Getting offshore outsourcing right Essay Example

high proficiency in English, and the saturation of India's offshore outsourcing industry caused by increasing salaries and turnover rates in Indian IT companies.The text discusses the criteria for choosing an offshore outsourcing destination based on a company's strategic business activities and specific goals related to market entry, access to resources and facilities, improvement of business processes, and efficient execution of offshore outsourcing activities. Rottman and Lacity (2006) suggested important factors to consider when selecting an offshore sourcing destination for outsourcing non-core business activities, highlighting the advantages of India as an outsourcing destination and the factors influencing Indian IT firms' business. They also mentioned other potential desired destinations based on the opportunities they offer in aligning with the organization's overall strategic business objectives.

According to Gonzalex et al. (2006), some writers have expressed their views on India being a major destination for offshore outsourcing for business administrations worldwide. They highlight that India's economic liberalization in the 1980s played a crucial role in it becoming a prominent player in the IT sector, with top IT service organizations like TCS, Wipro, and Infosys, known for their CMM level 5 practices. Additionally, India's large population provides access to a significant pool of talented professionals, and the cost of salaries is lower compared to the USA and Western Europe. The availability of a English-speaking labor force and well-established training facilities also contribute to India's attraction for business operations. Furthermore, organizations looking to do business in India have various options, including setting up a wholly-owned subsidiary, forming a joint venture, establishing a branch or liaison office, acquiring an existing Indian company through merger and acquisition, or operating based on a third-party contractual

agreement (Agarwal et al., 2005, p.2).In addition to these activities, I have personally experienced offshore outsourcing as a business development executive. Some of the European clients at my previous company wanted to outsource the design and development of their websites, as well as ongoing support. They were looking for a reliable long-term partner who could handle these non-core business activities within a limited budget and with a strong understanding of their business procedures. On the other hand, some clients needed our support and assistance with their websites and wanted us to help them with their marketing activities in India through a detailed execution plan. Based on this detailed information, I firmly believe that offshore outsourcing offers unique business opportunities for organizations aiming to enhance their overall performance.

Generally, offshore outsourcing reduces costs and improves organizational flexibility, changes business and IT performance, and provides a corporate focus on core business competencies. These capabilities lead to improved business profits and the ability to respond quickly to economic conditions, competitive challenges, and new opportunities. The lesson for this is to choose the right destination by selecting a suitable service vendor or vendors to execute offshore outsourcing activities, ensuring the success of the venture. Otherwise, it can become a risky situation for both the client and the vendors.

Lesson 3: "Choose an offshore sourcing model that balances costs and risks".

For any organization involved in offshore outsourcing, the need for a well-designed system is crucial to balance costs and risks in business operations. This requires significant investment and proper planning to mitigate risks in ongoing activities. There are four main offshore sourcing models in offshore outsourcing: confinement, joint venture, build-operate-transfer (BOT), and

free for service.
According to the authors, a joint venture is an agreement between a domestic customer and an offshore vendor with the goal of creating a feasible solution. The BOT model involves a domestic customer contracting with an offshore vendor to establish an offshore center. The vendor facilitates by acquiring necessary facilities and meeting other requirements to operate the BOT under predetermined terms for a specific period. If the customer decides to acquire the center, the management and ownership can be transferred to them after its establishment.

The text discusses the concept of a captive centre, which refers to a subsidiary set up by a domestic organization in a foreign country. This arrangement allows the client to benefit from the seller's local market knowledge and maintain some control, reducing the risk of offshore outsourcing. In fee for service offshoring outsourcing, the client enters into a contract with an offshore service provider to handle their offshore outsourcing activities. The decision of which structure to choose should consider factors such as operational risk, regulatory compliance, tax liabilities, cost, commitment, output efficiency, and administrative control. Additionally, client control and assurance, liability, flexibility, speed, local knowledge, and cultural considerations also influence the chosen structure (Agatwal et al 2005).

These four different theoretical accounts offer different opportunities for reducing costs and controlling offshore outsourcing activities. They also allow for maintaining relationships and strategic advantages, such as forming joint ventures or entering into build-operate-transfer agreements. In these cases, the final outcome can serve as a business center for offering offshore outsourcing activities, or it can be converted into money and used to gain knowledge about the local market for future business expansions

(Hirschheim et al 2009). By entering into these types of business models, clients can have the ability to control risks and maintain desired cost levels in projects. They can also gain an advantage over offshore activities by establishing internal sourcing facilities within their own business entity. In terms of future implications, both the client and the vendor are significantly impacted by their level of involvement in the project and the investments made by each other. Controlling the management of the business model and reducing the level of risk through adherence to best practices are key objectives to achieve corporate goals.

Lesson 4: Make a centralized offshore program management office to consolidate management.

To create a well-rounded plan, it is important to have the support of a knowledgeable partner in the area of plan direction control, expertise in business processes, metrics for measuring performance, and experience in global offshore outsourcing. In order to establish strong supplier relationships and negotiate contracts effectively, it is necessary to evaluate overall offshore outsourcing project performance indicators and adopt best business practices. Additionally, a centralized authority for delegation of power is needed to oversee offshore operations, which may involve setting up a new apparatus or integrating with existing structures. According to Rottman and Lacity (2006), senior executives must consider various options when establishing a PMO apparatus for offshore activities, such as the importance of expected offshore output, the creation of a dedicated center, or a joint partnership with suppliers.To achieve better results from offshore outsourcing activities and stimulate healthy competition among providers, senior executives should consider implementing a Project Management Office (PMO). Writers argue that a separate control apparatus like a PMO is

necessary to ensure effective control over the entire operation, while also encouraging competition among providers. This will help assess providers' capabilities, reduce their numbers, and enhance project success. However, it should be noted that implementing a PMO increases the overall project cost, but this additional cost is relatively small compared to the deliverables of offshore projects. Many IT companies consider a PMO as best practice for their offshore activities.

According to Keane (2009), the PMO strategy involves allocating work to the organization and providers in a way that effectively meets major requirements such as risk, cost, and performance. This strategy allows any part of a project to be implemented at the most suitable location with the optimal combination of resources to achieve company objectives. Having a locally based PMO provides a single point of responsibility, reducing cultural and communication issues through face-to-face contact and facilitating the exchange of information.

From my perspective, a PMO can assess vendors based on quality levels to ensure that services are delivered as promised. It can also help maintain good relationships between both parties and measure the dedication of providers in completing the project. Security measures whether contract norms are being met, while delivery ensures timely completion and final output. Infrastructure ensures the smooth execution of offshore outsourcing activities. The main future implications include management relationships, the importance of project deliverables for both client and vendor, and business performance. The client's expenses depend on the number of vendors engaged, so continuous evaluation of vendor performance is necessary.

Lesson 7:

"Use pilot projects to mitigate business risks."

Business hazards refer to the mistakes made by a company during the execution of their business procedures. In order

to overcome these hazards, many clients prefer to engage in pilot projects to ensure the credibility of the seller or provider in a particular field. Common business hazards include infrastructure, security, legal concerns, business environment, performance management, administration, measurement, and accountability (Keane, 2009). According to Rottman and Lacity (2006), offshore outsourcing carries its own set of business hazards such as low quality levels, inadequate cost savings, poor project outputs due to improper vendor or supplier selection, incorrect choice of offshore business activities, and failed client relationships. They advise businesses to implement a suitable pilot program in the early stages of a project in order to test the capabilities of both the client and provider in managing offshore activities.

According to some, mistakes, false starts, and negative events can be valuable experiences that help clients improve their capabilities. Pilot projects are also used as a learning experience and to measure project deliverables. Several authors have provided insights on the risks associated with offshore outsourcing. The availability of infrastructure facilities in the vendor's home country can negatively impact the quality of the outsourced business activity. Governmental regulations and laws relating to technology information transfers, intellectual property rights, business privacy, and data flows in the vendor's home country can also affect the success of the outsourcing relationship. Risk assessment strategies involve evaluating vendors or providers to determine their operational and financial capabilities in meeting the organization's needs (Rao, 2004).

According to Feeny et al. (2004), critical hazards in offshore outsourcing can be categorized into three areas: competence levels, capabilities, transformation effects, and relationship indicators. One major challenge is the lack of understanding about which activities are necessary for successful offshoring

and how they align with changes in offshore outsourcing operations (Kumar and Eickhoff, 2006). Additionally, there may be a mismatch between the home country and offshore vendor's organizational structures (Aron and Singh, 2005). However, the client organization can learn from their offshore partner, and pilot projects are often used for technology exploration and mitigating technical risks (Snir and Hitt 1999, p7). These factors help both clients and vendors gain a better understanding of the project requirements. Furthermore, designing a pilot project allows the client to filter out low-quality vendors during the selection process and ensures they choose the best vendor for the project.

A well-designed pilot project model should be:
1. Expensive in order to find a high-quality vendor.
2. Able to provide monitoring aid to determine the effects of effort and performance.
3. Able to compel the same quality level commitment from the vendor for the full project.

Another reason for a pilot project is to allow the client to decide whether to continue with the project or terminate it. For example, Stasis Bank had a pilot project that was constructed. The client believed that the pilot project developed by the vendor could work. However, during the pilot project stage, the vendor attempted to deceive the client through various misleading actions that were difficult for the client to verify. As a result, the entire project failed, leading to a legal case and a significant out-of-court financial settlement.

The pilot project has proven that these results could have been avoided and reduces software development risk. To receive desired benefits, the client can have a contract with a measurable performance level that is manageable, agreeing to pay for the pilot project stage

and contract for full project completion (Snir and Hitt 1999). I have experienced this practice multiple times while working for an employer in Hyderabad, India. The majority of my employer's business relies on offshore web-based development applications. As a senior business development executive, I communicate with clients from the USA and Canada. Many clients are willing to proceed with a pilot project before finalizing the project agreement. They also compare us to our competitors to assess our capabilities on a larger scale, specifically considering our expertise, development process, quality standards, and communication levels. For instance, a Canadian client requires a web integration application that integrates their business information system with their website.

One of the application activities is to analyze the analytics of their online market campaign and sales performance to determine the best strategies for exploring their customer base worldwide. This analysis is crucial and needs to be developed as a pilot project, which our competitors are also working on. To accomplish this, we adopted a business model and hired a freelance expert in this field. With their help, we conducted a thorough analysis of our customers' basic business operations, while also considering future needs and technical feasibility in order to identify the appropriate technical development requirements with our expertise. Through proper business planning, execution, and understanding of our clients' core business levels, as well as consideration for their desired spending levels and future needs, we were able to complete this project ahead of schedule and surpass our competitors. As a result, we secured the project, along with technical support and customer support.

In this instance, we have greatly benefited from a pilot project that has

greatly helped us in terms of better understanding and planning of project execution, utilization of external expertise, and improving business opportunities and relationships with clients. In this particular case, both the client and the seller have equal implications on offshore business activities at regular intervals, but they each have their own advantages when it comes to business opportunities.

Lesson 10:

"Unitize projects into sections to protect intellectual property". In today's business world, intellectual property (IP) plays a crucial role in conducting business anywhere, especially in terms of the contributions to IP production, particularly in research and development activities.

Some individuals expressed their opinions on IP protection and deductions in seller state jurisprudence. Authors discussed the concerns regarding the security of clients' offshore information, citing a data breach incident that occurred in 2005 at an Indian BPO. They proposed implementing security protocols, such as work badges and restricted access to critical information, as well as closely monitoring Indian sellers through practices like clean desk policies. Additionally, they emphasized the importance of effective IP protection, using a technology company as an example. The company adopted a multi-provider offshore outsourcing approach to distribute work, preventing any single provider from being able to decrypt the project.

According to me, the role of intellectual property (IP) aspects is significant in generating economic aspects, while the ownership of IP depends on the percentage of partnership in that activity. In fields such as life sciences, Information Communication Technologies (ICT), and biotech, IP has become a critical factor in offshore outsourcing. A comprehensive study found that 74% of outsourcing companies considered IP protection, data security, business relations, and disaster recovery processes as crucial when selecting an offshore

outsourcing vendor. The client's IP is also a major concern in offshore outsourcing transactions, and business organizations are primarily concerned with IP ownership. Some of the challenges faced by organizations include: accessing data servers, sharing project source code, lack of IP protection infrastructure facilities, employees of vendors not being aware of IP rights and policies, using the same code for other clients' projects, and employees of vendors shifting to competitor organizations (Pai, K.A., 2007).

In many developing countries, intellectual property (IP) rights are valuable commodities in the black market due to their financial value. The implications of IP theft depend on the laws of the seller's country. The Trade-Related Aspects of Intellectual Property Rights (TRIPS) provides a standardized framework for IP protection among member states. To ensure proper IP protection, certain factors should be considered: potential clients should analyze the laws and regulations of the seller's country before engaging in offshore outsourcing to safeguard data security and privacy; it is important to verify that the offshore supplier has access to a reliable telecommunications network; and the seller's history and business performance, including security concerns, should be assessed (Rao 2004).

The aim is to reduce the risk of intellectual property violations by limiting access to the source code and distributing it among different execution points. In important and sensitive projects, each employee of the company must sign confidentiality and nondisclosure agreements. These agreements are necessary to protect the ownership of intellectual property during project development, regardless of legal regulations (Bakalov 2004). For example, Shinetech has implemented a five-step process to ensure their IP protection policy with regards to client concerns. The first step is the use of Non-Disclosure

Agreements, which are contracts outlining the rules and responsibilities that both the client and Shintech must adhere to during their business operations.

The text describes several measures taken to protect intellectual property (IP) in a project. These measures include:
- Project-related IP Protection, which involves supervising day-to-day operations, web access functions, data access rights, and client development choices. It also ensures that the ownership of work, such as patents and copyrights, belongs to the client.
- Confidential Document Control, which manages and protects client confidential documents. Document retrieval and destruction are only done by the client.
- Employee confidentiality contract, which requires employees to adhere to security and confidentiality practices and IP protection regulations to prevent the misuse of information.
- Employee training and education, which ensures the implementation of IP policies in offshore outsourcing projects.
In the future, IP will play a crucial role in client-vendor agreements, and both parties must employ effective strategies to safeguard their business operations against illegal activities for mutual benefits.

Lesson 22: "Manage constrictions to alleviate the significant clip zone differences"

Time zone differences are critical in offshoring activities because employees on both sides need to interact within available time schedules to meet the demands of offshore undertakings. Offshore sellers generally find that time zone differences help gain clients' confidence, but in some cases, clients see it as an advantage when considering offshore outsourcing activities. From the writer's perspective, time zone differences are more beneficial for call center operations rather than IT project development. They believe that time zone differences have an impact on both the employees of the client and the offshore seller. The writer suggests some solutions based on their

research, such as placing some seller employees at the client's location and establishing mutually agreed-upon work hours for both parties. Another solution is offering vacations for both employee parties during the national holidays of their respective countries.

The writer's view is mostly agreed upon, except for the impact it may have on employee productivity at both terminals due to differences in working hours. This is because some individuals may take multiple breaks to manage the collusion caused by the nature of late work. Additionally, cultural factors can also negatively affect the work environment. For example, Indian people are highly concerned about their spiritual practices during holy festivals. If employers require them to work on those days, it may result in a negative response and delay project execution. To prevent such behavior, employers should provide a common benefit solution to compensate for the late working hours. Some of the writers have expressed their opinions on time zone differences.

Work clip agendas and clip zone differences can have both positive and negative effects on offshore outsourcing projects. One positive effect is that work activities can continue around the clock, leading to increased efficiency and performance. However, these differences can also create challenges, such as difficulties in scheduling meetings between project managers and developers due to time zone disparities.

Vendor selection and management activities should address the issue of time zone differences, as they can impact project timelines and the ability to collaborate effectively. The "clash of distance" can also lead to delays in joint development.

Globally distributed teams (GDTs) are often used for critical and knowledge-intensive work. These teams are composed of subgroups located in different geographical areas, such as onsite

and offshore subgroups. Interaction between these subgroups is limited, and communication may be lacking.

The concept of a "24/7 development environment" involves multiple subgroups situated across the globe working towards a common goal on an ongoing basis.

According to et al 2009, my previous employer implemented a best practice for our company's software development team and management support team. We adopted a US time model where our work hours were aligned with the USA time structure to mitigate the time difference between Indian and US perspectives. This allowed us to have regular working hours, but it was not suitable during festival times. To address this issue, the employer provided a compensation plan for those who had to work during these specific time frames. Despite some team members expressing their preference for working on a general schedule, it did not significantly affect productivity except for an increase in employee illness. This lesson also has a similar impact on both clients and sellers. One way to reduce the time differences is by selecting a geographically close area with the same time zones, although this option may be more costly for both clients and sellers.

Decision:

Offshore outsourcing has become a strategic option for many organizations to save costs, generate higher returns for investors, and provide lower prices to clients. It also offers the opportunity for businesses to gain a competitive advantage and improve performance. However, there are concerns about the loss of jobs and intellectual resources. The key to successful offshore outsourcing lies in more than just finding low-cost labor; it requires establishing clear ownership, selecting the right partner, measuring performance, and implementing world-class processes. Defining

success and holding outsourcing partners accountable is challenging, but choosing the right partner is crucial for a smooth transition to global sourcing.

Organizations that invest in developing successful strategies for global offshore outsourcing will see significant improvements in their overall bottom line business performance levels.

Mentions:

Diaries, Articles, Books:

1. Aron, R. and Singh, J.V. (2005), "Getting offshore outsourcing right", Harvard Business Review, Vol. 83 No. 12, pp. 138-40.
2. Agarwal, S., Khaitan, S., Shrivastava, S.

, Banks, M. (2005). Destination India: Offshore Outsourcing And ITS Implications, PP 248, Accessed on 25 November 2009, Available at: hypertext transfer protocol: //www.almtlegal.com/articles/AlmtArticle9_Destination%20India.pdf

Hirschheim, and B. Jayatilaka (2009) conducted a survey and analysis of the literature on Information Systems Outsourcing, which can be accessed at www.ecis2009.it/papers/ecis2009-0652.pdf. According to Drezner (2004), outsourcing has been perceived as a bugbear and can be found in the article "The outsourcing bugbear" in Foreign Affairs, available at hypertext transfer protocol://www.foreignaffairs.com/articles/59889/daniel-w-drezner/the-outsourcing-bogeyman. There is no additional information about Gonzalez.

, Gasco, J., Llopis, J. (2006). Information Systems Offshore outsourcing: A descriptive analysis, Industrial Management & A; Data Systems,106 (9), pp 1241-1243.

3-5,

(2009). Offshoring IT undertakings: Vendor Selection and Management. Accessed on 25 November 2009, Available at: http://www.scribd.com/doc/21704373/Offshore-Projects-Vendor-Selection-and-Management

Information Technology Outsourcing: The Move Towards Offshoring. PP 6-8