Outsourcing does not mean you are surely going to save money and become more profitable. You can end up spending more money and getting poor results. To eliminate the risks involved with outsourcing IT services offshore. You need to clearly evaluate the goals and targets of the exercise. Having a clear understanding of the requirements, process and outcome will help complete the task under the estimation.
You can format different kinds of contracts with your offshore partners, depending on your needs. I am going to explain the different possibilities and contract styles.
Target Based Contracts
If your requirements are precise and you know the final outcomes of the project, you can contract the offshore partner on Project Basis. The general process and terms of such contracts are as follows.
Offshore provider after receiving your requirements responds with a proposal, highlighting their capabilities, ideas, and process to fulfill your demand. They may also ask you questions if requirements are unclear to them. Upon clarification of the project and requirement, offshore parties will provide quote and timeline. Payment terms for such projects are made in installments upon several phases. For example, 30% upon startup, 20% upon approval of prototype, 30% upon beta, 20% upon completion. You should not pay 100% upfront, as that will increase risk factors. Paying upon completion of phases, secures you.
Example of any such project could be, that you need a blog site designed. You have already selected an open source, b2evolution for that. Let’s say you like a few sites for their design, and you are pretty sure you want something like that. So this task is clear to you and final output.
Another example could be that you require a web based Shopping Cart. Your requirements are clear and you have references available. In other words, the project which does not involve any research or new work can be worked upon in this contract type.
On Going Contracts
At times the requirements are as such that you need on-going work process. Cases could be such as you need on-going web marketing services. Such as sending out emails, blogging, and posting on forums. Even in this case you should clearly write down your objectives and what kind of exercises you want to do. For outsourcing requirements like these you should contract the offshore provider on per-hour basis. The offshore providers to work on such kind of jobs are available from $1 per hour to $10 per hour depending on the quality of work.
You should go for the companies providing you reporting for the number of hours spent on your job. One good portal to outsource like that is www.odesk.com, you are able to track your offshore worker and how he is working.
Payment terms for such contracts are safer for you. You pay for some hours upfront and get the work started. You buy more working hours after seeing the performance of the offshore provider.
Research work and consultation jobs can also be contracted on per hour basis.
Sales Based Contracts
If you have ready products and want to use an offshore partner to boost your sales, you can contract them on a percentage of sales they make. You need to define and know the ways and process your offshore company will follow clearly and put that in the contract. You do not want to find yourself responsible for any illegal ways the offshore provider adopts to promote you. More also you need to make sure your client information is secure.
Partnership Contracts
If you plan to develop a large scale application, technology, website (portal), you can consider working with an offshore partner in a long term partnership basis. You can make the offshore partner a minor (less than 50%) partner in the project and develop a long term relationship. This is the most promising way for both parties. You will get better development rates, long term support of the same party who developed the technology. In this case you must work with an established company with good repute and development experience in your business sector. Having this kind of contract, you will put your offshore partner’s maximum interest in your project.
It may take from a month to a year to find a suitable provider for your job. You need to do hard work in evaluating the offshore companies’ responses to your RFP (request for proposal) and negotiating with them to format a contract. If the risk factor is greater in finding the right partner offshore, the profit margins are higher as well. If you find the right partner, it’s your game then!
There are more ways to format a contract with your offshore partner. We will be glad to know your experience and any ways you know of outsourcing to offshore providers.