Offshore options INNOVATION OVERSEAS
By Guy Rigby, Head of Entrepreneurs at Smith & Williamson
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f you’ve decided to set up overseas, there are a number of offshore business models to choose from. The one that’s right for your business will depend on your strategic goals, your reasons for entering the overseas market, the location and the types of activities you intend to carry out. Here are some of the options...
Offshore freelancing or employment Using low-cost freelance staff to send work to can be beneficial, as can enabling your existing staff to work from wherever in the world they would prefer to be. The virtual office is now an established reality.
Businesses with diverse workforces may find that staff they employ in their primary location, and who they already know and trust, may want to return to their roots. This can often create opportunities for international expansion.
Offshore outsourcing The outsourcing of IT development and support services to companies in India and other lower cost jurisdictions is typical of this model. An external supplier is chosen and contracted to carry out a project and is given responsibility for its delivery.
These arrangements can work well, but are not entirely without potential problems.
Using a third party supplier can mean that there is less buy-in, less flexibility and less control over important issues like timing and quality. There can also be concerns about the security of valuable intellectual property (IP).
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Outsourcing can sometimes create a ‘them and us’ approach, with a lack of integration and responsiveness. Being a supplier is different to being part of a team.
Other factors can also come into play. For example, priorities can frequently change during projects, and managing those changes can be problematic within a process-driven, outsourced environment. Furthermore, when you outsource projects you still need to invest in training, communication and, in many cases, travel. When the project ends the training investment can be lost as the third party provider moves on to another project.
An alternative to offshore outsourcing is onshore outsourcing where you hire a domestically-based company which has a global team and which can pass on its own cost savings through competitive pricing. While the IP, control and training issues may still apply, communications may be somewhat easier to manage.
Joint venture
Under this model, your business enters into a joint venture (JV) with an established local company in the offshore location, allowing you to share ownership and take advantage of their local knowledge and experience. By choosing your JV partner wisely, this should reduce the risks of working in an unfamiliar territory as well as enabling you to tap in to your new partner’s existing supply or sales channels.
Pooling resources can be an excellent solution, but the trick is in finding the right JV partner and building
appropriate levels of trust. Instinct will help you here, but proceed with caution and carry out detailed due diligence. It’s normally far easier to establish a relationship than to end it.
Build-operate-transfer
Similar to the JV model, a build- operate-transfer relationship is typically where an offshore supplier operates a dedicated centre for your business. Once it’s successful and established and certain conditions have been met, you can have the option to take over ownership and then run it yourself.
Offshore captive Many companies looking to cut costs through offshore operations simply set up their own operations, known as ‘captives’.
Setting up a branch or subsidiary facility on your own can require a significant investment of time and
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