The debates continue all over the world. Should companies buy an existing IT services company, Build their own operation, or Partner with an existing IT Services company? This is a question Anurag Kumar, Improving’s Nearshore Region Managing Director gets asked all the time.
Anurag Kumar is the product of IT outsourcing. In the 80s he came to the United States as a contract software developer. From 2002 to 2009, he led companies doing outsourcing IT Services work for United States clients with teams in India. In 2011, he started iTexico, providing Nearshore IT outsourcing services from Mexico. And in 2020, iTexico merged with Improving.
These days, working with teams in India, Mexico, Eastern Europe, and other countries is common and even desired. There are so many outsourcing companies around the world in all geographies available to support clients in the US and other developed countries. That is why so many companies want to know... Should they Buy, Build, or Partner? Anurag believes it depends on their needs or situation.
There are primarily two types of companies requiring teams and talent in other countries.
1. A company that needs teams and talent to support their internal technology initiatives or is building technology products.
Short Term: If the need is short-term and the company needs expertise that they do not have in-house, they need to partner. They can do this with partners in or outside of their own country. Find a partner that can balance the company’s full-time employees for flexibility. We call it finding a partner for capacity and capability. For a partner in their own country, the factors are primarily costs and talent availability.
To find the right partner, factors to consider are time zone, costs, and ability to scale. Also consider the ability to work with the partner in their language, and their culture and comfort. You want stability within the partner’s team working with you. Changes in the team can be disruptive.
Long Term: If the need is long-term, and on a larger scale, in addition to partnering with an existing IT services company, building your own operations in the selected country is a good option. It is a bit hard and can take some time but is not difficult, especially if the client has name recognition and financial stability. They can attract the desired talent and make the new team an integral part of their existing teams.
Very rarely have we seen these customers buy an existing IT services company. If you think about it, the existing company has existing clients, and hence not much available talent. The current teams are already working for existing clients, and the existing talent they have may not meet their needs. Continuing to serve clients is also not a good option, as that is not the business that the customer is in or wants to be in. So, the IT services company they want to buy will have to go out and recruit new talent anyways.
The third option for the company is to enter into a BOT (Build Operate and Transfer) agreement with an existing services company in the country of their choice. It can be a good option for the company, they can invest time and resources in finding and retaining the right talent, which can get trained and gain experience in the company’s specific technologies and processes. At the end of two to three years, the whole team is transferred to the client for a one-time fee.
It was a popular model in the early days of outsourcing. A few entrepreneurs made it their business model of creating BOTs. In some cases, the company decided not to Transfer, and the Services company gets to keep the team, continue serving the client and scale their business by getting additional clients.
2. An IT services company with existing teams that need to scale because the demand from their clients is increasing.
Building will be slower as the hiring and growth will be based on clients’ needs and will be uneven. Still, the chances are that the service company has built operations from scratch before, so the processes and operations team may already be there. It will take investment and time to build their new operations
The second option, Buy, brings additional clients, revenue, and an existing operations base that can be scaled upon. It could cost more than Build. In today's environment, given the demand for talent, we are seeing companies available to Buy are getting scarce, and Build might be the only option.
Partnering with another services company is the third option, where the need might be very specific and the financial margins are possible. As the teams are distributed across the two companies with their own culture and processes, It can be difficult to ensure the quality of service to clients. This is especially true when the team members are in different countries and time zones.
If you want to know more about how to manage your specific situation, or about the digital services Improving provides, reach out!