Offshore Outsourcing and Hidden Costs associated with itThursday, February 09, 2006
Offshore Outsourcing, the process which is known for lower cost of production, also has lots of hidden costs associated with it. The overall process which is used to save or to reduce the cost of the production carries different types of hidden costs with it. These costs must be taken under consideration while entering into overseas deals otherwise it can be much more expensive than the expected ones. The countries that are providing services with the lower labor rates also charge for lots of other services in such dealings. Sometimes it might be possible that the total cost of overseas dealings might be more than the onshore development if proper care is not taken off. Such hidden costs are associated with the place of productivity. It is one of the most important issues to be surveyed while entering into the process of Offshore Outsourcing.
In Offshore Outsourcing you might end-up on the loosing side if the proper care of the production place is not taken off. The whole process is a long-term investment with the long-term payback. Some of the hidden costs associated with the production place are as below.–
The Cost of Change
The period of transition is considered to be the most expensive phase of the overall process. The duration of it is considered to be from three months to 6 months for handing over the whole process to the overseas service providers. Charges and timing in such process is higher especially when you are planning to bring the employees from the other country and teach them your business, means to deal with the newer vendor.
The Cost of Handling the Overseas Contracts
Offshore Outsourcing contract management is also an important job and really costs you a lot if frequent changes are made while the progress of the deals. Managing such overseas relationships with the vendors is a difficult task. Tasks like ensuring cost centers, auditing, invoicing and some more tasks are there that requires the concerns of the vendors. So recording such things and maintenance that it requires costs a lot sometimes in Offshore Outsourcing.
The Cost of Vendor Selection
The overall cost of vendor selection in such deals can be from .2% to 2%. It includes sending of RFPs, documentation costs, and evaluating and negotiating process. It can take three to six months to fulfill such small process in the deals of Offshore Outsourcing.
Layoffs again are a part of the overall deal. You also have to make overseas employee happy. These are some of the unanticipated costs. Cost like retention bonus to the employees is one of it. It can also play a major role in maintaining morale of the employees if not taken care off. So it can also cost the company.
In shorts Offshore Outsourcing process is the process with many of such hidden costs. So it is better to evaluate all such costs also while entering into the overseas deals, otherwise such costs may make company face some major loss in Offshore Outsourcing.