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Outsourcing and Offshoring – The Definitive FAQ [2019]

While there are plenty of related FAQs, there are still misconceptions about outsourcing and how to form a successful partnership with an offshore services provider. In this post, we aim to address misconceptions and questions around outsourcing and offshoring and offer tips to evaluate your service provider better.

Communications and cultural barriers

A significant barrier to outsourcing is little to no cultural or language similarities to the country of outsourcing. However, over time, foreign countries have absorbed the nuances of western culture. The explosion of social media and the ease of information flow has effectively removed the cultural barriers between people across countries and geographies. 

For instance, Most tier 1 and tier 2 schools in developing countries have English as the medium of communication, and hence future professionals are fluent in English. Many schools also encourage students to pick up a foreign language. Various professional schools and colleges also teach Business English as an elective, which many students often opt for.

Time difference

While time differences do exist, many providers have made good use of this to increase productivity. While one part of the world sleeps, the other start their workdays. Many cities across western countries have overlapping time slots with offshore countries.

Improvements in communications technology and the commoditization of bandwidth from telecom providers have made possible seamless video conferences and meetings. 

These improvements effectively work the time difference to each others’ advantages.

Information and IP security

More often than not, selecting a service provider that has an established name and a successful track record automatically ensures information and IP security. Clients often sign contracts in their own countries. Being in the same country ensures that all local laws are applicable in case of disputes. 

Also, clients choose to host their applications with providers based in the same country thereby applying their security policies apply to ensure data and IP safety.

While data breaches continue to happen, and we often read about IP thefts, careful selection of outsourcing partners usually takes care of privacy and IP protection issues. These partners are often very progressive-minded and very receptive to specific clauses regarding data and IP security and their enforcement. 

It is also a good idea to probe prospective providers about their security policies and how they implement them. Right service providers will be very transparent about their security policies.

Risk mitigation

As with any enterprise, outsourcing is not risk-free, however, you can mitigate this risk. These risks include the capability of the vendor company, vendor lock-in, hidden costs, control over what gets built and how, and the location of the vendor.

Before mitigating these risks, one should understand them, and there’s no better way than researching. Ten minutes spent on Google researching the vendor can reveal plenty. Typically, if you find these on their website, chances are that you would be in good hands,

  • Customer testimonials
  • Consistently good Glassdoor ratings
  • LinkedIn presence
  • The management team and their connections
  • Employee profiles
  • Updated content on the website 

After inviting the vendor, you will experience the multiple touchpoints and validate your research. Modern vendors build contracts that outrightly state how they plan on mitigating some of these risks. You can walk away if some of the risks are too risky to carry.

Poor contract management and enforcing contractual obligations

Here again, careful selection of partners and expectation setting often leads to smooth transactions. All established organizations that provide offshore services have sound management practices that continually refine.

Lessons learned from the past often reflect in the contracts with these providers. Many clients think that physical distance would make it challenging to enforce contractual obligations. 

This notion is only partially true. 

While physical distance does play a role, professional vendors would never let any relationship reach a level where arbitration or actual enforcement is needed. In the case it is required, local laws on both sides are advanced enough to enforce any obligations.

Many vendors often co-locate with their clients HQ and base of operations. That puts the client-side stakeholders in the comfort zone. That way, the vendor reflects seriousness in delivering quality work. No one wants their brand to value to take a beat.

Confidentiality and competitive neutrality

We have come a long way since the initial years of outsourcing. Almost all contracts have clauses protecting privacy and neutrality. Many outsourcing contracts are often long-term, where the nature of work ensures that achieving success is in the interest of both the vendor and the client. 

Here in India, for instance, economic reforms now cover public and private enterprises under the same competitive neutrality acts and laws. The message is clear that the law would not be preferential to any one party and would enforce laws to better the state of the outsourcing industry.

Outsourcing providers with operations in India often segregate clients from the same industry to prevent any accidental violation of neutrality. In many cases, these are physically separate offices with gated access, and limited information flows between people and infrastructure.

Ownership and accountability

Over time, offshore vendors have realized that better ownership of success and failure and being accountable works in their favor. It helps them achieve more business in the long-term, build a brand that reflects honesty, and get higher quality projects. Everybody loves working with people who are upfront and honest, even when they make mistakes.

Many offshore vendors go above and beyond their contractual obligations. They ensure that the outcomes are to the highest standards. Service providers have also been getting certified with regulations such as HIPAA and other government certifications to showcase their ability to work with clients who deal with these standards and rules daily. 

Almost all right service providers have some form of quality certifications, such as ISO9001 or SEI-CMM levels. These certifications help them stand out as providers of quality services.

Hidden costs

While there exist service providers who are not upfront about the costs involved in outsourcing projects, established vendors most definitely do not go this route. Solely for the fact that it is not in their best interest in the long term. 

All right service providers will have all costs mentioned upfront along with any contingencies as part of the contract. Some may even provide a detailed listing of the costs they incur and how it adds up to their pricing. This level of honesty instills confidence in prospective clients.

Loss of control

While the notion of loss of control is very apparent and expected, almost all service providers work towards set objectives and goals. All of them practice some form of Agile methodology and have precise tasks that flow to the engineers and developers. The development backlog is set by the clients, thus eliminating any apprehension of loss of control. Regular updates and client interface helps keep the work on the right track.

Expectation management

In the initial years of outsourcing, many service providers would say yes to almost all work that came their way irrespective of their ability to fulfill this work. While some bad apples still work this way, the majority have learned that setting the right expectations works in the mid to long-term since the work they acquire is more closely matched with the available skill sets. Setting the right expectations ensures that projects do not get stuck, are delivered on time, and lead to better client satisfaction.

Quality of work

All right service providers have quality certifications such as ISO90001 and CMM level certifications. Along with these certifications, customer references are an essential part of this business. Proper recommendations and word of mouth goodwill are not exactly data-oriented ways to judge a service provider. Still, they do give important qualitative attributes about the quality work they deliver.

Most established service providers pay well and hire talent from tier 1 and tier 2 educational institutions. This careful hiring ensures that quality maintains across the entire value chain. 

With better project management practices and certified managers, it is straightforward to judge the quality of work in the very early stages of the relationship. Should there be an expectation mismatch, it is easy to course correct.

Leveraging disruptive technologies such as RPA and the Cloud going mainstream

We are seeing a shift toward doing more with less. Vendors are advancing their offerings by adding automation to operations that reduce waste and increases the overall process efficiency. The use of RPA, for instance, can automate redundant tasks. For example, if your customer onboarding takes a long time, look for solutions like the RPA to automate the backend processes. An educated vendor will forgo their interest by automating repetitive tasks. 

Moving to Cloud is a well-proven strategy. Not only can you automate the product update process, but your TCO also will significantly lower than having an on-premise or a hybrid infrastructure. So when choosing an outsourcing vendor, look for these skills.

Understanding and compliance with customers’ local laws and regulations

Most contracts are signed in the country where the clients are present, bringing the project under local law purview. The terms of the project may also require team members to be certified to comply with local laws and regulations. Several projects also have onshore members who understand local laws and compliance and works with the offshore team accordingly. 

Sensitive industries such as Healthcare and Finance require contractors to be certified in specific standards set forth by the government. Choosing an appropriate vendor with the required certifications will most certainly prevent challenges and roadblocks in the future. 

Outsourcing has evolved, and experience has made vendors more qualified and aware of local laws and regulations. Many also have large offices in locales where they have clients. 

Project and program management from a distance

Service providers that adopt any form of Agile methodologies do not let physical distances get in the way of their delivery. Outsourcing has now matured and is a time-tested, proven method of improving profitability and cutting costs. Right service providers have always embraced methodologies that dictate clear responsibilities and time-bound outcomes. 

Clear roles and responsibilities and a data-driven way to measure progress most definitely ease project management and governance, and physical distances do not matter. 

Instabilities in the outsourced-to country’s political and economic climate

At one point in time, this factor was attributed more to developing countries than developed ones. However, today, political instability is out of everybody’s control. Fortunately, the right service providers put in business continuity measures for precisely this kind of situation. Business continuity plans not only account for political instability but also for natural disasters and calamities. This plan also includes the continuity of infrastructure and other human resources. Choosing a vendor that actively maintains and tests these plans is a vital point in their favor. 

Opportunistic behavior by the partner/vendor

Established service providers never engage in opportunistic behavior since the pitfalls of doing so are apparent. However, the presence of these fly-by-night operators cannot be ruled out. Fortunately, there are clear signs that expose these vendors. They would be the ones to take on any work that comes their way irrespective of the talent they possess. Probing deeper into their technical capabilities and past references would uncover gaps. It is vital to validate social proof of any service provider’s capabilities. Local laws on both sides cover Most outsourcing contracts; however, enforcing such obligations may prove difficult. Hence carefully validating service providers is a critical task.

Delivery delays

While delivery delays are almost inevitable, the right service provider would explain why the delays exist and will always have a plan to mitigate its fallout. Data-driven service providers will have ways and means to forecast delays and their impact, both quantitative and qualitative. 

Clients need to do their homework when choosing service providers for critical projects that involve lives or can largely impact human life. In such cases, it is advisable to look at past experiences in dealing with delays, and deeper probing into their contingency plans. 

Poor infrastructure

Developing countries have taken full advantage of outsourcing by bringing in reforms in the IT and telecom sectors. With privatization and foreign players dominating this field, telecom and communication infrastructure is increasingly commoditized. However, falling prices do not mean lower quality. Cutting edge technology always takes time to reach developing countries, and this works in their favor. Its efficacy in developed countries is visible by the time it reaches them. 

In this sense, developing countries can leapfrog legacy technology and choose what works best and is the most affordable for its consumers. This advancement also ensures that service providers can now leverage proven technology infrastructure for their projects. Right service providers will also have made provisions to put in place redundancies in the event services from their primary provider fails. It is essential to question your service provider on these issues, and infrastructure is a crucial factor. 

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About the Writer

  • Aijaz Ansari
    Aijaz Ansari
    Marketing Director

    I am a marketer by chance – marketing happened to me. Early in my Sales career, I started taking a keen interest in perfecting messaging and design and it just took off from there. A career spanning 15 years in Customer Service, Sales, and Marketing, I architect marketing for companies in the software products and services space.

    At Synerzip, my team is responsible for branding, content generation and dissemination, lead and demand generation, social media, corporate communication, market research, and sales enablement.

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