Need of Offshore Outsourcing

Offshore outsourcing continues to gain momentum in India. Though there are certain issues like security threats related to outsourcing, still companies are doing this business because they are impressed by the quality of work, results & offshore outsourcing initiatives taken by these countries. There are many reasons why companies continue to outsource. Some of them can be:

1. Capacity: Outsourcing priories an external source of capacity. Outsourcing proves to be a feasible solution when there is increase of work load & temporary sources of capacity are not sufficient. Offshore Outsourcing to India is preferable because it overcomes this shortcoming by the availability of highly talented professionals.

2. Know-how: Outsourcing may be necessary when the organization does not possess the technological know-how & a substantial investment is required to develop knowledge. IT government policies are very flexible in this regard which contributes a lot in outsourcing to India.

3. Cost & volume: When the cost of in house manufacturing is too high, or the volume of demand for a given part or service is too low to justify the initial investment in facilities, machines & training of the workforce, outsourcing is considered as a way to improve cost based competition. India, China, Russia & Philippines provide lower cost workforce for software development so companies find them as better place to outsource.

4. Demand Pattern: Companies go for outsourcing when the demand for the service is widely fluctuating or seasonal, in house manufacturing may not be justified especially if it requires investment in special equipment & facilities that might be idle for substantial part of the time.

5. Time Factor: One of the important reasons to outsource is time factor. Companies are not interested in spending their time in non-core activities. In such cases, outsourcing may enhance the time based competitiveness of the organization.

6. Quality: When the quality available from the software outsource vendor is better than the quality that can be obtained in house, then why do companies find any harm in software outsourcing. Recent surveys in North America have revealed the fact that quality obtain by outsourcing to India is the best till date.

7. Control: Since control is an essential tool in fighting uncertainty & poor planning, the reliability of suppliers as well as integration with the suppliers planning process are significant considerations in the make or buy decisions. Consequently, when outsourcing is used as a part of the order fulfillment process, proper supplier's management is an important task of the order of the fulfillment team.

8. Feasibility: Some companies have outsourcing as the only option. For example raw materials available only in foreign countries have to be purchased from outside sources & imported.

Seven Stages of Outsourcing Process

The first stage in outsourcing is planning initiative. As with any significant new initiative planning activities, including project management issues are important. Typically, cross functional terms are formed to study & implement outsourcing initiatives so team member & leader selection come into play. The project team assesses the risks & the resources information & management skills needed to mitigate those risks. Tem objectives deliverables & timetables should be set & management buy in must be achieved. After the planning initiatives, next step is strategic implications.

Strategic Implications: Outsourcing can be a powerful tool. To harness its power, however includes asking fundamental questions regarding outsourcing's relevance to organizations:

• Vision of future
• Current & future structures
• Current & future competencies
• Current & future costs
• Current & future performance
• Current & future competitive advantages

By exploring the answers to these questions the project team is better able to understand how outsourcing can fit within the organization's strategy.

Analyzing Cost & Performance is the next stage. The offshore outsourcing project team conducts activity-based analyses in order to understand the costs of the activities that might be outsourced & those that are staying. To this are added the cost of investment capital & the estimates costs of poor performance. Further having gathered activity based costs for existing activities the team makes reasonable projections of future costs of these activities. It estimates which costs do not disappear with outsourcing & what new costs will be incurred as a result of outsourcing.

The next stage is Selecting Providers. The project team lists the criteria for a qualified provider based on the reasons to outsource. Potential providers are identified & preliminary investigations are made to determine their qualifications & confirm their interest in transaction. Their qualifications are then compared to the criteria & a decision is made on whether they should be invited to purpose. RFPs are prepared & delivered to the targeted provider's list. Further discussions are held by senior management & finally a prime candidate is selected & negotiations can be planned.

The negotiations begin with a term sheet, which is used to convert the RFP & resulting proposal into an informal contract summary. To do this the parties negotiate the terms & reach the final agreement on the major issues. The term sheet leads to the detailed negotiations, which enables the lawyers to draft the contract document.

When the deal is done, it is time to begin the transition of resources. The human resources issues are carefully addresses & with sensitivity. The other factors of production such as equipment, facilities, software, & third parties agreement may then be transferred to the provider.

The last stage of outsourcing is relationship management. To build the relationship effectively, the relationship manager & the organization should be active in monitoring & evaluating the performance. If this doesn’t occur, the provider's performance is likely to suffer

History of Offshore Software Outsourcing

Outsourcing is a term discovered by the information systems trade press in late 1980s.It was coined to describe the growing trend of large companies transferring their information systems to providers. Offshore outsourcing & software development took a pace due to the competition among the various companies. Earlier manufacturers in automobile industry have made component parts that were unique but when they became commodities the manufacturing units started outsourcing components to the offshore outsourcing services providers. In recent years, companies have been actively outsourcing information systems & technology, telecommunications, Management services & more. The list goes on. But it has proved more beneficial for IT & ITES sectors.

Outsourcing is the act of transferring some of the organization's recurring internal activities & decision rights to outside providers, as set forth in contract. As a matter of practice, not only are the activities transferred but the factors of production & decision rights often are too.

Outsourcing has proved beneficial for both the service providers& buyers as it is a way for an organization to increase its effective capacity without investing capital in facilities, machines & training. It may also be thought of a way to enhance the organization’s competitive edge in the areas of cost, time, quality & flexibility by selecting the best sources & by developing long lasting relationship with selected suppliers.

India has become the largest destination for offshore outsourcing. This is due to the reason that India has well talented professionals who are also ready to work at low prices. All the BPOs, KPOs are doing exceptionally well in this. The reason behind this is the active actions taken by the legislature upon the breach of policies. Indian law of court provides the foreign country with an advantage of choosing the law of court. India is going to make a remarkable mark in the history if continues to work with the same pace in IT, finance, accounting & other sectors.

Outsourcing to India & Legal Aspects

Outsourcing has brought a revolution in the field of IT sector. Today every company is thinking of going for offshore outsourcing. If yours company is the one then following tips will help you before or while entering in it:

1. Contracts can change so ensure companies defines a clear detailed set of rules for changing the contract during it life.

2. It is important to include lawyers in earlier stages of outsourcing. The relationship's structure & the fundamental terms that affect the parties' contractual rights are often settled early & not during the formal contract negotiations. This will help the organization to have a victorious contact.

3. Companies must be clear from the stage of planning initiation that the contracts can be terminated or extended as per the performance delivered to avoid disputes.

4. If the countries are not the same take the help of the local council before drafting or signing any contract. The local knowledge will prove extremely valuable.

5. Information transfers across borders can be tricky in some companies, so ensure you are aware of the legal position regarding outsourcing of your sensitive data.

6. Where the chosen Law is Indian Law and if Indian Jurisdiction is to be applied on any foreign country, ensure that the foreign country has a similar law as per Section 44A of the Indian Civil Procedure Code.

Offshore outsourcing to India is getting pace day by day. India has become the destination for outsourcing .Companies has to follow some legal rules while selecting India as its destination

1. When contracts are handled between two countries then the law of only one country is not sufficient to handle the whole contract. At that point of time, the rules of Private International Law comes into play. The best way solution for the two parties is to choose a particular law for the contract. This law is called the "Proper Law of the Contract".

2. According to law court of India, it’s not compulsory that India will always have the contract & jurisdiction. It’s the intention of the two parties which will decide which country will have the contract & which foreign court will handle the jurisdiction.