PUBLICATION
The past decades have witnessed a revolution in offshore service outsourcing as companies, propelled by globalization, have extended their supplier networks across the world. The emerging trend towards outsourcing, to even lower-cost countries in pursuit of cost savings and higher returns, has expanded traditional risk categories and prompted renewed focus on political risk with the potential to impact the extended supplier networks of outsourcing firms.
The trend has underlined the need to combine offshore outsourcing strategies with proactive risk management methods. The diversification of outsourcing options has introduced the industry to a new level of risk considerations that can represent a direct challenge to extended information networks or represent an opportunity for firms that are able to analyse and manage these new risks effectively.
Political risk concern is mostly associated with Direct Foreign Investment (FDI) or manufacturing outsourcing, on the notion that these engagements represent a more complex investment form, whereas contract-based thirdparty service outsourcing has less capital at stake and no physical facilities at risk on the ground, and hence less exposed to political events.
With todays extended and interdependent service supplier networks, contracting offshore can lead to detrimental damage in cases of service chain disruption. The dependency on offshore suppliers, often geographically dispersed, has created a situation where companies must now compete on the basis of the performance of each member of their service chain, leading to the claim that global competition is no longer between individual companies, but between the reliability and efficiency of their supplier networks.
