices shared in this article for your offshore operation and make the most out of this beneficial business process.
Andy is a technology & marketing leader who has delivered award-winning and world-first experiences.