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Offshore outsourcing: Business Issues

Business and Risk always share inverse relationship. If you want business you need to minimize risk and where there is unmanageable risk business cannot succeed.
Risk of losing profits forced organizations to think of offshore outsourcing. But offshore outsourcing has it own disadvantages.

Offshore outsourcing today has many legal and business issues. We have already seen legal issues in offshore outsourcing faced by business organizations in the previous section. Now we shall see certain important business issues affecting offshore outsourcing.

Move against Self-Reliance:

Offshore outsourcing suffers from many business issues. One of the biggest disadvantages of outsourcing is the increase in dependence of an organization on others. It is beyond doubt that any buyer will not outsource until he sees cost advantage in outsourcing an activity. But the fact remains that after outsourcing he would loose his control over that activity. His overall business result will depend on how his offshore partner performs.

Many times, in order to achieve desired performance, firms are compelled to part away with certain information or activities, which are of strategic importance. In such a case the buyer becomes more vulnerable to business threats from offshore outsourcing.

Environment in the Buyer or the Supplier country:

Business environment is influenced by many international factors.
Offshore outsourcing involves relationship between two-business organizations that are governed by two different sets of ideologies and cultural differences.Political deadlocks and negative policies between two countries towards each other may act as deterrent hampering business tie-ups.

For example: - Say Bank named X of XYZ country wishes to outsource its account processing activity. It wishes to utilize the offshore outsourcing resources provided by service provider named A of ABC to be the best match for the job. But XYZ cannot transform its intention into a legal contract. Reason being country XYZ and country ABC do not share a cordial political relationship. Foreign policies, trade policies etc of these countries are against each other.

Environment prevailing in the concerned countries is influenced by various policies like foreign policies, economic freedom, currency transaction laws etc. We can thus conclude that without constructive government support both the client and the service provider will not be able to utilize available offshore outsourcing options

Perceived Risk:

If a buyer is planning to establish offshore links then he should take into consideration issue of business threats expected from perceived risks in his service providers countries or his surrounding environment. Perceived risks are factors indirectly affecting the client. It is different from the above mentioned business issue in a manner that here the clients business will suffer because of risks between his service providers country and some other country. Perceived risks can also extent to political and economic issues, at different levels, which are capable of hindering businesses of both the client and the service provider.

Hence, Perceived risk will be any likely change in the environment surrounding the service provider which has the potentiality of affecting the business of client.

For Example: a client of XYZ country has outsourced his business activity to a service provider of ABC country. Country named ABC share constructive relationship with country named XYZ. But ABC has a border dispute with its neighboring country and the prospect of war dooms large. If the war breaks out during the time of execution of the contract then XYZ s business would suffer.
Offshore outsourcing can only be successful if all such foreseeable perceived risks and business issues likely to emerge from such threats are taken care.

Human Resource:

Developed nations have outsourced many business activities to developing nations. Tremendous manpower cost savings and the resulting business benefits have attracted firms to stop performing certain activities and start depending on offshore outsourcing. This has lead to better utilization of global manpower resources and has given developing nation a new horizon of business opportunities.

But, Offshore outsourcing has given birth to new business risks related to human resource. The problem of unemployment due to outsourcing has led the effected masses to pressurize governments to stop outsourcing. This activity can act as a business risk for both the Client and the Service provider.
Offshore outsourcing would remain as an integral part of the business strategies as advantages from offshore outsourcing surpasses such disadvantages.

Largely, business issues depend on geographical, demographic and political factors.
In order to facilitate offshore outsourcing it is advisable for governments and its citizens to deepen their thinking and look at the situation from the global perspective.

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