| re advantages choosing small or midsized software | | | | these turbulent economic times. If the vendor runs into |
| outsourcing vendors along with increased risk. One risk | | | | financial troubles will they have access to additional |
| which is difficult to evaluate is the financial stability of | | | | capital? |
| the vendor. Outsourcing companies under financial | | | | Leadership team - Companies change senior |
| pressure can endanger the buyers offshore initiative if | | | | managers when there are financial challenges. Look at |
| they become interested in clients IP for increasing | | | | how often the management team has been working |
| revenue, change business strategies, or shut down | | | | together. |
| operations. When selecting an outsourcing company | | | | # of customers - It is dangerous to have all your eggs |
| the buyer needs to consider internal and external | | | | in one basket, especially in a cash flow sensitive |
| pressures on the vendor and cross check any | | | | industry like outsourcing. When selecting a vendor, |
| information provided during due diligence. This will save | | | | more customers means more stable. |
| significant time in the long run and increase the | | | | # of delivery centers - Expanding companies do so |
| likelihood of a successful offshore outsourcing initiative. | | | | out of profit, if the vendor is not expanding, they may |
| The first step is to consider the services delivery | | | | be facing cash flow problems. |
| location, both country and city. Look at current | | | | Most of the information listed will be provided by the |
| inflationary trends that will increase the vendors costs | | | | outsourcing companies sales team. There are many |
| over time. All increasing vendor costs are passed on | | | | professional sales teams working with offshore |
| to the buyer through rate increases or decreases in | | | | outsourcing vendors, however as with anything, there |
| quality so it is important to take note. | | | | are some bad apples. Thus it is important to cross |
| Salary - First tier cities in China have much higher | | | | check information provided from the sales team for |
| salary inflation than second tier cities. | | | | consistency. This step is consuming and is best done |
| Office space - Offshoring companies in China | | | | once the vendor has been chosen but before the |
| automatically get the first two years free office space | | | | contract has been negotiated. Keep accurate notes on |
| for setting up in a designated technology park. The | | | | information provided during the selection process then |
| free rent will be extended if the company has a good | | | | after selecting the preferred outsourcing company |
| relationship with the government. However, it is not | | | | obtain: |
| indefinite so check the rates for office space in the | | | | Credit history |
| city. | | | | Audited financial statements |
| Turnover - Recruiting is expensive, offshoring | | | | References |
| companies in cities with higher turnover rates have | | | | Cross check your notes against these three sources |
| higher HR costs which are passed on to the buyer. | | | | to validate the information |
| After evaluating the outsourcing location, make sure to | | | | Delivery capability and price points do not matter when |
| properly evaluate the vendor on these criteria | | | | your selected offshore outsourcing partner goes out |
| Headcount - This is a reasonable assumption but do | | | | of business, so always plan for a full financial due |
| not weight it heavily. A large unprofitable vendor is still | | | | diligence when selecting an offshore outsourcing |
| unstable. | | | | company. Vendors with razor thin profit margins is |
| Years in business - This is a better indicator as many | | | | often down played by outsourcing buyers as, "well |
| offshore companies struggle with cash flow the first | | | | that's their problem". It takes buyer side investment to |
| couple of years in business. | | | | setup a offshore partnership and when business is not |
| Growth - Look for stable growth rate rather than rate | | | | good for outsourcing companies their customer will |
| of growth. | | | | notice and it does become the clients problem. |
| Funding - Funding is extremely important, especially in | | | | |