Exploring Offshore Outsourcing Destinations

As the global economy shifts, the global market for offshoring services continues to expand. Countries that would previously never have been considered are now proving to be tempting destinations for outsourcing services.

As we reported in this blog, forthcoming tax changes may affect the pricing available from the established Indian outsourcers. To the extent there is a material increase in the pricing from Indian providers, this should only serve to fuel the exploration of other destinations.

For example, Latin America continues to be a growing destination for offshore services. While Latin America may not be as attractive from a pure rates perspective, it offers some benefits of time zone alignment and potential cultural similarities for certain service scopes. However, there are also unadvertised risks in moving to Latin America, as outlined in a posting by CIO Magazine.

Similarly, China is emerging as a sourcing destination for highly technical applications. However, communications and cultural issues can be a challenge. There also can be a “trust gap” between western and Chinese cultures, and recent high profile claims of Chinese-backed hacking and information espionage are only adding to western concerns.

And, of course, for European-based customers of outsourced services, Eastern Europe facilitates compliance with European privacy regulation and language skills, but the savings are rarely as great.

Add to this list destinations like the Philippines, Barbados, and Mauritius–each with its own pros and cons.

So, how should you choose where to locate your offshore services?

The answer, of course, is quite simple . . . it depends. It depends on what kind of service you are looking to outsource, it depends on the competitive value of the materials and intellectual property involved, it depends on the financial drivers of the transaction, and it depends on your own tolerance for inconvenience and/or cultural misalignment.