Page 285 - Global Project Management Handbook

14-10 MANAGEMENT OF GLOBAL PROGRAMS AND PROJECTS

High

Alignment Alliance

Strategic
impact

Support Reliance

Low
Contract
Short length Long
FIGURE 14.2 Contract types.

● Reliance. Noncore activities are outsourced with large substitution. These are longer-
term contracts. Example: Contract programming with longer term contracts.
● Alignment. There is a low extent of substitution. The contracts are smaller with short-
term scopes. The strategic impact is considerable. Examples: Consulting, technical
supervision.
● Alliance. There is a high extent of substitution. These are large contracts with important
strategic impact. Example: Complete transfer of information systems activities.
Location Decision. Typically, analysis of location, time, and format of an outsourc-
ing relation is performed concurrently. The objective is to find the optimal combination
that will maximize the value and opportunities and minimize the risks and threats.
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The “Global Outsourcing Report 2005” assesses countries in terms of two indices:
the global outsourcing index (GOI) and the future outsourcing rank (FOR). According to
this report, India and China are the two distinct low-cost-labor countries that come first in

the list of locations for almost every U.S. company considering outsourcing. China is
mostly known for low-cost manual labor in manufacturing, whereas India has the advan-
tage of English-speaking population and thus attracts a large amount of business process
outsourcing (BPO) contracts. Alternatively, Taiwan and Korea are known as the centers
of the semiconductor industry. Besides these big players, countries such as Indonesia, the
Philippines, and Malaysia also take their places in the outsourcing business.
The number of location alternatives for outsourcing is limited by constraints specific
to each business. For instance, for the food processing industry, only certain regions with
certain climate conditions may be an option for outsourcing. The technical expertise and
cultural environment also restrict the choices for a company determining the appropriate
place to transfer operations.
Once the location alternatives are determined, systematic analysis is needed to identify
the optimal place that encompasses the biggest cost reduction with as minimal risk as pos-
sible. Figure 14.3 shows the structure of a decision-support method for such an analysis.
The figure is an example of a decision matrix created for a perishable food company 12
where six countries are evaluated according to their costs, benefits, opportunities, risks,
and threats. The alternatives represent the cells of the decision matrix, where the columns
specify the country options and the rows are the outsourcing forms considered by the