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Overseas companies have been outsourcing their work to India for a few decades now. Initially, foreign companies worked with offshore establishments in India just for the purpose of cutting down their costs. However, start-ups, SMBs, and large firms have realized over time that working with offshore development centers could also improve productivity and reduce the time taken to reach products to the market. Further, outsourcing projects enabled them to focus more on their core capabilities and improve profitability.
Indian companies have also benefitted immensely from business process outsourcing (BPO). If you own a start-up business or an established company and are looking for opportunities to grow, then you must explore the possibility of establishing an offshore development center (ODC).
ODC refers to an extended and integrated facility located in a foreign country. It provides dedicated support to your organization as required. The offshore team, your extended team, operates overlapping shifts and carries out specific operations of your business. It makes business sense to establish an ODC in a country with a lower cost of living than the native country. This helps you to reduce your overall operational costs, enhance efficiency, and increase your net profits.
India has emerged as one of the top outsourcing destinations based on factors such as financial attractiveness and availability of talent.
When setting up an ODC, it is very important to identify the best service provider in your niche domain. The checklist given below will help you choose the best ODC:
Skills and Knowledge – While hiring a dedicated development team for your company, it is important to evaluate the knowledge and skills of the prospective members. Further, the team members must have experience in working on projects of similar nature.
Look for a Mutually Beneficial Deal – Prior to choosing a company, you must have a clear understanding of the deal you are agreeing upon. More than being a mutually beneficial deal, it should be risk-free and offer comprehensive services you are looking for.
Quality Standards and Reliability – You must evaluate your ODC team for trustworthiness and consistency in dealings. A company that has accreditations and certifications can be trusted.
Dedicated Workforce – The goal of setting up an ODC is to have a dedicated workforce. Therefore, it is important to double-check that you have the right people on the team.
Payment Terms – It is essential that you have a transparent discussion with the prospective ODC owner as regards the financial terms so that there are no surprises later on. You must also perform a background check to establish the credibility of the ODC you are planning to associate with.
Quality Assurance – Quality boils down to two elements: process and people. When you have the right people in your ODC team, quality standards will be maintained and you will get the desired results.
Clear Communication – In an ODC, you have to work with people living in a different time zone. Establishing an effective communication plan helps you to enjoy a good business relationship with the ODC team.
Delivery and Guarantee – Before partnering with an ODC you should check out the company’s project delivery track record. In addition, you must ensure that the ODC provides support for rectifying bugs and small issues. Continued support during the lifecycle of the project may also be required.
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Engagement Model Options
It all starts with aligning your company’s operations with that of the ODC. Additionally, you must clearly specify the responsibilities and job descriptions. It is also important to plan your security measures and give enough time to the new team to understand your company’s work culture.
Another key aspect to be discussed and decided is the engagement models. The options available to you include:
Time and Material: This model is very effective when the project specifications and scope are likely to change.
Fixed Cost: This is the best option for short-term and medium-sized projects with well-defined scope and specifications. The fixed cost model involves a lump sum payment. The time frame and cost must be decided prior to starting the project.
Dedicated Resource: The dedicated resource model is recommended for longer duration projects with unclear requirements. You can discuss and agree upon the monthly amount payable to the ODC to covers their costs.
Once you have finalized your outsourcing partner, the next step is to sign a contract with the ODC. The basic idea of signing a contract is to document every aspect that you have discussed and agreed upon with your partner so that unnecessary confusions can be avoided during the execution of the project.
The contract must clearly specify as to what both parties can expect from each other and how legal issues such as breach of intellectual property rights or securing the data provided by you for the development of the project.
The components that a well-prepared outsourcing contract should contain are:
#1: Scope of the project in detail – You should provide a clear description of what your requirements are. Further, you should ensure that this section contains all the scope of work that has been discussed and agreed upon by both the parties.
#2: Service level agreement – The Service Level Agreement (SLA) should contain the service guarantee to be provided by your ODC. In addition to setting a quality benchmark, this section should include performance expectations and penalty clauses for failure in meeting the quality standards.
#3: Product ownership/warranty – Every company wants complete ownership when it comes to their product or service. In certain specific cases, the ownership of a product or service is shared. That is why it is important to sign a non-disclosure agreement with the ODC.
#4: Transfer of assets – You need to transfer several assets to the company that has agreed to provide the services you need. A formal agreement is needed to transfer these assets to your ODC. Licensing fees may be involved when transferring certain assets. Additionally, stamp duties and taxes may also be applicable.
#5: Project Warranty – You have to display your credibility by taking utmost care not to breach the contract. This is because it can adversely impact the time and effort of your clients. Guarantee them high-quality products and/or services and lifetime-maintenance.
#6: Project completion time - In the case of the fixed cost model, deciding the project completion deadline may not be a challenging task at all as the scope is likely to be very clear to you. You should discuss with the ODC to find out if it is possible for the team can complete the specified tasks within the timeframe or whether they need more time. If the ODC asks for more time, you must check the same with your client and then finalize the completion date.
#7: Cost and payment structure – Irrespective of whether you have collaborated with the ODC to hire web or mobile application developers, it is important to ensure that they have expertise in the field. Moreover, you must clearly mention both the payment structure or schedule and the payment mode in the contract. Besides, the total amount to be paid for the project and the payment schedule needs to be clearly defined.
#8: IP protection – Theft of intellectual property is the biggest fear when working with an ODC. A non-disclosure agreement offers legal protection when it comes to licenses and data sharing restrictions. Project completion date
#9: Dispute resolution – There is always a chance of a dispute cropping up when you work with another company. It is, therefore, important that you save yourself from involving in any legal battles. It is a good idea to involve a third-party for resolving disputes. This clause should be included in the contract.
#10: Indemnification – Sometimes, legal issues may arise during the course of developing a project. The indemnification clause protects you from losses that might arise due to negligence.
#11: Subcontracting – Some of your clients may come up with the question as to whether the services are being provided by your in-house team or your offshore partner. The contract you sign with your ODC will prove that they are equally capable of providing the required services.
When the contract is finally signed, it is construed that you and your offshore partner have read and agree to the contents. Further, both of you will be legally bound to abide by the terms of the contract. A well-drafted contractual agreement is the key to a fruitful and successful outsourcing venture.
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It is the start-up companies that often consider working with an ODC because of cost constraints and the feeling that it would give them a good start. Start-ups are right in thinking the way they do as outsourcing offers a perfect balance of quality and price.
India is the best country when it comes to establishing an ODC because of the availability of not only talent but also cheap labor. However, it is important to plan your partnership with utmost care so that you can ensure the desired outcomes for your business.
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