Outsourcing, which has been with both the business and public sectors for some time, is either Information Technology Outsourcing (ITO) or Business Process Outsourcing (BPO). A number of organisations in banking and financial services, insurance, IT and telecommunications, Oil &Gas, customer services, Manufacturing, wholesale and retail, transportation, hospitality, health services, public sector regulatory agencies and others have either made use of or provided outsourcing services to boost their operations.
Globally, the outsourcing market runs into billions of dollars. According to Straits Research, a market intelligence company: “global business process outsourcing was valued at US$246billion in 2021, and it is expected to reach US$513billion by 2030”. Patronage of outsourcing has been on the increase, and was even heightened during the COVID-19 and post-COVID recovery period.
Various benefits accrue to organisations that embark on outsourced services. These include an ability to tap into the global market for quality service – ostensibly at reduced costs, and gives the use/entity opportunity to focus on their core business, among others.
They also face the risks of outsourced services – such as transferring employment to another country, if the provider resides in another country; time-zone differences; language and cultural differences; and forex losses.
Despite the huge initial investment and recurrent operational costs, a lot of institutions hardly benefit from the outsourced services or products to enhance their bottom line. Others sign contracts without the necessary due diligence, negotiations, legal advice and appreciation of the risks involved. Sometimes it is only when a breach has occurred that the ‘dusty’ Service Level Agreement is brought out – only to realise that terms in the contract do not favour them.
The following factors are essential in guiding organisations that utilise and expect full benefits from Outsourcing, whether Information Technology Outsourcing (ITO) or Business Process Outsouring (BPO) etc.
There is a need to be aware of the tax implications for the outsourced contracts we enter into, be it foreign or local; how to manage the foreign exchange loss risks (if the contract is international or local in different currency). It is also important to know the strategic considerations which go into the choice of service providers.
The organisation must also have a robust compliance and risk management systems in place for such outsourced services. There should be a performance monitoring system against provisions in the contracts signed and their legal implications. There could be risks to grapple with when the contract is initially crafted in another language and later translated into English.
Another essential factor is whether needs of the organisation’s stakeholders are taken into account, and corporate sustainability is seen as a concern for the company in the process of outsourcing and its implementation.
The author is a Fellow-ICAG, Chartered Tax Professional, Banker, Auditor and Risk Management Expert, and CEO of Value Based Consult Ltd. He can be reached on 024-474-7651 or [email protected]
