Guy Rigby considers the different offshore business models available to companies looking to expand overseas.
If you've decided to set up overseas, there are a number of offshore business models to choose from. The one that's right for your business will depend on your strategic goals, your reasons for entering the overseas market, the proposed location and the types of activities you intend to carry out. Some of the options available are summarised below.
Offshore freelancing or employment
Sending work to low-cost freelance staff can be beneficial. But so too can allowing existing staff to work from wherever they want in the world. Businesses with diverse workforces may find that staff who they already know and trust want to return to their 'home country'. This can create opportunities for international expansion.
Offshore outsourcing
This is when an external supplier is contracted to carry out a project and is responsible for its delivery. The outsourcing of IT development and support services to companies in India and other low-cost jurisdictions is typical of this model.
These arrangements can work well, but are not without their problems.
Using a third-party supplier can mean less buy-in, less flexibility and less control over important issues like timing and quality. There can also be concerns about the security of valuable intellectual property (IP). When outsourcing projects, you still need to invest in training, communication and, in many cases, travel.
An alternative to offshore outsourcing is onshore outsourcing, where you hire a domestically based company with a global team that can pass on its own cost savings through competitive pricing. IP, control and training issues may still apply, but communications may be easier to manage.
Joint venture
Under this model, your business enters into a joint venture (JV) with an established local company in the offshore location, allowing you to share ownership and take advantage of their local knowledge and experience. By choosing your JV partner wisely, you reduce the risks of working in an unfamiliar territory and can tap into your new partner's existing supply or sales channels.
Build–operate–transfer
Similar to the JV model, a build–operate–transfer relationship is typically where an offshore supplier operates a dedicated centre for your business. Once it's established and certain conditions have been met, you can exercise the option to take over ownership and run it yourself.
Offshore captive
Many companies looking to cut costs through offshore operations set up their own operations, known as 'captives'. Setting up a branch or subsidiary facility on your own can require a significant investment of time and money. You'll need to consider your preferred structure and then meet with local advisers, acquire and equip your premises, build your infrastructure, and interview, recruit and train your staff.
You'll need expert tax advice and guidance on other important issues, such as local laws and regulations.
Assisted in-house
With the assisted in-house option, you pay a service provider to help you set up operations (including premises, infrastructure, IT, legal compliance, incorporation, HR and working with local authorities) in suitable offshore locations. This scalable and quick solution is often suitable for smaller, growing businesses.
Acquisition or merger
Buying an existing company may be the preferred way for more established businesses to get a foothold in an overseas territory. In this case, you can acquire a readymade infrastructure, with premises, equipment and staff, along with existing revenues and profits.
This is an edited extract from Guy Rigby's critically acclaimed book, From Vision to Exit – The Entrepreneur's Guide to Building and Selling a Business, which is available on Amazon and in all good bookshops now.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
