Crash Course in... outsourcing

Your business is running smoothly, but overheads are uncompetitive. Is it time to move some functions to a market where labour is cheaper?

by Alexander Garrett

Start with strategy. 'Don't offshore just because it sounds a good idea,' says Martyn Hart, chairman of the National Outsourcing Association. 'Start with a sourcing strategy that identifies your business drivers and how they can best be delivered.'

Weigh the real costs. Cutting payroll cost is an obvious attraction, with 40% to 60% savings typical. But tot up the additional costs of management, training, travel and telecom/IT infrastructure before you decide. Chris Gentle, associate partner at Deloitte, says benefit is obtained from economy of scope, not just economy of scale: 'The higher the proportion of your business moved offshore, the greater the benefit.'

In-house or out? Deciding whether to outsource or set up a 'captive' operation overseas is important. Says Tim Lloyd, managing partner of offshoring specialist Alsbridge: 'Firms are more likely to outsource if they've done it before and if there are suppliers available with the expertise and the cultural match required. If you're an entirely UK-based company, it's a hell of a stretch to think you can go 6,000 miles and set up a new operation from scratch.'

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