A primer on construction, operation, and transfer of an offshore back-office team.
A temporary arrangement wherein an experienced service provider operates a program with expanded knowledge-sharing, Build-Operate-Transfer allows clients to grow offshore management muscles without significant operational or financial risk. For programs with more than 50 seats, offshore training wheels deliver quick launches and a compressed learning curve. Offshore organizations regard these deals as short-term or 6-24 months.
Providers like Lumikha Teams establish a program with the understanding that it will move and the assigned team will be rebadged to the client at some point. Rebadging refers to moving a program team from one company to another and requires careful coordination between the organizations and the affected staff. In outsourcing's infancy, B-O-T has a popular model for businesses new to outsourcing. These organizations knew that offshore was the right approach to reduce costs but opted to work with a partner rather than embrace all the facets of offshore at once.
So how does a B-O-T deal happen?
Clients usually initiate Build-Operate-Transfer deals since most BPOs are loath to suggest this as an option. They regard this structure as a program destined to leave, so offshore providers will seek clients with long-term potential rather than invest the effort to build a program that will leave, taking with it their hard-earned knowledge.
The decision lies in two considerations. The first is purely financial. At some point, the payroll and infrastructure costs of going it alone are far less than the hourly rate you are probably paying. The second is more strategic. Do you want to have total control over your offshore operations? Are you willing to assign a team to this enterprise? Have you mapped out all the aspects of an independent, captive operation?
To be clear, local incorporation and crossing the cultural divide are non-trivial activities. Nor is building the requisite support infrastructure for remote operations. But if the economics work and your corporate culture are a good fit, then B-O-T is for you.
Build-Operate-Transfer by the Numbers
B-O-T contracts allow clients to lean on their service provider to supply the requisite infrastructure as they develop the muscles for offshore operations. Generally, clients understand their processes, KPIs, and related operational matters, but they do not have competency in managing the cultural divide and the Philippines' business environment.
Build & Operate
As a practical matter, Build and Operate are quite similar to standard outsourcing arrangements where the client contracts for services with the Business Process Outsourcer for staffing, training, and managing a process or set of processes. B-O-T engagements diverge from standard outsourcing deals in two ways:
- The staff hired to work the program understand that they will be rebadged at some point to work directly for the client.
- Knowledge transfer occurs beyond the operational scope to encompass the support functions like human resources and facilities management.
Depending on the scale of client operations, the transfer entails new hiring for support functions and teams, typically shared with the client organization, like quality assurance and information technology. With the new entity, leases are secured, new contracts drafted and signed, and a comprehensive migration plan unfurls as the client's autonomous entity assumes all aspects of operations and support. In most cases, there is a fee to cover the rebadging process since the HR aspects of the process are relatively complex and require close attention to maintain compliance.
Should you consider Build-Operate-Transfer?
It's a definite option, but it's not something you necessarily have to commit to when you start offshoring. That said, many service Business Process Outsourcers are pretty hostile to the idea of rebadging employees, so it pays to raise the issue early in negotiations. As Derek Gallimore points out in his book, Inside Outsourcing: How Remote Work, Offshoring & Global Employment is Changing the World:
If you’re looking to transfer and set up your own company in the Philippines, my advice is not to incorporate too early. It is generally a huge pain to incorporate, set up a company, get a lease, and remain compliant in the country. It’s also worth pointing out that you can’t—legitimately—start to hire people, run a team, get a lease or internet connection, or buy hardware in the Philippines unless you first incorporate a company. And if you do decide to incorporate, then you will be thrown headlong into the dizzyingly bureaucratic world of Philippine red tape and paperwork.
Yet, if managed effectively and with some planning, the challenges are certainly manageable, but it's worth noting that charging in without a methodical approach to operations and then incorporation can erase the considerable cost reduction you stand to gain.