Business Productivity

5 pitfalls to avoid when outsourcing overseas

- November 22, 2017 4 MIN READ

Many business owners choose outsourcing overseas over a local provider as they can be cheaper or have a better range of services. So how do you decide whether and when to use an overseas service provider or a local one?

Okay, so you have your business idea, have finalised your business plan and are ready to start and setup your actual business… but you need help.

Or maybe you’ve had your business up and running for a while but it is growing and you want to take it to the next phase but you don’t have the skills/time/knowledge?

Outsourcing can be a great way of using experts to do the things you cannot or don’t have the time to do yourself. Whatever service you need can most likely be outsourced: website development, content and article writing, logo design, consulting services, suppliers for your products…the list is endless. But you need to make sure your business has the right partners in place to ensure smooth and consistent good service.

Many business owners choose to work with overseas service providers as they can be cheaper or offer services that may not be available locally. So how do you decide whether and when to use an overseas service provider or a local one?

There are a few pitfalls to be aware of when deciding whether to use overseas providers and lots of stories to consider around experiences of business owners losing deposits, receiving an unfinished or bad product, only to find that apart from travelling to the country themselves, there was little they could do.

Here a few things to look out for when you are considering outsourcing overseas:

1. Don’t base your decision on price alone

When you are considering any service provider contractors, rule out the lowest bidders. Saving money is tempting but, as per the old adage, you often get what you pay for. You may find that some overseas providers may not have the same quality level, experience or education and even though they are less expensive, you may not be happy with either the process of trying to manage the work with them or the final result.

Don’t scrimp on the important stuff in your business like website design or development, your suppliers or manufacturers of your goods or services. It will be evident in your final product and will affect both your reputation and business.

2. Know what you will own

This is a biggie and happens often! Check that you will own the final product software code you have paid to have developed as part of your website. Otherwise, you may find you only have a limited license to use the software code for your website and are stuck using that developer and host without an opportunity to change providers.

If your contract does not state outright that you own the software code it is likely you are locked in with the original developer, and with limited or no option to use anyone else. It also makes it much more difficult to sell your business down the track.

In addition, you are at the mercy of the service provider if you cannot change, and if you try, your website may be cut off with no access, you may lose revenue, and the reputational damage could make it difficult to resurrect your business.

3. Make sure you can terminate the contract and services

Even with the best of intentions, sometimes professional relationships don’t work out. Know what happens if you wish to cancel or terminate the contract and services and get out of the contract early. Can the service provider block your order or cancel your website services without time to find another supplier?

Some services are locked in so be aware of this when you sign up. Many website developers give you a great discounted deal to help you to set up your site but in the fine print, they tell you that your website must remain hosted by them and you can never go to another provider. Your costs likely end up higher and it makes it very difficult to ever sell your business. Other suppliers charge an ‘exit fee’ if you terminate early. Ensure you are clear on any terms of termination.

4. A dispute may require you to travel overseas

What happens if there is a disagreement on the services? If you are dealing with an overseas provider, the governing law is likely not Australia. Governing law or jurisdiction clauses are normally in any professional contract for services. The state and country nominated in this clause is the location where you or the service provider must lodge their claim in the event of any disagreement or dispute over the services. For example, if the contract states California as the jurisdiction or governing law, you will be required travel to California to lodge, defend or manage any dispute.

Governing law or jurisdiction in a contract can mean the difference between you being required to travel to another country to defend or lodge any claim. Just because your business is located in Australia and you provide your goods/services in Australia does not necessarily mean litigation can occur in that country.

If this clause in the contract specifies the state you are located in within Australia, that’s great! You don’t have to travel plus you understand your rights and the law. If it is, however, India, China, Romania: you may find it a bit more expensive and trickier to manage any dispute!

5. You are required to abide by local consumer law, are they?

You, as a business owner, are required to abide by Australian Consumer law (‘ACL’) for all your customers. You, cannot ask or tell your customers to take up any issues they have with your products directly with the manufacturer or supplier. You, are responsible as the business owner and you are required to address the customer issues and then deal with your supplier.

To protect yourself and your business, you should ensure that any supplier or service provider you use is aware of and agrees to abide by Australian Consumer Law in relation to delivery timing of products, required warranties and guarantees, and service levels. Even then, depending on where your overseas service provider is located, you may still find yourself and your business exposed with little recourse if they don’t meet the ACL requirements.

Don’t limit yourself to looking at the traditional overseas providers. Instead, consider local services alongside overseas providers, bearing in mind the long-term relationship you may need to establish for your business. It can be difficult with language, time zones and other issues. In the long run, basing your decision solely on price may end up costing you more. Good service providers are gold so once you find one you are happy with, you and your business will be happy.

Have you outsourced overseas and had a good/bad experience? What did you learn outsourcing overseas?