Outsource Magazine

The core of all outsourcing relationships lies in an agreement. It makes no difference if you are sourcing payroll services, pharmaceutical research or call center services: the situation at its core is the same.  The difference is the BRIC countries approach an agreement as a means to beginning while the Western world sees agreement as a means to an end.

When businesses attempt to form partnerships they bring business culture expectations with them.  In the West, the focus is on finding the right venture. A business deal is with a business, not a person.  If you are thinking: “hey, that’s not true, I like working with (insert name here) at (insert company here)”.  Ask yourself if the business relationship would terminate if (insert name here) was no longer with the firm.  Not only will most Westerners say no, they will additionally admit they do business with people that make them crazy, they detest, and that aren’t that smart because the product is superior and the prices are good.  While we prefer working with those we like: we view the agreement as business, not a relationship.

In the BRIC countries, contracts are second to relationships.  The feeling is that if there is a relationship, everything can be worked out.  When delivery is late, parties are expected to understand because there are always exceptions to the written agreement. One party may decide to suddenly leave the business relationship all together in the middle of the contract because it’s no longer beneficial from a monetary or relationship position.  From this perspective the contracts we heavily rely on to keep relationships together are less meaningful in the BRIC.  I am sure you know someone with a story about an outsourcer abandoning an agreement after problems arise. The impression that relationships don’t matter is also complicated for the vendor from the BRIC who often doesn’t realise we do look for business relationships, just not in the same way that they expect.

From a business culture perspective these two ideals run headlong into each other when trying to begin a new relationship or manage a problem.  Here are some insights into how these business culture preferences can be managed.

1. Relationships start small. Buyers from the West look at engagements in terms of results instead of a test of a new relationship.  Outsource relationships are extremely complex with factors such as location, time, language, and culture working against them.  The most successful outsource projects start small and then grow after a tested trust relationship is established.  The worst move organisations make is to throw a huge project at a new outsource partner and expect quick understanding and bottom line results.  By doing things small, both sides can adapt to culture differences and build relationships that lay solid foundations for future engagements.  Don’t wed yourself off before you are sure the partner works for you. 
2. We may approach locked down contracts too soon.  I spoke to one Asia specialist who said she sees Asians easily engage in small deals without contracts to see how things work out. Ms Wier of Hershey Wier Multicultural Consulting said she sees the strength of defining the rules of working together through experience, even though it goes against her western notions.  After the experience is successful for both sides a larger engagement is considered along with a contract.
3. Written contracts are valuable, but only go so far. Recognize that the letter of the law is different than the spirit of the law.  When economics change vendors in the BRIC will look to the spirit, not the letter of the agreement.  There is a mindset in the west that contracts are a risk relationship, such as contracts for a fixed price for a set number of years.  If the price goes down, the vendor wins.  If the price goes up, the buyer wins.  This thinking of win or lose goes against the belief of many BRIC countries who seek instead to find a business relationship that works for the good of the organisation at all times. Prepare for change when the gap between win and lose becomes great.
4. Relationships matter for both sides.  Outsource firms can improve their standing with western firms by being more engaged with buyers more often.  I spoke with firms and western lawyers who expressed dismay at how infrequently account managers engage their western customers.  Vendors have a lot to offer customers such as information on how relevant industry leaders are solving similar problems.  This value should be shared with buyers in the west in the same way that outsourcers would engage counterparts in country.  It may appear that westerns don’t focus on relationships but this is not necessarily true, we focus on what is working.   Vendors that bring this to our attention build stronger business relationships and create larger contracts.
5. Buyers who travel to vendors build and maintain the right relationships. It’s critical for buyers to have more than one relationship inside an outsourcer and for that relationship to be solid when problems arise. Problems start small but grow quickly.  There is a lot of talk about off loading risk by outsourcing. Western firms never really offload risk, they move it to a temporary location. Buyers need to be on the constant look out for risk and can manage it effectively when they have relationships. 

So are we Paper Tigers, the Asian term used to describe our focus on contracts rather than relationships? It’s a bit more complex than that.  Westerners like relationships and do business with people they like, but they must offer value. This can be confusing to those not accustomed to a stronger focus on the bottom line. 

On the flip side, Westerners got a taste of the need for flexible relationships in 2008 -2009 when outsource buyers experienced rapidly changing needs when markets turned for the worst.  Buyers suddenly needed the BRIC to understand their changing needs: they wanted ability to shift the balance of win and loose inside contracts.  The smartest outsource buyers leveraged both contracts and relationships to work with outsourcers to adjust business models to meet shrinking balance sheets.  The needs put forward by the Western firms were heard because the BRIC countries believe in flexible relationships.  This is why a lot of Western firms were able to successfully renegotiate.  In the end, both sides can value from relationship development to make outsource agreements work.  Once the differences in approaches are clear, its easier to understand what works for both sides.