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The other company is referred to as t he parent company or the holding company. The subsidiary is said to belong to the parent company as it has a controlling interest in it. Where a subsidiary is 100% owned by the parent company, it is said to be wholy owned.

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Virtual Assistant Services, Hire A Real Estate VA - OutsourceWorkers

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In 2008, before Barack Obama became the 44 th President of the United States of America, proponents of the Philippines' Business Process Outsourcing or BPO industry were up in arms about then Senator Obama's pronouncements on outsourcing. There were news reports which suggested that Obama would introduce policies that would discourage outsourcing arrangements in order to protect jobs for Americans.

It turns out that Obama's plans were directed at companies that set up offices or factories in other countries in order to establish presence overseas. These companies included Caterpillar and Nike which opened branch offices and factories in China. Obama was not discouraging outsourcing arrangements but offshoring arrangements.

Although the principles between offshoring and outsourcing are similar, the execution and its repercussions to the economy are different. We are going to explain the main differences of offshoring and outsourcing in this article.

First let us differentiate the two terms.

Outsourcing is the strategy whereby a company contracts the services of another party; an external agency, to manage a set of business processes or a specific project. Alternatively, the external agency is referred to as a "Third Party Service Provider" as the set of business processes or the specific project is related to the arrangement between the client, "The First Party" and the end user or "The Second Party".

As earlier described, offshoring involves setting up physical infrastructure in another region or country. In outsourcing, there is no physical transfer of assets only the assignment or delegation of services to another party or agency that could be located in another region or country.

For both offshoring and outsourcing, the common motivator is to reduce costs of business by capitalizing on existing comparative cost advantages particularly labor.

But which operating model should you choose for your business?

The Main Advantages & Disadvantages for Offshoring and Outsourcing.

Advantages of outsourcing
1. Reduces Cost of Operations
The cost of hiring an external agency or a third party service provider is lower than setting up in-house operations for a number of reasons:

An external agency is a separate entity; it is an enterprise that is responsible for its own cost of operations.

An external agency has the experience to get the job done according to expectation. If you create an in-house department, you will have to invest in the infrastructure and hire the right talent.

An external agency does not need additional training expenses. An orientation or overview of the project may be required. But if you put up an in-house agency, you will have to invest in training, research and development.

2. Improves Productivity
By outsourcing select business processes you can improve productivity because your company can focus its resources on its core functions.

The cost savings from outsourcing can be repurposed to fund revenue- generating programs of the company. For example, the cost savings can be used to improve business infrastructure or enhance its marketing and promotional program.
3. Increases Flexibility
A company can increase its flexibility with outsourcing by taking advantage of time zone differentials. By simply adjusting work shifts, it is possible to have your business managed for 16 hours by an external agency.

Disadvantages of outsourcing
1. Cultural and Social Differences
There will be a period of adjustment needed for your company to accommodate certain cultural and social practices of the third party service provider.

For example, if you contract an agency from the Philippines or India you will have to develop an understanding of their deeply rooted spiritual beliefs the dates of which may conflict with your work schedule.
2. Communication Problems
Hand- in- hand with cultural and social differences are communication problems. There arise because of differences in perspectives.

For example, North American companies tend to do business in a straight- forward manner. On the other hand, service providers from the Philippines are more introverted. They tend not to say much and keep to themselves.

For the North American client it may be taken as a sign of aloofness, uncertainty or incompetence. But in reality, it is just part of their nature as a soft- spoken people.
3. Security Issues
Despite the promulgation of the Data Protection Act in several popular outsourcing destinations, security breach and data integrity will remain serious issues.

Even with tight IT networking protocols and safety measures, concerns on security will always come up in the absence of close collaboration.

Advantages of Offshoring
1. Economies of Scale
When a company sets up office or a factory abroad, it is not just capitalizing on comparative cost advantages on labor but also on existing economies of scale.

Other cost items such as power, Internet connectivity, rent may be lower in the host country than the country of origin. In fact, the expectation of most companies that offshore is to realize at least a cost savings of 70%.

A company can also take advantage of the comparative cost advantages by diversifying positions or negotiating for volume discounts when purchasing assets or services.
2. Close Collaboration
Offshoring gives the company greater control through closer physical collaboration.

Shared space collaboration has the advantage of overseeing the conduct of work without the filters or delays associated with technology. While there are software programs and software development companies that allow clients to view the work of its outsourcing partner, latency issues with the terminating carrier can compromise the benefits of real time analytics.
3. Favorable Government Policies
There are some governments that grant special exemptions and incentives to companies that invest in their economy.

These include tax exemptions and access to cheap credit which could improve the bottom- line of the business.

Disadvantages of offshoring
1. Increase Unemployment
The biggest criticism versus companies that offshore is that it increases the level of unemployment of the local economy.

The aforementioned companies Caterpillar and Nike have been accused of taking away jobs from Americans and displacing their existing work force in favor of other nationalities.

These companies argue that by offshoring they are able to improve profitability by lowering costs and increasing revenue. Thus, the increased profits can be used to improve facilities and programs of the principal company.
2. Cultural and Social Differences
The client will be immersed in the culture and social practices of the host country. This may have an effect on productivity and communication.

Unlike outsourcing, time zone differentials may work against the offshoring company because production could end up being delayed due to changes in manpower availability.
3. Security Issues
Whenever you are sharing, transmitting data to another party, you are always at risk of security breach and compromised data integrity.

There will always be transfer issues when it comes to data even when there is shared space collaboration.

The decision on whether you should outsource or offshore will depend on the size and complexity of your operations, the scope of work that you need transferred and of course, your resources.
Generally, you will benefit in terms of cost and depending on how operations are managed, you can realize great productivity on either business model. One thing is for sure both offshoring and outsourcing will be popular strategies for business development in the years to come.
Hopefully this article has provided further insight in to the differences between offshoring and outsourcing and the advantages and disadvantages.

OutsourceWorkers provides the best outsourcing solutions. You can hire a virtual assistant for just $7 per hour.

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Offshoring And Outsourcing - Advantages And Disadvantages

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In 2008, before Barack Obama became the 44 th President of the United States of America, proponents of the Philippines' Business Process Outsourcing or BPO industry were up in arms about then Senator Obama's pronouncements on outsourcing. There were news reports which suggested that Obama would introduce policies that would discourage outsourcing arrangements in order to protect jobs for Americans.

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When running a business, one of your main goals is to maximise your profits. Your business can expand in many different ways depending on the methods that you use. A great way to expand your business is by entering into a joint venture or a strategic alliance.

While these two business arrangements have similarities in structure, they differ in practice. There are advantages and disadvantages to both types of arrangements. The business arrangement you choose depends on the circumstances and nature of your business.

In this article, we'll explain what a joint venture is, what a strategic venture is, the difference between a joint venture and a strategic alliance and answers to other frequently asked questions.

Read along!

What is a Joint Venture?

A joint venture (JV) refers to a business arrangement that involves two or more parties that collaborate to carry out a specific project or task. In joint ventures, the parties involved combine their resources. Joint ventures can be between the following:

Parties can enter into a joint venture agreement for either short- or long-term projects. Before you enter into a joint venture, you should be aware that everyone involved shares responsibility in regard to its costs, losses and profits. Nevertheless, joint ventures exist as a separate entities from the other business interests of their participants.

There are two types of joint ventures:

Incorporated Joint Venture: There is a separate legal personality. Therefore, it can enter into contracts and hold property under its own name.

Unincorporated Joint Venture: Parties hold specific shares in the joint venture depending on the agreement but do not hold a separate legal existence.

When parties enter into a joint venture, they usually sign a joint venture agreement. If you want to enter into a joint venture, you should use Lawpath's joint venture agreement template to get started.

What are the advantages of a Joint Venture?

Joint ventures provide businesses with growth opportunities

Joint ventures are available to businesses of all sizes

Joint ventures are temporary agreements

Joint ventures provide businesses with the chance to work together and pool resources and expertise

Joint ventures allow businesses to save money as funding and resources from several businesses will be utilised

What are the disadvantages of a Joint Venture?

There may be differences in the management styles of the parties involved, which could influence their expectations.

In order for a joint venture to succeed, due diligence must be performed beforehand, including feasibility studies, analysis, and research.

There could be unequal contributions that are made towards the joint venture that could lead to conflict between the parties involved

Examples of Joint Ventures

Examples of joint ventures include the following:

Google and NASA entered into a joint venture to create Google Earth

Qantas and Emirates entered into a joint venture that offers their customers the opportunity to travel to a total of 175 destinations through the joint venture

There is a joint venture between SABMiller and Coca-Cola Amatil. This joint venture involves the production and distribution of beverages

What is a Strategic Alliance?

A strategic alliance refers to an agreement between two or more parties to undertake a mutually beneficial project while remaining independent of one another. Essentially, it allows the independent parties to work towards a common goal that will benefit the parties involved.

What are the advantages of a strategic alliance?

Through a strategic alliance, parties can share their resources and expertise to achieve their common goal

Through a strategic alliance, each party can be able to access a new market they wouldn't have been able to enter on their own

Through the use of strategic alliances, companies are able to increase their capabilities and scale quickly in order to meet demand when they're manufacturing and distributing products

Strategic alliances allow you to combine resources and expertise while also reducing costs

You can choose to collaborate with competitor businesses rather than compete with them

What are the disadvantages of a strategic alliance?

An alliance requires all parties to give up some control over how their business is run and perceived to be successful, and this might be difficult where there is a lack of trust and transparency

You will be required to share your knowledge and skills, and this could include your trade secrets

Example of a Strategic Alliance:
A bookstore called Kinokuniya and a coffee shop called Black Star Pastry enter into a strategic alliance. Both companies work together for a common goal which is to boost sales by complementing each other. However, they remain independent and share the costs of space.
Popular Examples of Strategic Alliances:
Examples of strategic alliances include the following:

A strategic alliance between Caltex and Woolworths offers Woolworths customers the chance to earn rewards points when they purchase fuel from Caltex stations

There is a strategic alliance between Telstra and Ericsson involving 5G technology deployment within Australia.

The strategic alliance between Coles and Viva Energy revolves around the creation of fuel stations and convenience stores throughout Australia. The purpose of the strategic alliance is to provide convenience to customers by allowing them to access a range of services and products, including groceries, fuel, and food, simultaneously

What is the difference between a Joint Venture and a Strategic Alliance?

The main difference between a joint venture and a strategic alliance is that when a strategic alliance is created, it allows the parties to remain independent from one another. When parties enter into a joint venture, a separate legal entity is created. Whereas when parties enter into a strategic alliance, they also collaborate with one another. However, there is no creation of a separate legal entity.

Ultimately, the difference is that in a joint venture agreement, the parties involved have agreed to share the associated risks of the venture. Whereas in a strategic alliance, the parties agree to remain independent of one another as they work towards a common goal.

Differences between a Joint Venture and a Strategic Alliance

You should hire a lawyer if you need any further assistance in minimising risks when entering a joint venture or a strategic alliance. If you would like to learn more about the types of business structures available, you can read our article regarding which business structure is right for you.

Frequently Asked Questions( FAQs)

When should businesses choose to use a Joint Venture?

Businesses should choose to use a joint venture for the following reasons:

In order to expand their business

To develop new products

To enter into new markets they have trouble entering without assistance, for example, international markets

To grow their business at a faster rate

To increase the productivity of their business

To lower their costs and have access to a larger range of resources and skills

When should businesses choose to use a Strategic Alliance?

Businesses should choose to use a joint venture for the following reasons:

In order to expand into new markets

To enhance the quality of its products

To gain an advantage over its competitors

Conclusion

Ultimately, despite the similarities between joint ventures and strategic alliances, the two are different in practice. If you're still feeling unsure about the differences between the two types of arrangements, you should hire a lawyer for legal advice.

Furthermore, if you need advice in deciding between choosing a joint venture and a strategic alliance, a lawyer can also help you by providing you with advice and making sure that you choose the best type of arrangement for the needs of your business.

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Strategic Alliance Vs Joint Venture: What's The Difference( With Examples)

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When running a business, one of your main goals is to maximise your profits. Your business can expand in many different ways depending on the methods that you use. A great way to expand your business is by entering into a joint venture or a strategic alliance.

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https://export.business.gov.au/export-sales-channels/work-with-agents

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The right overseas agent or distributor is crucial to exporting. Domini Stuart looks at the factors behind some export success stories, and where you can find help to access international markets.

Few Australian business owners could consider exporting without an overseas agent or distributor. While the terms are often used interchangeably, an agent sells your products on your behalf and receives a commission on sales, while a distributor buys products from you and sells them on to make a profit.

Both methods have advantages and disadvantages. For example, while you have more control over an agent than a distributor, having an agent will mean paying more to maintain stock. Nevertheless, both can help you to access international markets, and finding the right one is critical to your success.

"The biggest agent or distributor isn't necessarily the best choice," says Auckland-based senior trade commissioner, Ian Chesterfield. "In a small market like New Zealand, a small company will often be more dedicated to pursuing sales for your product or service. It is important to understand the effective coverage of your distributor, and know the distribution range. Here, for example, some will distribute into the North Island only."

Similar culture, systems and a shared language makes New Zealand a popular market for new exporters. By contrast, China is a hugely complex business environment, often very different from Australia or other western markets.

"Strong in-market representation will help and enable you to understand the idiosyncrasies of the market, marketing and distribution channels, buyer identification, product support and relationships with key government agencies in the market," says Peter Osborne,Austrade's Beijing-based China manager/senior trade commissioner. "Here, you should be very wary of people and companies that promise the world, constantly say they have good relationships and connections-"guanxi"-with senior Chinese officials, and are overly pushy to seal a quick arrangement to represent you. Also, China is a very large and diverse market and it is virtually impossible for one Chinese company to cover the whole market. You should consider a number of different in-market representatives covering different parts of the market -for example, north, east, central, and southern China."

Checking Credentials

Austrade (austrade.gov.au) provides assistance and a wide range of services to Australian companies looking to export. "This is a core part of Austrade's role, using our extensive network and contacts to identify and assess potential companies for Australian exporters," says Osborne.

Another is helping to check the bona fides of your potential in-market representation.

"Australian companies can also use commercial credit checking agencies, such as the Australian firm Global Credit Solutions to undertake credit checks, as well as Australian banks and other service providers," says Osborne. "Our advice is to obtain a number of different opinions and background views on potential partners before making your decision. It's also vitally important to spend time face-to-face with your potential in-market partners, you need to get to know them, understand their objectives and drivers and look for a good fit between both businesses."

Chesterfield says that being able to work effectively together is key to the most successful relationships. "Even though it is only a short hop over the ditch to New Zealand, if you don't have the right communication and rapport with your agent and distributor this can limit or destroy your success. It pays to visit the market regularly," he says.

Every territory has a different regime of local laws which may affect your agency or distributorship. It is vital to avoid informal agreements, such as an exchange of emails which may lock you in without nailing down any details. More problems are caused by misunderstanding than by deliberate shady dealings; get proper, independent legal advice before signing any contracts and you'll know that everything possible has been done to ensure your products or services will be marketed effectively.

Most exporters will start by engaging a local company to be their agent or distributor. Then, as the business develops, they may consider appointing a full-time local employee. Some companies feel more confident sending someone from Australia to run their overseas business-though the likely success of this strategy depends on both your product and your business development strategy. For example, if you sell highly technical products or services and a new employee would need long and involved training it might make sense to a start out with an experienced member of staff.

The key factor is ensuring that you have someone who knows the market very well.

Energy Products' goal is to produce the most appetising snack and convenience foods with the highest nutritional value made from the best of natural ingredients. Using macadamias from their own plantation in the foothills of Byron Bay, along with other local ingredients, they manufacture a range of high-quality health food products including Wallaby Health Bars, Wallaby Brown Rice Treats, Wallaby Macadamia Oil, Wallaby Macadamia Nut Butter and Wallaby Chocolate Macadamia Spread.

In 1990, founders Tony and Peta Heeson established a purpose-built, export-grade manufacturing facility. The Wallaby brand now has a strong presence in Europe, Asia, North America, and Australasia.

"We began exporting when a local man moved to the UK and wanted to import our range," says sales manager, Karen Hirst. "That didn't work out in the long term, but it did give us a chance to test our relevance in the market and to establish interest. In fact, we were really fortunate in that we were approached by a representative who was already distributing health products and had established systems in place. Tony went over to meet them, did due diligence, and formed what proved to be a long, solid relationship."

The company has used more orthodox channels to get into other territories, exhibiting at trade fairs and calling on Austrade's help in establishing initial contacts and doing due diligence.

"These days, websites can be really helpful in determining whether the company you're talking to is serious," says Hirst. "In the European market you can even download spreadsheets showing potential alignments and competition. Local tax authorities can also be helpful. If a business is up-to-date with tax, that's a good sign. Austrade helps us fill in any gaps."

Hirst cautions would-be exporters to be sure distribution relationships are set up properly from the start. "When we were starting out, some possibilities did fizzle out for us because we didn't take the proper steps in the early days," she says.

They have also learned a lesson about succession planning. "We've had a couple of distributors pass away," she says. "That was very sad on a personal level, but the fact that they didn't have any kind of succession plan left us totally in the lurch. It's an important business issue, but not one you'd necessarily think to ask about."

Wine Distribution

James Estate is situated in the Upper Hunter Valley NSW, an area renowned for its quality vineyards. In 2001, an employee moved to the US to set up a branch company - a bold move given that the US wine market is dominated by a handful of big names.

In North America, all alcoholic beverages are regulated by both federal and state governments. In most cases, wine must be distributed using licensed wholesalers or distributors, and licences are available state by state unless you're selling to supermarkets-a very competitive arena.

"We got an import licence for California and have been mode
rately successful there, selling through a licensed broker," says CEO, Rick Hodgson.

The same employee moved on to set up an office and warehouse in London with the aim of selling James Estate across Europe. His successes included a distribution deal with Waitrose supermarkets in the UK, and exporting small quantities of wine to France, Denmark, and the Netherlands.

"It was our strategy to have someone over there," says Hodgson. "It's much easier to hold stocks and dispatch wines locally than to send them from Australia."

The company has also recently expanded into China, launching one red and one white wine at a major wine show in Shanghai in mid-2006. "One mistake we made at the beginning was taking too wide a range overseas," says Hodgson. "Now we stick to the two entry point wines plus our flagship multi-award winner."

Over the past 30 years, James Estate has grown into a fully integrated manufacturing and bottling facility with oak maturation storage facilities for more than 600 barrels. Bulk wine storage capacity exceeds five million litres, and the bottling and labelling line is capable of producing some 1,500 bottles per hour.

"There's no point in considering exporting unless you have the infrastructure in place to cope with increasing sales," says Hodgson. "You must also be able to afford it- exporting can mean a huge financial investment."

Financial help may be available through the Austrade-administered Export Market Development Grants (EMDG) scheme, set up to help Australian businesses promote Australian goods, services, industrial property rights and know-how internationally. The EMDG reimburses up to 50 percent of certain eligible expenditure beyond $15,000. The grants are lodged annually, and you can qualify for as many as seven per market up to a total of $150,000. For more information visit http://www.austrade.gov.au/ExportGrants or phone 13 28 78.

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Finding the Right Overseas Agent or Distributor - Dynamic Business

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The right overseas agent or distributor is crucial to exporting. Domini Stuart looks at the factors behind some export success stories, and where you can find help to access international markets. Few Australian business owners could consider exporting without an overseas agent or distributor.

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https://export.business.gov.au/find-buyers-and-sales-partners/plan-your-new-partnership

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Get started with exporting

Exporting can be a profitable way to expand your business, spread your risks and reduce your dependence on the local market.

It can also be complex and confusing. There is a lot to navigate and many factors you need to consider. One small step in the wrong direction can lead to significant legal issues and financial loss.

This is why we have developed our Export Guide. It gives you the tools, processes and information you need to get your business export ready.

You'll be guided through each step of setting up your business for exporting success.
Get started

Learn how to:

Export grants

Austrade's Export Market Development Grants (EMDG) program helps Australian businesses grow their exports in international markets. These grants encourage small to medium enterprises to market and promote their goods and services globally.
Find out more about EMDG

FTA Portal expanded to boost Australian services exports

Australia's service sector can better access the full potential of our Free Trade Agreements (FTAs), with a recent upgrade to the award-winning FTA Portal

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australian trade and investment commission

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Get started with exporting Exporting can be a profitable way to expand your business, spread your risks and reduce your dependence on the local market. It can also be complex and confusing. There is a lot to navigate and many factors you need to consider.