The digital economy changed the way companies operate, from the services they offer to how they collaborate with vendors and suppliers. Working efficiently and effectively in this new digital age encouraged organizations to outsource business functions and operations, as well as to use a distributed workforce to achieve their goals at a lower cost or to offer better options to consumers. Outsourcing manufacturing or outsourcing business operations refers to hiring a third party to provide certain services or tasks in exchange for payment. Many businesses choose to outsource business functions and operations because it frees up resources, streamlines processes, and helps the company focus on its core competencies. Outsourcing overseas offers its own unique benefits, especially in light of lower wage rates offered in some foreign countries.
Follow these five tips for successful outsourcing overseas to improve your business performance whether you operate your new venture overseas or in your home country.
Outsourcing overseas: opportunities and challenges
Your options for outsourcing overseas run the gambit from turnkey manufacturing operations to licensing agreements, to hiring labor or contracting with a firm to provide services such as accounting or development in another country. When I lived along the Mexico border, it was common to find turnkey manufacturing operations that produced products in small batches as a market test for firms before they invested in their own manufacturing capabilities. These turnkey operations offered to manufacture products using the necessary equipment on a short-term basis. One month they might manufacture a toy product for Mattel, the next month they may switch the manufacturing line to produce car parts for Ford. This option allowed companies to test the market potential of a product before the incurring the huge expense of building a plant or reallocating resources to add a new product. Turnkey operations also allowed the firm to get a better estimate of production costs and necessary raw materials to optimize these functions.
Contacting services from overseas vendors is also common. The value of outsourcing overseas for your app development or accounting comes from the lower wage rates available in countries like India where you can find a talented workforce and many companies whose business model revolves around providing services to international companies.
While outsourcing overseas offers benefits like lower cost and less risk, it also poses a set of unique challenges. Among those challenges are:
- Language difficulties. I worked for a startup where our app development team was in Vietnam. The wage rate there saved us a boatload of money over hiring a US-based team, even with the overhead we paid to the firm, we experienced some language problems that required the English-speaking owner to interface between our team and his developers. This slowed the process significantly and sometimes required the developers to rewrite sections of code when they didn’t understand what we expected.
- Geographic barriers. Sometimes, working face to face speeds up a process. Working remotely with a team in a distant country can slow down the process or involve expensive travel to allow the teams to work face to face.
- Cultural barriers. Management styles differ between cultures, as do other aspects of culture. These differences sometimes make it challenging to manage a team in another culture or make it difficult to understand your needs.
Before making the decision to outsource overseas, you must weigh these opportunities and challenges carefully. Changing your decision comes at a high cost, so make your outsourcing overseas decisions carefully. It’s not just a matter of determining whether to outsource from another country and which countries offer a good option for your outsourcing needs, you must carefully choose the right company to satisfy your needs with as few challenges as possible.
Read on to learn more about factors impacting this decision.
Know your business needs
A company’s needs determine the type of vendor it chooses. For example, if a company has a large number of call centers, then it needs to decide whether or not it intends to outsource its call center and virtual receptionist services overseas or just parts of them.
A factory that outsources its production may need to find a company that can handle warehousing, distribution, and logistics, as well as manufacturing
Set a list of goals and objectives related to your outsourcing overseas before embarking on a search for options. Carefully weigh the pros and cons in a hierarchical fashion by starting with a decision of whether to outsource or not, then where to outsource, and finally which company offers the best option for outsourcing.
Set clear expectations
Businesses must communicate what they expect from their vendors if they expect good outcomes from their efforts aimed at outsourcing overseas just as they do for domestic outsourcing. Every company is different and has different needs. Some companies need to outsource because of the increased workload; others might choose to form a long-term partnership that can grow with them over time.
Regardless of your goals, you need to decide what you need from your vendor and create a plan that outlines the responsibilities and deliverables for both parties. Once you have this plan set up, share it with your vendor so that everyone is on the same page.
Work with a provider you’re comfortable with
The most crucial factor in outsourcing is understanding your needs and knowing which service providers have the expertise to meet them. It’s also essential to find a service provider that buys into your goals, shares your desire for an equitable partnership, and values open communication. Take the time to network and talk with people in your industry about their experience working with a specific service provider before making a commitment. Ask potential vendors for references and testimonials from previous clients and follow up on their experiences working with the provider.
You should also ensure that importing staff doesn’t violate local labor laws or regulations; this is where Employment Outsourcing is a valuable resource for businesses expanding overseas. All of these factors affect how well the provider manages the new office overseas, so you must carefully consider how the provider might help you reach your goals to determine which one is best.
Don’t be afraid to ask for what you want
If you want your company to succeed, you need to know what factors contribute to that success then ask what you need from your outsourcing agreement in order for your company to thrive and grow.
It’s essential to take the time and think through the specifics of what you need before reaching out to potential vendors or suppliers so you ensure you’re on the same page; that everyone knows up front what responsibilities they have, how you’ll assess their performance, and how you’ll distribute rewards. There are a lot of different factors that go into outsourcing:
- What services do I want?
- How long am I going to need this service?
- Will this service require isolation/other specialized conditions?
- What are my budget constraints?
- What is my timeline?
Once you have good answers to these questions, start looking for potential vendors. But don’t forget, if something isn’t quite right about the service or product, don’t be afraid to walk away. It may not seem like that big of a deal at first glance, but down the road, it could cost you more than anticipated and not meet your expectations.
Set clear goals for the engagement
Companies outsourcing business functions and operations need to set clear goals for the engagement. This helps you determine what outsourced tasks make sense and which ones can remain in-house.
For example, if your company’s goal is to increase revenue by 12% next year, you might want to outsource any tasks that do not directly contribute to achieving that goal, such as accounting. On the other hand, if your company wants to expand its global reach, it may make sense to outsource specific administrative tasks needed for overseas operations. For instance, outsourcing logistics takes advantage of specific knowledge of local transportation issues to reduce costs and ensure on-time deliveries. Similarly, outsourcing advertising or other marketing tasks to an agency in the local geographic region takes advantage of their deep cultural knowledge that translates into better ad targeting and performance.
Outsourcing overseas involves challenges and opportunities that depend on your particular situation. We outlined some of the top factors to consider before making the move to outsource outside your home country. If you have additional suggestions or want to share your experience with outsourcing overseas, please share them in the comments below.
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