A case of offshoring success: Pricedrop.com.

Type of company: Online retailer
Based in: Spain
International presence: Germany, France, Belgium, Italy, Portugal, Netherlands
Annual revenues: >€50 million ($68 million)

Contrary to popular belief, the practice of offshoring business processes is not confined to large global organisations with money in the bank, worldwide multi-cultural connections and sophisticated back office set-ups.

One sector that lends itself perfectly to offshore outsourcing – irrespective of size - is eCommerce. This is partly a result of companies’ already existing expertise in communications and IT, but also due to the pricing pressures in this immensely competitive channel.

Shoppers have a high level of price awareness, thanks in part to internet price comparison sites, and tend to be demanding on price, delivery and customer service. As such, business models in this segment are based on low margins and high volumes.

Many companies engaging in offshore outsourcing prefer to remain anonymous. Like company X. Given the fictitious name of Pricedrop.com, it is an online retailer of consumer electricals. Founded in Spain in 2005, the company has quickly established itself as a major European player in its space. But it needed to reduce its cost.

Pricedrop.com recognised that to compete effectively and grow it would need to channel more resources into its front-end operations (sales, marketing, delivery) and reduce costs in its back office. It decided to outsource its entire back office operations, allowing its management team to focus on marketing and delivery capabilities. As an internet-based business, the company was already familiar with the technological capabilities of global outsourcing and low communications costs.

Its chosen outsourcing partner was Outspan, a UK-based firm that specialises in helping SMEs offshore their business processes. Within one month, following an initial assessment of Outspan’s capabilities and a short, no-obligation trial to assess the process, all the outsourced functions became fully operational. Everything from accountancy over data entry and product catalogue maintenance to online customer support and IT development was outsourced to Outspan’s service centre.

Jim Downey, Managing Director of Outspan, elaborates: “The cost advantages of the Indian subcontinent, combined with fluent English language skills, a ready pool of highly skilled talent and a favourable business environment for offshore outsourcing meant that India was an obvious choice.”

And the results speak for themselves: Pricedrop.com estimates that it has saved more than 40 percent by offshore outsourcing on labour and management costs alone. In addition to that, there are the advantages of having a smaller HQ back in Spain, no recruitment issues, more management time to focus on core areas of the business as well as the flexibility to add or reduce staff levels quickly as required to meet changes in business circumstances.

The most common fear as a result of offshoring is perhaps that of job losses in the home country. This was not an issue for Pricedrop.com. Instead of getting rid of employees, staff were redeployed on business building activities. And, as a result of being more competitive on price (because of a lower cost base), the business has grown faster than its rivals, and now in fact employs more staff than before.

Interestingly, Pricedrop.com’s customers are not even aware of the change that has happened in the company, at least not in a negative sense. As Downey says: “Our online chat assistants are given European names and write in fluent English. In addition, ‘Pricedrop.com’ was able to employ more online customer service assistants as a result of the lower costs, which means that customers now get a quicker response to their queries.”

Executed effectively, the advantages of offshore outsourcing are evident. Costs, flexibility and access to a large pool of skilled talent are just some of them, in addition to the ability of management to focus on building the business and support expansion quickly - painlessly and without adding lots of new office space.

And providing you don’t expect your co-workers sitting right next to you – a diminishing scenario in any case given the trends towards tele- and homeworking – and are capable of working with people across different geographies, cultures and timezones, it seems like a very strong business case indeed.

Source: Office Products International (OPI) magazine – July 2007

To find out more about how we can support your business, please Contact Us