A risky business? The top 10 challenges of offshoring

Organisations embarking on offshoring face multiple challenges; many of which can be extremely daunting. In A risky business? The top 10 challenges of offshoring the Director of Global Sourcing at EquaTerra, Sridhar Vedala, explores the top 10 challenges of offshoring today and provides suggestions on how to tackle them head on. Although there are many challenges associated with  offshoring, through proper planning and due diligence, they can be overcome.

The Top Ten

  1. Internal organisational barriers
  2. Choosing the right location
  3. Choosing the right supplier
  4. Cultural compatibility
  5. Procurement of hardware and software licences
  6. Loss of control and knowledge transfer
  7. Data security
  8. Building a retained organisation
  9. Controlling cost overruns
  10. Service providers failing to deliver

Let me briefly recap his main arguments for each of the 10 challenges:

Internal organisational barriers
Any offshoring initiative inevitably leads to internal organisational debates on whether to offshore or not. If such debate is not managed properly it can quickly lead to the dismissal of the offshoring initiative without proper consideration being given.

Choosing the right location

Some customers sign contracts with service providers in offshore locations without fully understanding the risks associated with each location: geopolitical issues, skill availability, local labour competition, legal and intellectual property-related issues, wage inflation, attrition or currency fluctuation.

Choosing the right supplier
In order to fully understand service providers’ capabilities and differentiators it is essential to constantly evaluate their performance over a sustained period of time and to build a good working relationship with them.

Cultural compatibility
Cultural compatibility is one of the most evident challenges of offshoring. It includes compatibility at a corporate level, process level, and on a day-to-day interaction level.

Procurement of hardware and software licences
Offshoring often involves the procurement of hardware and software licences, which could be challenging as the contracts are procured from offshore locations.

Loss of control and knowledge transfer
Offshoring involves the handing over of considerable process control to the supplier and consequent transfer of knowledge. Such transfer of knowledge and control can be perceived as a loss of overall control and, therefore, present internal challenges.

Data security
Often offshoring entails allowing access to critical customer data and information to offshore suppliers and any breach in data security could severely impact your business and your customers.

Building a retained organisation
To ensure sustained benefits from offshoring it is critical to put robust governance models in place operated by a highly skilled and experienced retained organisation.

Controlling cost overruns
The majority of offshoring initiatives that fail do so because of the inability to realise the perceived or anticipated cost benefits. The key reason for perceived cost overruns is that most business cases are simplistically built on the basis of the wage cost arbitrage rather than a complete assessment of all
elements that contribute to costs – both direct and indirect.

Service providers failing to deliver
The failure of service providers to deliver on time could have a severe impact on your bottom line. Offshoring makes it more challenging to monitor performance.

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Jan Husdal is an engineer turned researcher turned engineer again and he is now a Resilience Adviser with the Southern Region office of the Norwegian Public Roads Administration (Statens vegvesen Region sør) in Arendal, Norway,

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