23/07/09

By Guy Rigby, Director & Head of Entrepreneurs, Smith & Williamson

We are now living in a global village and businesses should explore every avenue to improve performance and reduce costs. As part of this drive, many will be considering setting up overseas operations to gain access to new markets, reduce the cost of product development or improve operational efficiency.

There are a variety of offshore outsourcing models to choose from. Selecting the right one will depend on your strategic business goals and the type of work to be outsourced, as well as its location. By finding the right structure for your business, you should increase your efficiency and profitability, but make sure you understand the pros and cons before signing on the dotted line……

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. This can work well for both short and long term projects for small businesses, but if intellectual property rights are a concern, this approach can sometimes be high risk.

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 then run it yourself.

Offshore captive centre

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 whilst minimising the risks associated with setting up overseas.

If you want advice on choosing the right offshore option, contact:
Guy Rigby – 020 7131 8213 guy.rigby@smith.williamson.co.uk

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