Build-Operate-Transfer in IT Outsourcing: What It Is and How It Can Benefit Your Business

Use the BOT model of IT Outsourcing to establish an overseas IT subsidiary for your business at greatly reduced cost and risk

It’s no wonder that with sky-high software developer salaries and a severe lack of qualified development resources across most Western and other high-income geographies, businesses of all sizes are increasingly flocking to whatever nearshore or offshore software development options they can find. In fact, the global IT outsourcing market is estimated by Statista to have been worth 375 billion USD in 2017 and has kept growing ever since. By 2019, the number of businesses opting for IT outsourcing as a means of curbing their costs or augmenting their in-house capabilities has, according to the 2019 Computer Economics survey, reached a formidable 56% globally.

Despite this monumental shift towards nearshore and offshore outsourcing in recent years, many businesses are not aware of the full spectrum of possibilities IT outsourcing can offer. They tend to believe their options are limited to the more widely known client engagement models, such as the dedicated delivery or staff augmentation models. While these arrangements are a great fit for many businesses, some may find them difficult to adopt due to strict corporate regulations related to security, intellectual property protection, and product reliability levels.

So, how can these types of businesses reap the benefit of IT outsourcing while maintaining the level of operational control required? In several instances (especially in the case of large-scale and long-term software development projects), this can be best accomplished with the Build-Operate-Transfer, or BOT IT outsourcing engagement model. This model allows you to set up a nearshore or offshore subsidiary of your organization with the full support of a local IT outsourcing partner.

Intrigued? Let’s dive in a little deeper. What is BOT? How does it work? What problems does it solve? And would it be a good fit for your organization?

What is a Build-Operate-Transfer (BOT) Engagement Model?

Devised to allow greater operational control and further overseas expansion, BOT has been defined by Gartner as: “a contractual relationship in which an organization hires a service provider to set up, optimize and run an IT or business process service delivery operation with the contractually stipulated intent of transferring the operation to the organization as a captive center. B-O-T, as a hybrid model, combines elements of the “build” option (that is, “insourcing” or captive center) and the “buy” option (that is, outsourcing; see also “captive centers”).”

In plain language, although it involves an external IT provider, a BOT-based software development arrangement emulates the relationship you would have with an overseas subsidiary of your own. The outsourcing partner sets up your nearshore or offshore team, brings it to a fully operational level, and then legally transfers the subsidiary to your company after a set amount of time. This model gives you the cost and efficiency of traditional IT outsourcing while allowing you to maintain full control of your intellectual property and proprietary technologies.

How Does It Work? The Structure and Essence of the BOT IT Outsourcing Model

Generally, it takes a BOT service provider around three years to complete the set-up and transfer of your fully operational nearshore or offshore IT subsidiary. The process is comprised of three main phases:

  1. Build Phase – This phase kicks off with an in-depth analysis of your specific requirements. The outsourcing partner should try to learn as much as possible about your business goals, project, technical requirements, and company culture. Once your requirements are fully understood, the outsourcing partner will secure the talent, dedicated office space, equipment, and technologies needed to execute your project. On average, this phase can be completed within 2-3 months.
  2. Operate Phase – During this phase, your outsourcing partner fully manages all the day-to-day project-related operations. They do so in alignment with your project needs and goals and should continually keep you updated about the progress. This should include regular daily, weekly, monthly, and quarterly communications, as well as the required project-related reporting. Often, they are also positioned to provide HR and professional training support to your team. This phase generally lasts for 1-2 years to achieve a stable and fully operational development team.
  3. Transfer Phase – At this point in the engagement, your fully operational development team is ready to be legally transferred, in its entirety, as a foreign subsidiary of your organization. The outsourcing partner will transfer 100% of the operation, including your intellectual property, employees, knowledge base, and assets.

In summary, your BOT outsourcing partner’s support will include the following activities:

  • Procurement of office space and the required facilities
  • Legal registration of the business in the foreign country
  • Recruitment, hiring, and training of employees
  • Set up of the communications and technology infrastructure
  • Ensuring adherence to the selected project methodologies
  • Knowledge capture planning for the future transfer
  • Coordination between the different offices/geographies
Now that we’ve defined what BOT is and how it works as an IT outsourcing engagement model, we’ll explore why and how it can be advantageous for many businesses. Let’s start by looking at how BOT differs from the more traditional dedicated team or dedicated delivery center (DDC) model.

How BOT Differs from a Dedicated Team Engagement Model

There are several major differences between the BOT model and other types of IT outsourcing engagements, including the dedicated team, or DDC model. It’s important to understand these distinctions to help determine and measure the relevance of the BOT model for your project and unique business goals.

The BOT model is designed to create a fully operational development center that will be legally transferred to your organization after the period stipulated in your contract with the outsourcing provider. This means you are legally entitled to the knowledge base, intellectual property, infrastructure, and all other related assets.

Most importantly, you will also inherit a well-coordinated team of experts who have already proven their worth as it relates to your project and business needs. This helps you avoid the hassles of having to source, train, and onboard an entire team on your own.

On the flip side, with the dedicated team model, you will likely not be able to retain your outsourced development team upon completion of your project, if that is your intention. Most providers of dedicated teams are not able or willing to assist with helping you register your foreign subsidiary due to a lack of knowledge, capabilities, or not being willing to let go of their talent.

In many cases, the BOT model also allows your team to become more fully aligned with and feel a stronger connection to your business, which can help reduce turnover, increase productivity, and improve quality of work. You’ll have the opportunity to nurture these employees and provide them with a clear career path within your company.

Although they have some important differences, both the BOT and dedicated team models can be highly effective forms of IT outsourcing. However, if your project is big enough (say, 10 developers or more) and is estimated to last for many years (generally, more than 3 years), it probably makes good sense to choose the BOT model from the start.

What Are the Advantages of the BOT Outsourcing Model?

The build-operate-transfer engagement model offers a host of clear-cut advantages that can provide tremendous value to your business.

  • The ability to acquire the entire offshore or nearshore development operations within the agreed-upon timeframe
    With BOT, it’s contractually guaranteed that your external outsourcing arrangement will become part of your business within the stipulated timeframe. This arrangement cannot be ensured using any other IT outsourcing engagement model.
  • The availability of local knowledge
    Local knowledge is paramount in all matters that take your business overseas. And venturing into an uncharted territory unprepared is a major business hazard. The culture, laws, language, and ways in which government institutions and businesses operate vary greatly from country to country, especially in less costly developing nations. In this sense, relying on an experienced local IT partner is one of the best ways to establish your presence in a new country. You’ll have a chance to gradually acquire all the information needed in a controlled and nearly risk-free manner before you take on the responsibility of your overseas IT operations on your own.
  • Flexibility to leverage your offshore team if business needs change
    BOT is significantly more suitable for insourcing purposes and gives you much more flexibility in leveraging your resources should a considerable change in your business occur. Put simply, BOT gives you the flexibility to switch your nearshore or offshore team to different projects or tasks when required. It may also be easier for a BOT-based team to work together with your in-house resources, enhancing speed of delivery and quality.
  • Greater control over your overseas operations
    BOT ensures that you have the maximum control possible over your offshore or nearshore team. You make all (or nearly all) the rules and have ample control over your team’s processes to ensure alignment with even the strictest security and compliance requirements. What’s more, the final transfer can be tied to efficiency-related performance metrics, giving you additional leverage in exercising control over your outsourced team.
  • Greater alignment with your corporate culture
    Although, when done right, the dedicated team model allows for a high level of alignment between your outsourced team and your corporate culture, the BOT model allows you to take this alignment to an entirely new level. BOT makes it possible to start fostering your corporate culture from the very start. This includes talent selection and direct communication between your clients and your outsourced team. It also becomes easier to “transplant” your in-house best practices to your new overseas location.

The Bottom Line

In conclusion, BOT is an IT outsourcing engagement model that should be seriously considered by any company looking to establish a long-term IT and software development team in a nearshore or offshore location. This model is also particularly suited to companies with strict data, intellectual property, and other regulatory and compliance requirements that are best protected in-house. BOT enables enhanced control over your remote resources and assets while allowing you to avoid significant upfront costs associated with establishing a nearshore or offshore IT and software development facility on your own.

TEAM International has over 25 years of experience providing customized IT and software development solutions, including BOT engagement models, to leading companies in the U.S. and Europe. Contact us today if you’d like more information about BOT or have questions about how to determine the right IT engagement model for your business.

TEAM International

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