Global Sourcing of Services: A Two Stage Model for Selecting a Vendor

Organizations must define the scope of their prospective sourcing initiative in terms of the process or function (e.g., finance and accounting), the sub-process (e.g., accounts receivable), the business units that will participate, and the location or geography of vendor. After having decided the function to outsource, it is critical to choose a country for sourcing — onshore, nearshore, middleshore or farshore. The advantages of onshore are similarity in all country factors except for differences in regulations of individual states or provinces. The benefits of nearshoring are cultural similarities, geographic proximity, and a closer time zone. Middleshoring offers somewhat lower costs, quicker time to market, and cultural proximity. Farshoring (again from the vantage point of U.S. and western Europe) IT and ITES offers the advantages of significant cost arbitrage, acceptable quality standards, and access to the vast resources of a developed, populous marketplace that enables economies of scale. Two other related options to be considered are multi-shoring and right-shoring. Multi-shoring, as the name implies, provides not only a hedge against risk, but also the opportunity to accelerate the development of new processes and products by dividing work among locations. Spreading one’s application portfolio globally avoids excessive dependency on a particular region to deal with the issues of sovereign risk. Force Majeure, natural disasters, sabotage, etc., are all real issues, which require a more nuanced global sourcing strategy. Right-shoring refers to allocating work strategically between locations near, middle, and far: for example, shifting simple customer inquiries to offshore call centers while keeping complex inquiries on the caller’s shore. We recommend proper evaluation of the following factors to select a country or multiple countries in case of multi-shoring: (a) political system; (b) ICT infrastructure; (c) regulatory regime; (d) workforce quality and quantity; (e) judicial and legal system; and (f) language/culture. The next stage should be to drill down to a company within a country. In this second stage to select a company, factors of (a) fit between client needs and potential vendor capabilities; (b) financial/cost considerations; (c) speed/agility of the vendor; and (d) quality considerations — need to be evaluated.