The greater the knowledge needed to perform the outsourced tasks, the more dependent the client company is on the offshore provider.

Service offshoring is nothing new – many companies source some of their activities from overseas, often from a country where labour or other costs are lower.  However, maintaining control of the offshore service provider can be more difficult than anticipated. And having a formal contract is no protection against the risk of information asymmetry.

Unlike multinationals – which maintain ultimate control of their overseas personnel, procedures and investments – companies using an offshore service provider have little control over how that business is run.  Indeed, the offshore provider can actually exploit its independence to achieve a position of dominance over the client company; the greater the knowledge needed to perform the outsourced tasks, the more dependent the client company is on the offshore provider.

So how can you minimise information asymmetry and maximise the success of a service offshoring arrangement?

We conducted an exploratory qualitative study of service offshoring initiatives from 32 Belgium companies, looking at the practices used to control offshoring arrangements through the physical transfer of personnel.

The use of detailed contracts has been suggested as an effective way to manage such offshore arrangements; in fact, however, the research shows this makes renewal of a contract less likely. Further, it seems that even in this digital age, where options abound for ways to communicate, there is no substitute for face-to-face interactions.

The main question now is how the physical transfer of personnel between the client company and the offshore provider can help the company maintain control?

The expatriate – an employee sent from the client company to the provider for a short-term assignment – can be viewed as an invader whose only task is to exert control. The study results emphasise that client companies need to move away from formal control mechanisms, focusing instead on informal communication and building a relationship based on trust, cooperation and recognition.

Picking the right expatriate is important, and their skills can be honed by personalised training, if required. For example, if an expatriate is being sent to the provider as an informal liaison officer, they would need language and communication skills.

At the same time, many emerging countries are eager for their citizens to gain international experience. Offshore providers may prefer to send their own staff to the client company instead. This can be of benefit to the client company: after all, suitable expatriates are difficult to find; when available, they are costly; and they often have a dominant attitude, and find it difficult to adjust to the new environment.

It’s of benefit to the offshore provider too, who gains a motivated employee with international experience and a greater sense of commitment. The returning employee has also absorbed the client company’s culture, and can share this with colleagues – thereby enhancing the provider-client relationship and giving the client company more effective control.

The study shows that the transfer of personnel between locations does indeed help companies exert control over offshore providers.

Our results show that the exclusive use of expatriates to maintain control over an offshore provider is less relevant today. The transfer of offshore employees can offer an attractive alternative. Each form of transfer allows the client company to exert control in different ways. This research will be particularly relevant for managers (both in client companies and offshore providers) who need guidance on how to manage the offshoring relationship and what the managerial challenges are at various stages.

By Florence Duvivier, NEOMA BS researcher from the Department of Strategy and Entrepreneurship, and Carine Peeters of the Vlerick Business School, Belgium.

Duvivier, Florence & Peeters, Carine. (2011). The use of expatriates in the offshoring of services – Framework and research propositions.