Characteristics of an Ideal Offshore Outsourcing Solution

Are you looking for an ideal offshore outsource solution? If your answer is yes, then here are some pointers that will help you find a business partner you can hire. These pointers are basically the characteristics of an ideal offshore outsource solution:

No Minimum Commitments. Offshore agreements should not contain minimum or revenue commitments. Instead, business owners should negotiate for a tiered discount schedule that leverages volume discounts for improved utilization and speed. The offshore outsourcing firm should be responsible in earning its client’s business based on performance and not on pre-negotiated commitments.

Termination for Convenience (without material early termination fees). Ideal outsourcing deals should allow companies to terminate contracts even before the end of the term and should not require the business owner to pay a significant termination fee. This way, scuffles are avoided – regardless of the cause of the termination. There can be various reasons to terminate an outsourcing deal. Performance, cultural issues, distance, and other areas are only some of them. The outsourcing firm, of course, can almost always fire back and demand to be compensated for stranded costs like the cost of hiring dedicated outsource staffs to fill the positions, severance and others. But then again, entrepreneurs can be savvy enough to argue that stranded costs are generally not material. In this case, entrepreneurs who decide to terminate deals before the end of the term can only pay for actual stranded costs but not for expected profits and lost opportunities.

Length & Flexibility of Deal. A good BPO offshore outsourcing deal generally consists of an initial term of 2-3 years with two to four successive one year extension options. This way customers can actually choose whether to continue leveraging their expertise or not. The agreement should contain all terms of the deal, including the price.

Currency Options. Given the constantly changing value of dollars, business owners should decide on a currency payment structure that provides the best financial sense. More often than not, leveraging local currency is a beneficial option for offshore deals.

Key Personnel. Service providers should ensure that clients are provided with “key personnel” or reliable resources that an outsourcing company can turn to in case they need to conduct interviews for their projects. Key personnel offer companies more control over quality control of their dedicated outsource staff.

Intellectual Property Rights. Ideal offshore deals contain clear provisions on ownership of software or products being developed and should prevent the outsourcer from using the said software or whatever products for other purposes. These should not be provided to competitors. In all sense, appropriate disclaimers and provisions should be stipulated.

Meaningful SLAs. The agreement should contain service-level agreements (SLAs) that reflect expected performance levels from the hired offshore BPO staffs. It should be focused on areas that create positive business impact for the firm.

Top 10 Risks of Offshore Outsourcing

1. Cost-reduction expectations.
Many entrepreneurs tend to assume that labor arbitrage will yield savings comparable to person-to-person comparison. In reality, companies can only expect to save at least 15-25% during the first year; 35-40% by the third year is the company decodes to “go up the learning curve” and modify strategies to align to an offshore model.

2. Data security protection.
Vendors should have sufficiently robust security practices. Apparently, not all BPO offshore outsourcing firms offer impressive security practices. In this case, it is essential that privacy concerns are raised and addressed before you eventually make a deal with any vendor.

3. Capability Maturity Model (CMM)
The CMM helps measure the readiness of a company to adopt an offshore model.

4. Loss of business knowledge.
Business owners need to identify which business knowledge may be moved to either outside the company or an offshore location in order not to compromise the company practices.

5. Vendor failure to deliver.
Failure to deliver products and services occur at times. If your targeted company is at high-risk of vendor failure, perhaps you should try to shift your outsourcing strategy. For example, you can move from one single vendor to multiple vendors.

6. Scope creep.
Fixed-price contracts in outsourcing do not really exist. Rates of offshore outsource solutions tend to change by at least 10-15% throughout the development cycle.

7. Government oversight/ regulation
Some companies are subject to various degrees of government oversight. Ensure that you choose an offshore outsource solution provider that is sensitive to industry-specific requirements. It is also important that you select a vendor that provides sufficient “transparency”.

8. Culture.
Most vendors require and provide their dedicated outsource staff to undergo cultural education programs. Call center agents, for instance, are usually provided accent training so they can communicate better. However, these trainings are not always enough. In that sense, settle with an outsourced staff that who understands fully your own culture.

9. Turnover of key personnel.
The impact of high turnover causes indirect loss to an outsourcing firm. In this case, find a provider who would be liable for every hired dedicated outsource staff that needs to be replaced.

10. Knowledge transfer.
Technical and business knowledge transfer from the vendor to the outsourcing company needs to be accounted for. Entrepreneurs can do this by using innovative solutions such as deploying video conferencing. Video conferencing eliminates the need to travel and creating one-to-many transfers. This also helps business owners save money on BPO offshore outsourcing.