Offshoring: Do it yourself or outsource?

If you plan to move work offshore or nearshore, a question that arises is how to organize it. The past weeks I have been thinking about the way people organize the setup, as I speak to many people for my book project. I made a simple drawing to show the different variants that I observe in the industry:

On one extreme, companies setup their own offshore or nearshore office, they do everything themselves. They send someone to India for example, to find a good office and recruit team members. Often in medium sized firms, I see this happen with a colleague or relation that is from the remote country and wants to re-locate back to his home country. The other extreme is a company outsourcing everything to an external partner. That partner even places people inhouse in the outsourcer’s organization and basically takes over the whole IT function. In between there are many variants (and there are many more options than the picture shows).

With the scale of self-organisation versus outsourcing, the costs vary. The only doubt I have about my own model is the top version: do it yourself. In many cases I have found that variant to eventually cost more than setting up a relationship with a partner. That’s due to the large upfront investment for finding location, organising the premises and especially finding the right team (which in case of a partner is already in place). 

One of the trends that we see in the market is that most companies achieve success with a setup that involves a local partner. This can be a ‘native’ local partner or an offshore partner that has set up a local office. I also believe that this model will grow most substantially in the future. I rarely hear experiences that turned out completely positive when companies involve a remote partner without any local support. The challenges in terms of cultural differences, communication and ‘how to organize’ are too big for outsourcers to sit through the learning curve. 

The multinationals that outsource all involve big vendors from India and most of them use the model at the extreme bottom. They outsource their IT function to the offshore partner, who in turn sends foreign and local employees to the customers office to support the remote work. The team inside the customers premises is close to the business and can analyse business issues, gather requirements and manage the remote work. 

SME’s tend to be on the up side of my above model. As most SME companies are lead by entrepreneurs, they tend to be willing to take more risk and gain more cost savings. 

The challenge for vendors is to figure out what service level to offer with each model. I have experienced in my own company (we are on the upper side of the model with our offering) that it’s important to figure out what service level works for customers. And on the offering we use, there is a paradox: the customers want to build a team with us and keep costs low. Often they are SME’s. And at the same time, to make offshoring work succesfully, we’d need to invest in cultural trainings, scrum/agile trainings, adapting the working process continually. But in most cases customers are not willing to organize budget for this as the setup is typically small and costs need to be low. So we created a model in which we offer as much as possible in terms of support in the communication with the remote team, at the lowest costs possible. 

What I see many