Offshoring and Outsourcing
The Law of Outsource:
Do not do that which you are bad at or not passionate about if someone else can do it better or for less cost.
The Law of Offshore:
Always acquire your resources from the most efficient location.
What used to be impossible for small businesses is now possible. Think about it - you can sell your goods and products all over the world! This 'flat' world can give you the same advantages that your larger competitors may have previously had on an exclusive basis.
Right now you can:
- Get free software that 10-years ago would have cost a small fortune to help you manage communications
- Access skills and labour from all over the world
- Outsource to anyone with the right competency
All of this is now possible whereas a few years ago it wasn't. But the real question is, how can this world of outsourcing and offshoring help your small business?
Staff Options – direct vs support
What role(s) can you outsource and/or offshore and feel comfortable with?
Some people feel comfortable with offshore staff interacting with their Australian clients, staff and suppliers (direct involvement in the business). Others feel comfortable using only Australians to communicate with clients, staff and suppliers, but instead have offshore support staff.
As an example consider the law firm Baker McKenzie. This Tier 1 law firm has offices around the world where their lawyers interact with clients at rates in excess of $300/hr. For every lawyer employed that is customer-facing, Baker McKenzie employs a lawyer in Manila (Philippines) at ~$20/hr. The lawyers charging $300/hr get the support lawyer at $20/hr to write the necessary legal documents that the client wants. This frees the lawyers up who are customer-facing to spend more time facing customers, and reviewing work, rather than drafting it. This support strategy has improved the effectiveness of Baker McKenzie.
This is a very good question and there are many options that may be applicable to you. Contact us
if you would like to discuss in detail, but below is a summary of the commonly used methods for offshoring and outsourcing.
Setting Up An Office Overseas
Whilst this gives businesses the greatest amount of control over staff and the interaction across cultural and geographical boundaries, it is often resource intensive. For instance, you need to comply with local legislation, find suitable offices and staff and usually setup an expatriate(s) to work in a foreign country during establishment. On the upside, governments in desirable locations often provide direct foreign investment incentives. This provides access to cheaper labour and also tax incentives for the company. Usually small businesses are precluded from setting up their own business due to the establishment costs.
Build, Operate and Transfer (BOT)
Some businesses ultimately want to establish their own overseas office for the reasons given above. However, they do this by initially partnering with a local company who assists them to build the facility, then they operates the facility, ultimately taking ownership of the facility. This process can take a few months to a few years and relies on a healthy relationship between the client company and the local company for it to work well.
Business Process Outsourcing (BPO)
BPO is the most commonly engaged form of offshoring. Rather than establish their own office or work through the transition of BOT, clients that use BPO isolate high volume (usually low value) repetitive processes, then engage an offshore company in a suitable location to provide the outcomes of the business processes at a per unit rate. Because the offshore company is using cheaper labour and economies of scale they can achieve the result for a fraction of the price of the company doing it themselves. The most common example of BPO is demonstrated by the call centre industry. Most of us have had a phone call from our financial institution that has originated in India (or similar country).
Very popular with IT developers, designers and other computer workers. Online communities such as elance
provide a marketplace for contracts and contractors to meet. Whilst the marketplace ensures the financial side of the transaction is secure, there is no way of comparing the security of contractors compared with employees.
Direct Engagement - Hosted Environments
"Staff Hosting" as it is known is where a collective of small businesses aggregate their demand for a facility. Each individual business recruits, hires, fires and manages their own staff as they would in Australia. However, they do this via a local proxy and pay an elevated rental rate that covers the cost of onsite Australian management and local reglatory compliance.
Direct Engagement - Work From Home
Individual contractors working from their home office in a suitable country. Depending on how the contracor met with the contracting company, there may be a 3rd party involved. For instance, remote staff help facilitate and recruit work-from-home staff, whereas many people prefer to engage people once they have established a track record via the online communities.
Best Locations For Australian Small Businesses
The best locations for Australian businesses to conduct Offshoring and Outsourcing (O+O) activities include the Philippines, India and Malaysia because of similar time zones, proper information security and language effectiveness. Each country has its strengths and weaknesses as an offshore location of choice. Contact us
for more information.