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5 Offshore Outsourcing Pitfalls: What and How to Avoid Them

Ways to avoid Offshore Outsourcing Pitfalls

For entrepreneurs and startups, it is essential to find the best price for every aspect of running a business. With lean staffing, outsourcing can be crucial, and a cost-efficient component of the business workflow. When comparing digital agencies for outsourcing solutions, it may be worthwhile to look at firms in other countries.

You may find pricing that is much lower than the one offered by local or national vendors. Thereby, making offshore outsourcing a viable and beneficial option.

The majority of the companies (59%) surveyed in the Deloitte Global Outsourcing Survey revealed that ‘Cost’ is the most important parameter that pushed them to choose offshore outsourcing. Budget is indeed important, but it is also critical to understand and mitigate the risks of offshore outsourcing.

There are many ways to avoid common offshore outsourcing pitfalls. This will help prevent the extra costs of time, frustration, and money that could make you wish you had kept your business closer to home.

Pitfall One: Unreal Quotes

Unreal Quotes in offshore outsourcing

We will start with the cost because deep discounts are often what draw people to offshore outsourcing in the first place. Offshore service providers know this and design their offerings to appear cost-efficient.

What may appear to be a straightforward lowest quote, may come with strings attached in the fine print. Often this can be in the form of inefficient resources, skipped steps like thorough testing, and even unethical practices like reusing IP or stolen assets that can expose you to litigation.

A significant amount of your effort and time (read cost) may just pile up in managing the relationship and the team that works for you. A study by CIO suggests that “Depending on what is outsourced and to whom, studies show that an organization will end up spending at least 10 % above that figure to set up the deal and manage it over the long haul.”

How to avoid Pitfall One?

This pitfall can easily be avoided by carefully evaluating total costs. No doubt, offshore outsourcing does offer cost advantages, but measuring performance and coordinating across locations consume dollars too. Apart from this, the operational cost also tends to increase every year.

Therefore, it’s wise to introduce all the allowances and factors that have a grip on the operational costs before executing the outsourcing thought. Remember, a well-planned outsourcing model brings around 60% cost savings. Just be sure that you understand your total final cost before you begin.

2. Pitfall Two: Cultural Barriers

Different Culture

A second possible pitfall is a cultural mismatch. Any work that involves any aesthetic design, color, or layout can be very culture-specific. The issues can often be resolved during the project too, but fixing these things can take time and can cost a lot of money.

An offshore outsourcing agency comes to the table with organizational differences, along with religious and societal beliefs and standards of behavior that may be difficult to understand. Also, expectations regarding the level of open debate, acknowledgment of potential problems, and willingness to veer from the defined process in order to complete work may vary between regions and nationalities.

How to avoid Pitfall Two?

In an offshore outsourcing model, there are multiple stakeholders from different geographies involved. Thus, each one of them has to work with everyone to understand work and coordinate with each other effectively.

Falling for assumptions could be very detrimental for the key stakeholders who are the faces in an outsourcing relationship. Therefore, it becomes important for them to verify the communication to ensure its understanding even if it means explaining the obvious. Apart from this, it is also essential to undergo training on cultural differences and how to bridge them. For instance, you would love to understand about ‘Indian Nod’ before dealing with an outsourcing agency based in India.

3. Pitfall Three: Communication Issues

Communications Issues

The most critical issue with offshore outsourcing is communication. Clear communication must begin from the very beginning and continue through the entire life of the project. Online communications, time-zone differences, and a language barrier can significantly increase the chance of miscommunications. The team on the other end may simply not be fluent enough with your language to understand you. Different accents only add to this chaos.

Communication issues can lead to severe cost overruns and delays, even abandonment of the project in some extreme circumstances.

How to avoid Pitfall Three?

Smooth and regular communication is certainly a key to success in this context. There needs to be a communication platform which every stakeholder of the project can utilize. There should be periodic meetings between the on-shore and off-shore teams. These meetings must be short, focused and optimized for best results.

Also, before you even begin outsourcing, ask a lot of questions about communication protocols and be sure you and your vendor have a clear understanding of the project parameters.

4. Pitfall Four: Data Security

Data Security: A pitfall in offshore outsourcing

When considering offshore outsourcing, data security concerns are critical. Many offshore firms have robust security models as good as the ones found domestically. However, still, it is essential to take prior precautions and look out for your data and proprietary information. The risk of data breaches and the likelihood of loss of intellectual property has the potential to increase once you leave your country.

How to Avoid Pitfall Four?

It might be impossible to avoid some amount of risk related to your data altogether. Data breaches can happen with domestic vendors and even with an in-house team. The best way to reduce your data breach risk exposure is to ensure that, whenever you are working with sensitive or proprietary information, you have thoroughly audited your outsourcing partner to ensure they have all the proper protocols in place to keep your data safe.

Certifications for standards like ISO 27001 & PCI DSS ensure the software vendors maintain a secure environment for information security.

5. Pitfall Five: Failure to Deliver

Failure to Deliver: A pitfall in offshore outsourcing

What happens if your outsourcing vendor doesn’t deliver the promised work? Again, many offshore vendors and contractors have excellent track-records for job completion. However, failure to consider the averse possibility can lead to another outsourcing pitfall.

Outsourcing, in itself, comes with many risks including the risk of the project being stranded altogether. Businesses close or sometimes find that they don’t have the capacity to meet expectations. This risk indeed increases once the work leaves the country. It may be even more difficult to measure the risk of outsourcing in another country accurately. Your legal remedies regarding a broken contract may be more complex and less effective when the other party is in another country.

How to Avoid Pitfall Five?

Avoiding this pitfall is like a simple cost-benefit analysis. For some projects, the risks associated with a failure to deliver are not that high. The project can be restarted elsewhere. At other times, a canceled contract could be devastating and impact other concurrent projects. Effective research can be done on vendors to ensure a solid track record and work can be contracted based on the potential risks of possible fallout.

For example, research for various certifications that an agency has earned. Certifications of compliance for process management systems like ISO 9001 or CMMI, for instance, ensure that companies follow international-quality processes to plan, manage, and deliver to their customers.

Conclusion

Budget concerns are a priority for every aspect of a business. This is especially true for entrepreneurs and startups. Avoiding the pitfalls of offshore outsourcing comes down to mitigating the risks associated with various factors like costs, culture, communications, and security.

Nearly every project has its own set of criteria that will enable an appropriate risk assessment. Thus before planning for offshore outsourcing for your product development, go ahead with some research, up-front communications, and clear budgeting. It will increase the possibility of worry-free outsourcing to reap the true benefits of offshore outsourcing.

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Abhay S. Kushwaha

About the Author

A sales/advertising/marketing enthusiast, Abhay got addicted to the Internet in mid-90s and has kept pace with its evolution and technology. This wide and deep exposure has helped him successfully lead multiple teams at Net Solutions. He's also involved in the (F)OSS movement and writes a personal blog about disparate things that interest him, ranging from science to performing arts.

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