20/03/2012

By Simon Peskett, Associate Director at Smith & Williamson

Advances in technology, communications and logistics mean that almost any business can take advantage of the benefits of offshoring — the process of shifting one or more business functions to an offshore location to improve efficiency or reduce costs.

There are a number of offshore business models to choose from. The one that’s right for your business will depend on your objectives and the types of activities you intend to carry out.

Here are some of the options:

Offshore outsourcing

The outsourcing of IT development and services to companies in India and other lower cost countries is typical of this model. An external supplier is chosen for a project, and is given complete responsibility for its delivery. This is a simple solution that can work well for smaller businesses which are seeking a lower cost supplier without significant management input. Take care to protect any valuable IP (Intellectual Property) and recognise that you are engaging a supplier rather than a partner.

Joint venture

Using this model, your business sets up a joint venture with a local company in the offshore location, allowing you to take advantage of their strengths and experience and so reducing the risks of working in unfamiliar territory. The trick is in finding the right joint venture partner and building appropriate levels of trust. Proper care needs to be taken, as it is normally far easier to establish a relationship than end it.

Build-operate-transfer

Similar to the joint venture model, a build-operate-transfer relationship is typically where an offshore supplier operates a dedicated centre for your business. Once it is successful and established and certain conditions have been met, you can have the option to take over ownership and run it yourself.

Offshore captive

Many companies looking to cut costs through offshore outsourcing are increasingly setting up their own operations, known as ‘captives’. This is a long-term option, typically best suited to larger companies. But captives can also work for small companies if they meet both long and short-term strategic objectives and there is sufficient funding and management expertise to set up offshore.

Assisted in-house

Finally, there are specialist service providers that help businesses set up operations in suitable offshore locations. This is often appropriate for smaller, growing businesses. In this case, the service provider will help with complex aspects of working in another country, dealing with recruitment, premises, infrastructure and IT and working with the local authorities. One such provider is Quickstart Global whose ‘In-House Anywhere’ model helps businesses increase their profitability, while minimising the risks associated with setting up overseas.

For advice on choosing the right offshore option for your business contact Simon Peskett on 020 7131 8449 or email simon.peskett@smith.williamson.co.uk.

Disclaimer
By necessity this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Article correct at time of writing.

Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.

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