Source Code China: The New Global Hub of IT (Information Technology) Outsourcing

Chapter 4. Strategies that Work

There are four main options when it comes to offshore outsourcing:

1. Offshore partner (third party)

   1. Fixed-price short-term engagement, often a one-off project. Advantage: fulfill a specific a need, paying only for what you get. Disadvantage: staff members may be unavailable for future projects or for follow-up.

   2. Staff augmentation, long-term focus (retainer-based, dedicated team). Advantage: build knowledge in the team, have resources at hand any time. Disadvantage: fluctuation of work load, fixed cost even if time not used.

2. Captive (establishing your own subsidiary)

3. Acquisition

4. Build-operate-transfer (BOT)

The opportunities and risks of each model are outlined in Exhibit 4.1. This exhibit is intended as a suggested primary decision matrix, but by no means pretends to be comprehensive as the grounds for decision-making will vary from one enterprise to another.

Table 4.1. Preliminary Decision Matrix Based on Suggested Advantages and Disadvantages (i.e., Opportunities vs. Risks of Offshoring Outsourcing Strategies)

Strategy Option	Suitable for	Advantages/Opportunities	Disadvantage/Risks
Captive	Organizations with market strength and available capital Strategic outsourcing market	Customized model, 100% based on actual business needs Intellectual property (IP) control Knowledge management Retain training investment Cultural fit Build strong market presence	High initial investment Ongoing capital expenses Requires local knowledge
Acquisition	Organizations with market strength and ...