Risk mitigation in offshoring of business operations

Abstract

Purpose

Offshoring involves transferring or sharing management control and/or decision making of a business function to a supplier in a different country, which entails a degree of two‐way information exchange, coordination and trust between the overseas supplier and its client. The purpose of this paper is to understand the current trend of offshoring and identify the risks involved in offshoring. This paper also proposes a risk mitigation strategy to combat offshoring risks.

Design/methodology/approach

The research is primarily based on professional literature reviews to identify risks associated with offshoring, which are mainly classified, in structural and operational risks categories. Additional risks are identified in the following areas: transaction, financial, value, socio‐economic, country risks and so forth. This research provides mitigation strategies to minimize or eliminate these risks. A survey of business individuals is used to determine the general perceptions of offshoring and the associated risks. Finally, the mitigation strategy is applied in a real‐life instance to validate its usefulness.

Findings

The research indicates that a majority of business professionals have little or no knowledge of methods to mitigate offshoring risk, though the marketplace trend is towards more offshoring in the future. Companies continue to increase the amount of offshoring activities without properly considering the associated risks.

Practical implications

The effects of improper implementation of offshoring activities have led to much publicized product recalls that have harmed firm profits. Managers need to use the developed mitigation strategy or develop their own model to address the risks of offshoring. Continued failure to do so will become evident as product recalls increase and customer satisfaction levels decrease.

Originality/value

This study serves as a framework for the thought process that should occur for successful offshoring activities. Companies that use this framework should tailor it to their individual situations to maximize its efficacy.

Citation

Kumar, S., Kwong, A. and Misra, C. (2009), "Risk mitigation in offshoring of business operations", Journal of Manufacturing Technology Management, Vol. 20 No. 4, pp. 442-459. https://doi.org/10.1108/17410380910953711