Sunday, April 7, 2013

Outsourcing Location Selection : Critical Decision Factors



The global services market is highly dynamic environment and selecting the best outsourcing location for your operation can have a significant long-term impact. Making the right decision can add significantly to your organization's bottom line in terms of cost savings and increased efficiency. Outsourcing can bring fresh minds to your business, and it can also free time up for innovation and other vital tasks. However, making the wrong decision can put your business at a competitive disadvantage. Following are the factors needs to be considered while selecting the country and location



1. Geographical considerations


2. Geo Political stability

3. Economic Stability

4. Ethnic/Socio/Religious Stability

5. Infrastructure availability like communication, internet, transportation etc.

6. Legal structure and legislation (corporate, employment, financial, taxation, import and export, foreign ownership, profit relocation, compensation etc.)

7. Government support and incentives

8. Intellectual property protection

9. Delivery maturity/ Business domain expertise

10. Pricing/Costing

11. Cultural fitment and adaptability (corporate, social, etc.)

12. Human capital

13. Communication skills

14. Attrition rates

15. Corruption

Following are the critical factors that should be considered while selecting an offshore location

Geo Political Stability

Understand the countries and local political situation where the offshore provider is located. What kind of government does the country and the state have, and the frequency of power changing? You need to consider the nature of government like democratic, autocratic, military, socialist etc. In some countries the rebellions, revolutions, and coups are common which cannot create a favorable investing environment. The stability of neighboring countries and their relationship with candidate outsourcing will matter a lot.

Economic Stability

You have to analyse the candidate country's GDP and other economic indicators, and how those indicators have changed over the past several years. Consider whether foreign investment is increasing or decreasing in the country/region. Also you need to consider international trade treaties and pacts at which the country is part of?. Apart from that, the government policies and incentives towards the business domain have to be investigated.

Ethnic/Socio/Religious Stability

If the offshore provider is located in a country with significant instability and conflict, your project may proceed more slowly or come to a complete halt. You need to analysis the socio-economic stability not only at the country level, but also at the state or at the location level. Always advisable to choose the location where there isn't any ethnic/religious unrest and/or conflict at least in the past 20 years. You have to look for the impact in the economy/society due to any past religious instability. You must understand what ethnic and religious groups are present in the country and whether they are tolerant or intolerant of one another.

Delivery Maturity

You need to analyse and understand the candidate location in the context of the entire offshore service delivery industry which will help you to assess and define its current maturity level. It’s critical to measure the industry as it has developed over time, how it has progressed over the past 10 years, its current state, and its likely future state. In some countries, such as China, India, domestic sourcing is growing rapidly in some delivery locations that were considered “offshore,” further adding to the maturity and complexity consideration of your location decision. Always a good idea on which all other leading industries/companies are already selected the candidate location or likely to select the location.

Human Capital


The availability of the talent pool in a specific country and location will determine the scalability of your sourcing operation over time. You should be familiar with the workers' professional experience, education, and technical expertise. Also, make sure that there are enough workers available to work on your projects, so that your work won't be slowed by labor bottlenecks. In a nutshell Deep insight into the suitability of offshore service delivery potential, the level of training required, and the demand-supply balance in terms of density of offshore employment will help you make the best decision. Educational output and attrition rate are the other factors to be considered while analyzing human capital.

Infrastructure Availability


You need a robust, secure, scalable Infrastructure for your reliable and dependable service delivery. You have to determine the state of the current physical and technology/telecom infrastructure, the historic level of investment in infrastructure and a realistic sense of projected investments. These are very vital to your final destination decision. Also you need to check the connectivity/transportation between your location and the candidate location.



Intellectual property rights/protection

When you outsource work, you'll be exchanging proprietary information and dealing with intellectual property. You need to know what policies and legal protections the country/stage has in place to protect your confidential information and intellectual property rights.

Communication Skills

You must be able to communicate with the offshore service provider – not only with the top managers, but also with the workers who are involved in the day today transactions. This includes both written and oral communications. Cost Cost saving is one of the obvious reason why organization outsourcing in the current economic scenarios. In establishing the business case for your location selection, take into account the delivery cost per full time equivalent (FTE) or per transaction. Wherever you ultimately elect to go, you don’t want to revisit that decision in the near future. It’s important to know the pricing structure and the range of pricing in the selected countries/locations. You have to know exactly what that price includes. Costs for labor and overhead are both important components of the total price. Equally you should consider how much overhead you will incur in managing the outsourced work in order to calculate the total cost of the outsourced service.

Pricing/Costing 

Cost saving is one of the obvious reason why organization outsourcing in the current economic scenarios. In establishing the business case for your location selection, take into account the delivery cost per full time equivalent (FTE) or per transaction. Wherever you ultimately elect to go, you don’t want to revisit that decision in the near future. It’s important to know the pricing structure and the range of pricing in the selected countries/locations. You have to know exactly what that price includes. Costs for labour and overhead are both important components of the total price. Equally you should consider how much overhead you will incur in managing the outsourced work in order to calculate the total cost of the outsourced service.


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