Advanced technology has enabled businesses to scale higher by getting top talent from different countries across the globe. Outsourcing such talents has proven to be beneficial in many ways. In fact, business owners can now cut down on expenses time and still get great results from sourcing teams from other regions.
While the whole process of outsourcing comes with a lot of benefits, it also has a set of challenges and risks one must know. Knowing such risks will enable you to plan adequately to ensure you experience a seamless outsourcing process so that the whole process turns out successfully.
Other types of outsourcing models
While this blog focuses on offshore outsourcing, it is crucial to highlight other outsourcing. Ideally, we have three models of outsourcing, which include offshore, onshore, and nearshore outsourcing:
Briefly explained, onshore outsourcing is the process where a business sources top talents to deliver services from the same country, city, or state.
With nearshore outsourcing, a business is where a business sources talents and resources from the neighbor countries, hence the name nearshore.
With this in mind, let’s now focus on offshore outsourcing, which is the central point of this blog.
Understanding Offshore IT Outsourcing
The IT field is growing at a rapid speed. New technologies, processes, and tools are being used to automate, simplify, and speed up the processes to get quality results. That is why many companies opt for offshore IT outsourcing to achieve all these.
Offshoring, therefore, is the process through which a company sources specific services from other companies in another country,
Apparently, a lot of companies across the world are using the offshore outsourcing model for better results. However, Offshore IT outsourcing has some risks associated with the processes.
Before you take a step to begin the offshore outsourcing processes, you must first perform an analysis to determine if your company requires such services or not. Once you are sure the offshore outsourcing model will help scale your business higher, evaluate the possible risks and challenges to ensure you have a strategic plan to enhance the success of the process.
Benefits of offshore IT outsourcing
Before we evaluate possible risks associated with offshore outsourcing, it is essential to discuss the benefits of offshore outsourcing a company gets. Such benefits include the following:
Sometimes, your company may lack adequate resources and access to enhanced technology that is crucial to facilitating certain processes and procedures. Besides, a lack of adequate finances might make it hard to access enhanced technology and sophisticated tools and resources to achieve some processes.
In such scenarios, offshore IT outsourcing will always come in handy. You can seamlessly outsource all these services from a reputable organization to another company to fill the existing gap. Therefore, your company will access modern technology even if you don’t have the resources and tools to facilitate the processes.
Better Business Scalability
Scalability, especially in business, is all about adapting to trends and changes that are happening in the industry while maintaining a stable service delivery. Collaborating with a reputable service provider will help scale your business based on the changes and trends that are happening.
Outsourcing through offshoring, therefore, helps a company adjust to changes within their operations easily based on the requirements of the business. What’s more, you can scale your business either down during off-peak seasons or up during peak seasons. This enables you to maximize resources and cut down on expenses.
Every business owner looks forward to reaching as many clients as possible, as this enhances business growth. With offshore outsourcing, it is easy for a business to connect with other professional experts in the same field. This helps create brand awareness in the global market, thus achieving global competitiveness.
One thing about the offshore outsourcing model is access to top professionals in the IT field. During the outsourcing processes, you have the freedom to choose the best partner that suits your business needs. This, in turn, guarantees high quality service delivery. In fact, most offshore development companies have laid down procedures and strategies that ensure high quality service delivery. For instance, IT companies have teams specialized in QA- quality assurance for monitoring, measuring, and enhancing efficient service and product delivery.
After all, no offshore company wants to ruin its reputation by offering substandard products and services as they are also on the move towards growing their business to the next level.
There is no doubt offshore outsourcing guarantees saving extra costs when compared to other outsourcing models. For instance, offshore outsourcing will help you cut down on extra expenses such as rent and other operating expenses. Besides, offshore outsourcing is less costly in some outsourcing countries based on the living costs in such destinations. However, the quality of service delivery will always remain high. For instance, it is easy to get top talents in India when sourcing IT services at a better price.
Good read: Outsourcing Pricing Models
Faster service delivery
Especially if you are on a tight schedule, offshore outsourcing is the way to go. The teams are dedicated to working 24/7 to ensure you meet your business goals.
After all, you will be dealing with professionals who integrate improved technology, modern resources, and tools to speed up the processes while ensuring you get quality results.
With offshore outsourcing, the processes are quite flexible. Especially in terms of payments, you only need to pay for the services you need without paying extra or unplanned costs. For instance, you don’t need to pay the offshore team extra bonuses or benefits.
Offshore Outsourcing Risks and How to avoid them
While offshore outsourcing offers lots of benefits to businesses, it has a set of challenges or risks associated with the whole process. However, the good side is that as a business owner, you can identify these risks and devise a strategic plan to evade the risks. Such risks include the following:
Management processes risks
With offshore outsourcing, the teams working on the project are located in another country. As a result, it becomes quite difficult for a business owner to control the activities happening to shape the results of the final product.
Besides, you cannot monitor every employee’s activity to ensure efficiency in service delivery due to regional differences.
- How to handle such a risk:
As an IT company, it is significant to have your in-house tech team involved when starting a partnership with an offshore company.
All your in-house team members should know the changes in the organization and management due to the offshore outsourcing step. Besides, all team members should be ready for the move and accept the changes that are happening.
In other words, you should prepare your in-house team appropriately when engaging with an offshore team. What’s more, effective communication is a key consideration here. Get in touch with the offshore team to get updates on the progress of the project. The project. You can also communicate ideas that will help shape the project and ensure everyone is in the same line with the processes.
Pro tip: You can opt to hire a general manager who will take charge of all the processes communication requirements, and provide regular updates & guidelines required for the project.
Hidden Cost Risk
While cost-effectiveness is the number one advantage of offshore outsourcing, sometimes, there are some hidden charges that might not come up when signing an agreement with the offshore company. As a result, you may incur extra charges when the project is on. This might cause inconveniences and project delays, especially when you don’t have extra cash at the moment.
For instance, unpredictable or unplanned changes to the project might attract extra charges. Again, it is hard to estimate these extra charges before the onset of the project. In the end, you might spend more than what you had initially planned for.
- How to handle such a risk:
While it can be tricky to estimate the extra costs in relation to the offshore outsourcing process, always do an in-depth analysis of the potentiality of the offshore IT partner and sign NDA agreement. Know their pricing plan, their ability to deliver top-notch services, and if they can stick to the set deadlines to avoid extra expenses.
Therefore, create a top five list of your selected offshore IT companies, then filter out until you get the best overall.
Pro tip: Choose an offshore company with a flexible payment plan based on the nature and dynamics of your project at hand. For instance, you can opt for a fixed-priced payment plan when your project is quite simple, with no additional requirements after the agreement.
Data privacy and security concerns
An offshore firm is a third-party team in your business. As a result, you might be skeptical about security concerns and the privacy of data. Especially when the project requires the offshore company to handle customer’s private information such as credit card numbers, contact details, and personal IDs, it can be tricky to entrust another company far away from such crucial information.
Data leakage, theft issues, or even data loss are among the negative impacts that can happen along the process. In the end, it can create a bad reputation and lower customer loyalty to your company.
- How to handle the issue:
Before you engage with an offshore IT company for extra services, try to distinguish the projects you can outsource and the ones you cannot outsource. What’s more, as a business, it is significant to put in place measures that will safeguard the company’s details and confidential information.
As in the case of data leakage, always have an NDA- a non-disclosure agreement and security measures an offshore company should follow before you partner with them.
Pro tip: Always conduct prior research and learn about the best security practices in relation to offshore outsourcing.
Also, if you have doubts about a specific offshore company, it is better to avoid collaborating with them.
Even though there are many benefits one gets from offshore outsourcing, there are some significant challenges that affect the overall performance. For instance, language barriers may lead to misunderstandings and other communication-related issues. Cultural differences, too, are another common challenge that can affect the progress of the project, thus leading to lower performance. In fact, most of these challenges affect the timely delivery of projects, thus causing a lot of inconveniences.
Again, since offshore outsourcing is cost-effective, the results might turn out poor because cheap is not always the best option. Sometimes, cheaper services are offered by teams that lack adequate skills and knowledge in the subject area, and this results in poor service delivery.
Therefore, you shouldn’t always be optimistic that an offshore development vendor will perform excellently and meet all your objectives and even beyond.
- How to handle performance risk issues
When seeking a reliable offshore partner, don’t always focus on the cheaper service providers. Your key focus should be on the quality of results instead of the costs incurred. In most instances, offshore vendors who charge more are more skillful and knowledgeable in a specific field. In fact, they understand the latest trends, technologies, and resources that can help scale your business higher. Besides, such teams are always committed to timely and high-quality service delivery.
Pro tip: Before you start working together with an offshore team, always give a clear explanation of the processes, plan, vision, and results of your project. If possible, give a project requirement document that will guide the offshore team on what you want.
Government Rules & Regulation Risk
An offshore team is based in another country. Well, each country has a set of rules and regulations governing IT outsourcing. As the offshore outsourcing trend keeps growing, the rules and regulations that govern the processes also keep changing.
While there are no global rules and guidelines governing offshore outsourcing, it is upon the client to research and review the offshore outsourcing guidelines governing a specific country before signing a contract with them.
- How to handle government guidelines risks
This is simple. As a business, you only need to perform research on varied offshore countries offering the services you want to outsource from.
You only need to realize that different industries have different guidelines governing offshore outsourcing processes.
Therefore, before engaging an offshore IT company, it should comply with all the guidelines set by the government and provide a transparent process and documents showing accountability to the set government regulations.
Pro tip: As a business owner, you can include a clause section in the NDA showing the offshore vendor agreed to comply with the government guidelines and penalty charges in case of non-compliance in relation to offshore outsourcing.
It is common to experience risks and challenges when outsourcing IT teams. However, this doesn’t imply offshore outsourcing isn’t the right model for your business. You only need to have a clear plan, know what your IT business needs, analyze potential risks you are likely to meet along the way, and then devise a plan to overcome such risks.
This guide has explored the top five common risks businesses experience when outsourcing IT services through the offshore model. You can reach out to Aalpha Information Systems for all IT and tech services for your business.