Offshore outsourcing is the process of obtaining goods and/or services from another country. Organizations conduct outsourcing when the costs of producing the products within the business entity are higher than when obtained elsewhere. With globalization taking effect in modern business environment, offshore outsourcing has become a common thing.
Criteria for offshore outsourcing
A company should consider several factors when making offshore outsourcing decisions. These decisions are: legal affairs associated with outsourcing in the countries involved in the transactions. The cost of selecting the outsourcing firm should be considered to avoid too much additional costs. In addition, the transaction costs involved should be considered to ensure the whole process is profitable. The management should also consider the quality of products being outsourced. Offshore outsourcing deals with making transactions between different countries and the management must learn the cultural aspects of the people involved in the entire business. The political climate prevailing in the countries in which a firm operates in is an important factor to consider when conducting offshore outsourcing. The politics in a country affect its economic activities and this may determine the ability of foreign firms to penetrate their markets (Batta, 2010).
Licensing is the process of giving permission to a business person to perform activities in the name of another at a fee. Licensing has the advantage that it increases the sales volume of a company because the products are sold in many places. It also expands the market share of a company. A company is able to penetrate into markets which have many barriers of entry by licensing firms within the country to sell its products. Licensing has the disadvantage that it exposes a business to competitors because the trade secrets are easily shared among the licensed companies (Walter & Murray, 1998). Profits are shared among the firms involved in the entire process compared to when the company would have used its own resources to enter a new market. In addition, there is no direct link between the main firm and the customers. Thus, the management may not know the exact needs of the customers (Schlesinger, 2009).Examples of companies using licensing as a global marketing strategy are Starbucks Inc, Nokia and others.
Global strategic partnership
Global strategic partnership is a business concept where firms from different countries unite to run business. This strategy allows firms to pool resources to operate in the global markets. This strategy is used by firms to penetrate some markets which cannot be penetrated due to the existence of many barriers of trade. Global strategic partnerships are different from traditional forms of global strategic partnerships in that firms using the traditional system aim at penetrating the market alone by acquiring other firms in different countries. On the other hand, global strategic partnership allows firms to pool resources for a common venture. The overall aim is to provide synergies to the partners in the business. Firms are using this strategy to expand their businesses and penetrate into the global markets. The members of a global strategic partnership assist each other to penetrate markets in which they operate. For example, Symantec Inc has invited several companies such as HP, Fujitsu, Atos Origin and others to pool their resources towards penetrating global markets. Each company assists the other in the marketing of its brands in the countries it operates in. this strategy has helped the partners penetrate markets in which each firms operate (Symantec, 2010).
In conclusion, outsourcing is an important business practice in modern business environment and firms should embrace these ideas. Offshore outsourcing requires a firm to have good strategies of dealing with different people from different backgrounds. Licensing has been found to help a firm enter new markets but there is the risk of exposing business secrets.