19 Sep 14 Why do companies offshore business research?
Duh! Isn’t it all about cost? Perhaps… perhaps not. When one talks about off-shoring, the first thought that pops up is cost arbitrage. Indeed, cost arbitrage between developed countries and most offshore destinations is significant. But this is not the only reason, or in some cases it is not even the most important reason for off-shoring.
Despite a sharp rise in salaries in many off-shoring destinations like India and the Philippines, the average salary of an analyst in the US is over 10 times the salary of an analyst in say India. All of this is not realised in an offshore partnership, as there are several overheads to be considered.
The manager at the company that is off-shoring the work, needs to first identify potential partners, then conduct pilots with 2-3 of them, evaluate them, and then select the most appropriate partner. A contract has to be drawn up, SLAs are specified, and legal teams on both sides must approve the contract. Once a partnership is forged, the manager will need to streamline the handover of the activity to the offshore team. The offshore team will need to be monitored and guided with detailed feedback till the process is streamlined. After that, the relationship needs to be nurtured through regular communication, interactions between the two teams, governance calls, and so on.
As a result of these overheads, the savings from off-shoring are lower than what the salary differentials suggest, but nevertheless, in most cases, quite significant.
Flexibility and efficiency
Offshore teams typically offer the company additional flexibility in doing research that the in-house team generally doesn’t have. First, offshore teams offer on-demand research. So the offshore partner is able to find a few additional resources when you have anticipated or even unanticipated spikes in work. So if there is an urgent research need, it can be fulfilled without sacrificing another activity. Secondly, if the offshore team is located in a different time zone, you can achieve tremendous efficiencies in terms of turnaround times that in-house teams cannot match. For example a company in the US can send an urgent research request to India at the end of their working day and have the research in their inbox when they come in to work the next day!
Yet another reason for setting up offshore research teams is their proximity to the company’s target markets. Since growth in developed economies has decelerated, many companies are looking to expand in emerging markets. Some of these are also the favoured offshore destinations (like India, China, Brazil, etc.). In addition to providing research support, the offshore research teams are able to offer deeper insights on the local markets and neighbouring regions.
In-house teams in enterprises typically have limited repertoire in terms of the types of research they are familiar with. Service providers on the other hand have people working for multiple clients doing many different activities. They have a much wider skills set available. So if companies need specialized research – like financial analysis or statistical modelling – they have access to their partner’s resources.
Cost differentials are available to all. If the volume of work involved is high, the cost benefits are significant. Most companies that offshore research are also attracted by the other advantages that such arrangements offer.