Getting offshore outsourcing right

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INTRODUCTION:

In today's Technological changing world every organization in need of best business practises. Various authors expressed their view on the offshore outsourcing. In Offshore outsourcing the labour costs are the primary objective for the business organizations, and business entities want to focus on their core businesses areas for the creation of wealth for their for their shareholders( Pfannenstein 2004).It's nothing but meeting organizational information technology (IT) needs commonly welcomed and growing practice, and one that is continually changing (Dibbern et al. 2004).Offshore outsourcing is the business practice of hiring an third party organization outside the firm's country of origin to perform some or all non core business functions (Overby, 2003).Business organizations outsource operations to achieve major benefits like reduced costs, better flexibility, premium quality of services, and access to new technology to make the staff to put their efforts to increase the productivity(Tejaswini 2004).Offshore Outsourcing occurs when an organization thinking to subcontracts a product or non core business process to an outside supplier (Drezner, 2004). And there can be an overall economical gain of offshore outsourcing, for example higher end quality products and services, higher level of customer satisfaction, and increased levels of productivity (Farrell, 2003).

Lesson Two:

"Select an offshore sourcing destination based on business objectives"

Authors Rottman and Lacity (2006) said that the offshore selection done by senior executives, who majorly focus on country advantages in terms of costs and risks. And consulting firms helps to senior executive by providing the qualified analysis of offshore destination based on basic metrics like destination country government support in terms of offshore sourcing activities for, availability of qualified talent pool of man power and cultural compatibility. According authors research experience they believe that India is the most preferable destination for offshore sourcing activities, because of government support by providing tax free IT based technology parks and IT SEZ's and IT Zones, availability of best IT related man power resources, low salary levels and high English speaking talent and also mentioned the saturation level of India's offshore outsourcing industry because of increasing salary levels and higher turnover levels of Indian IT firms. And they tells the selection criteria of offshore outsourcing of business activities through the consideration of company's strategic business activities along with certain destinations to gain the new market access, business activities, access to facilities and resources to run the business, gaining the edge over business process in selected destination place and fast execution of offshore outsourcing activities. Rottman and Lacity (2006) suggested the major check points while selecting the desired offshore sourcing destination to outsource the non core business activities of the organization and indicated the advantages of India as outsourcing execution destination and the major factor, which is affecting Indian IT firms business, and indicated the other likely desired destinations according the opportunities offered by them to meet overall strategic business activity of the organization. Some of the authors expressed their views on India as a major offshore outsourcing destination for business organisations across the globe. According to Gonzalez et al, India's economic liberalisation norms at 1980s,it developed as a strong exporting status in IT sector and having professional IT service organizations such as TCS, Wipro and Infosys.etc. with CMM level 5 practises, second largest populated country in the world with a potential large human talent poll , salary expenditure is low when compared to USA and Western Europe, the large English spoken labour force, well established training facilities, support given by the authorities like NASSCOM(Gonzalez et al 2006).If an business organization willing to do any business in India, it has various options like it can establish a wholly owned subsidiary, make a joint venture, develop as a branch or liaison office, acquire an existing Indian company by merger and acquisition or operate on the basis of a third-party contractual agreement. (AGARWAL et al 2005,p2).Apart from these, i experienced some of the offshore outsourcing activities as a business development executive, like some of European clients of my previous employer showed interest in offshore outsourcing of their web site designing and development, maintenance and technical support and they need a single vendor on long term basis to do their non-core business activities in a less budget, technical risks with a great understanding of their business process, but some of other clients need our technical support and maintenance for their business websites and need to do business process support for their marketing activities in India with detailed execution plan .From this detailed information, I believe that every organisation look for best offshore outsourcing destination remarkable business opportunities for business organizations looking to improve their overall business performance. Generally it reduces the costs, improves organizational flexibility, changes business and IT performance, and provides corporate focus core business competencies. These capabilities produce improved business profits, and offer the compliance to answer to economic conditions in a short time, competitive challenges and new opportunities.

For this lesson, the major implication is selection of right destination by selecting a best suitable service vendor or vendors to execute the offshore outsourcing activities to ensure the success of the venture; otherwise it became night mare for the client and vendors.

Lesson 3:

"Select an offshore sourcing model that balances costs and risks"

For every business organization there is a need of well examined strategy to balance the cost and risks while doing business operation, which is related offshore outsourcing activity, because it needs more investment and proper planning process to reduce the risks in ongoing business activities. There are four major offshore sourcing models are available in offshore outsourcing, they are captive, joint venture, build operate transfer and free for service. According to authors, a joint venture is an agreement between a domestic client and an offshore vendor along with the goal of creating a feasible solution. The build-operate-transfer (BOT) is an understanding in between a domestic client contracts with an offshore vendor to set up an offshore center and vendor is the facilitator by acquiring needed facilities and other requirements, to run the BOT on predefined terms for a specific period. After setting up the center, the management and the ownership of the center, may transferred to client, if the client decided to but the center. Captive center is a subsidiary established by a domestic organization in a foreign country. In joint ventures and BOT arrangements, the client is able gain the vendor's knowledge in local market, and retaining a fasible amount of control and this kind of shared ownership can reduce the risk of offshore outsourcing activities. In fee for service off shoring outsourcing client signs a contract with an offshore service provider, who can fulfil client's offshore outsourcing business activities. According to Agarwal, 2005"The decision to opt for a particular structure must be based on a careful consideration of the operational risk and regulatory compliance involved, the tax liabilities the entity will attract, as well as related issues such as cost, commitment, efficiency of output and control of administrative and management responsibilities. Several parameters such as customer control and confidence, liability, flexibility, speed, local knowledge and the culture of the organisations involved also have a bearing on the ultimate structure adopted" (Agatwal et al 2005).These four business models poses different opportunities, in terms of cost reduction and control over the offshore outsourcing activities, and maintain the relationships and other strategic advantages like formation of new business entity in joint venture and BOT cases, here the final output can run as business center for offering offshore outsourcing activities or it can be consolidated into money and gaining the knowledge on local market for future business extensions(Hirschheim et al 2009). Finally entering into these kinds of business model, client can have the capability to control the risks and maintain the desired cost spending levels in project. And can gain edge over the offshore activities, which can build inner sourcing facilities in own business entity.

In terms of future implications both client and vendor are majorly affected by their engaging level of activities in project and investments made by each other and controlling the management of business model and reducing the risks level by ensuring best practises to attain the corporate goal.

Lesson 4:

"Create a centralized offshore program management office to consolidated management"

To develop a balanced strategy needs the support of a sophisticated business partner with the program management control expertise, business processes, metrics for performance measurement, and well exposure in global offshore outsourcing to handle multi-location work distribution. For a proper and well established supplier relationships and negotiation of contracts, assessment of overall offshore outsourcing project performance indications, and drawing best business practises and for a distribute learning there is need of a centralized power delegation authority needed to control offshore operations, for this the senior executive has to decide to establish a new setup or to integrated with existed setup. Authors Rottman and Lacity(2006) says their research participants indicate the role of senior executive, while establishing the PMO setup, he has to consider the options like need of new setup for expected offshore activity output importance, creation of captive center or joint partnership with suppliers. If the senior executive needs a good competition between suppliers who are engaged in offshore outsourcing activity for a better result, need to create an integrated PMO. Authors suggesting that the need of a separate management control setup (PMO) to produce better outcome of the offshore outsourcing activities and which can promise a better control on total operation and the same time it can ignite the competition between suppliers which can give an idea about the suppliers capabilities and can reduce the suppliers number and ensures the project success, but it increases the cost of overall project and extra cost is not a huge element when compared to offshore project deliverables. Some of IT firms PMO is best practice in IT offshore activities. According to Keane, The PMO strategy allocates work to the organization and suppliers location, which effectively meets major requirements like risk, cost and performance of a assigned activity and It allows any part of any project to be implemented at the optimal location along with optimal mix of resources to reach company objectives and the use of a locally based PMO provides a single point of responsibility. It reduces cultural and communication issues by offering a local interface for face-to-face contact and to facilitate effective exchange of information (Keane, 2009).As per my view PMO can assess the vendors in quality levels to ensure the work done by service provider, management can maintain good relation between both parties, dedication resembles the commitment of suppliers towards to complete the project, security measures the contract norms are fulfilling or not, delivery ensures the time frames and final output of project, and infrastructure ensures the smooth flow of execution of offshore outsourcing activities.

The main future implications are management relationships, project deliverables matter for both client and vendor and performance of business activities and expenditure depends upon number of vendors engaged by client, so here client has to take the continues assessment of vendor performance levels.

Lesson 7:

"Use pilot projects to mitigate business risks"

Business risks are counterpart to the mistakes done by the business entity while performing business process activities, to overcome this most of the clients willing to go for pilot projects to ensure the credibility of vendor or supplier in a specified job execution. Some of the common business risks are infrastructure, security, legal, business environment, performance management, governance, measurement, accountability (Keane, 2009).According to Rottman and Lacity (2006), business risks in offshore outsourcing are poor quality levels, poor significant cost savings, poor project outputs because of poor vendor or supplier selection, wrong selection of offshore business activities, failed customer relationships. They suggest the business organizations consider a suitable pilot program to explore the risks in initial stages of the project by testing the customer and supplier capabilities to control the offshore activities. And they say, the false starts, errors and negative occurrences becomes as a valuable learning experiences, while gaining the knowledge to increase the clients capabilities. At the same time, pilot projects has used for learning experience and measuring the project deliverables. Some authors delivered their valuable insights on business risks while dealing with offshore outsourcing. The infrastructure facilities availability in the vendor's or supplier's home country will adversely affect the quality of the outsourced business activity (). Vendor's home country governmental rules and regulations on technology information transfers, IP( intellectual property) and copyrights, business privacy laws, and information data flows can impact the success of the outsourcing relationship(Rao 2004).The risk assessment strategies includes evaluation of vendors or suppliers to find out their capabilities, in terms of operationally, financially, to meet the organizations needs(Pai ,K,A.,Basu,B. 2007).Critical risks can separated according to the three potential areas of competency levels, delivery capabilities, transformation effect, and relationship indications (Feeny et al., 2004).In offshore outsourcing there is a lack of understanding of which activities are needed to offshore successfully and home country business miss match with changes in offshore outsourcing operations (Kumar and Eickhoff, 2006). And miss match with client's organizational structure with offshore vendors or supplier's organizational structure (Aron and Singh, 2005). The client organization can learn from off shoring partner .pilot projects are used in offshore outsourcing contracting for technology exploration and technical risk reduction, theses two factors enable the clients and vendors to know more about wants and needs of a the project(Snir and Hitt 1999,p7).

By designing a pilot project by client can filter the low quality level vendors in vendor selection process and ensures the right direction to select a best vendor for the project. A properly designed pilot project model must either 1.expensive in nature to find the high quality vendor2.monitoring assistance find out the effects of effort and performance 3.made the vendor to commit the same quality level of pilot into full project. Another reason for the pilot project is that the client has the chance to continue with that project or it can terminate. For example, a pilot project by Stasis Bank was constructed, the pilot project developed by vendor made the client to believed, it can work. The vendor tried to mislead the client during the pilot project phase by variety of misleading represents which very difficult to verify by the client and the subsequent failure of the full project led to a lawsuit and a substantial out-of-court financial settlement. By the pilot project testing these outcomes may have been avoidable and reduces software development risk. To gain desired benefits the client can have a contract with a non-measurable performance level which is controllable, agreement to pay for the pilot project phase and contract for full project completion (Snir and Hitt 1999,).And I experienced this practise several times, when i am working with one of my employer from Hyderabad, India, major portion of my employer business depends upon offshore web based development application, as a senior business development executive i use to interact with clients from USA ,Canada. Most of the clients willing to go for pilot project execution before project agreement; at the same they consider our competitors to test our capabilities on full scale basis where they more concerned about our expertise, development process, quality levels ,communication levels, etc,. For example, one Canadian client needs a web integration application which needs to integrate client website with their business information system. One of the application activities is to produce the analytics of their online market campaigning and sales operation to formulate best strategies to explore their client base across the world, which is need to be develop as a pilot project and same work also given to our competitors. Here we followed a business model, where we hired a freelancer who is very best at this kind of applications, with the help of this guy we done a vigorous analysis on clients basic business operation at the same time considering the future needs and technical feasibility to choose the suited technical development requirements along with our expertise. Finally we did this project before the dead line and ahead of our competitors, because of proper business planning, execution and choosing right technical needs, proper understanding of client's business core levels and consideration of clients desired expenditure levels and their future needs. Finally we got the project and executed before client deadlines and got the opportunity to maintain this application, technical support and customer support. In this case we benefited from pilot project, which can helped us a lot in terms of better understanding and planning of project execution ,usage of outside expertise and better business opportunities and relation with client.

In this case the client and vendor have the equal implications on offshore business activities at every time intervals but they have their own edge on their business opportunities.

Lesson 10:

"Unitize projects into segments to protect intellectual property"

In now-a-days business world IP (Intellectual Property) plays a vital role while doing business in any place, because of the inputs into IP production in particular Research and Development activities. Some of others expressed their ideas on IP protection and vendor country law implications. Authors addressed the concerns of the security of client's offshore data through a data steel incident, which is happened in 2005 at an Indian BPO. They suggested to follow the creation of security areas and critical data access practises through work badges and work based data access, clean desk by observing Indian vendors. And they addressed an efficient IP protection through an engineering company example, where they follow the multi supplier offshore outsourcing to divide the work, which can't offer to any edge for suppliers to decode the project. As per me, intellectual property aspects are playing an important role because of the economic aspects spending to produce them at the same time the ownership of IP is depend upon the role of partnership percentage in that activity. Mainly in life sciences, Information Communication Technologies and Biotech IP became vital factor to consider while doing offshore outsourcing activities. A detailed survey showed that 74%moutsourcing companies felt that IP protection, data security, business relations and disaster recovery process activities were critical while choosing an outside vendor for offshore outsourcing vendor. Client's IP is another vital concern in offshore outsourcing transactions and the primary concerns of business organization is ownership of IP. Some the critical challenges are concerned by organizations are: data server access, sharing project source code, lack of IP protection infrastructure facilities, unawareness of vendors employees over the IP rights and policies, using same code for another clients projects, vendor employees shift to competitor organization (Pai,K.A 2007).In many developing countries IP rights are essential commodity in gray market because of their financial worth. IP theft has further implications are depends upon vendor's country's laws. TRIPS (Trade-Related Aspects of Intellectual Property Rights) formed a standardized for IP protection across member countries. Some of the factors have to consider for a proper IP protection, they are: before offshore outsourcing vendor selection the client has to examine the vendor's country's laws and legal to safe guard the data security and privacy, ensure that the offshore provider has access to telecommunication network, evaluate the vendor's history and business performance including security concerns (Rao 2004).To reduce the risk of IP property violations by restricting access to the whole source code to a single point of execution and share the total source code between different execution points. In valuable and sensitive projects, each vendor employee has to sign the confidentiality and nondisclosure agreements while doing the project. Proper agreement need to ensure the ownership of the IP property while working on projects and inventions regardless of the applicable law (Bakalov 2004).For example, Shinetech follows a five step procedure to ensure their IP protection policy towards the client concerns. First Step, Non-Disclosure Agreements, it's nothing but a contract, which ensures the rules and responsibilities of client and Shintech has to follow while doing business operations. Second step, Project-related IP Protection, which resembles the tight mechanism of doing project execution by monitoring the daily operations, network access roles, data access rights and the choice of client evolution by every instant of log in operations, other data storage facilities, data security concerns. And ownership of work belong to client like patents and copy right while performing and total data transfer after completion of work in a transparent way. Third step, Confidential Document Control, which is used to manage, protect client confidential documents and return, dismantle of documents are done by client only. Fourth step, Employee confidentiality contract, to provide employee's awareness towards the security and confidentiality of business practises, IP Protection regulations in their job to eliminate the ill usage of data of the Shinetech, client. Final step, Employee training and education, to ensure implementation of IP Policies in doing offshore outsourcing project operations (shinetechchina 2008).

In future, IP plays an vital role while doing agreement between client and vendor for a particular project, so both parties has to implement best strategies to protect the business operations from ill legal activities for both parties mutual benefits.

Lesson 22:"Manage bottlenecks to relieve the substantial time zone differences"

Time zone differences plays an vital while doing off shoring activities, because the both side employees need to interact to facilitate the requirements of off shored project activities within available time schedules. In general offshore vendor feel that time zone differences are helping to gain the business from clients, but in some case clients consider as a bonus when they consider business offshore outsourcing activities. In authors point view time zone differences are mainly beneficial for call canter operation rather than IT project development operations and they feel that time zone differences shows an impact on employees of client and offshore vendor. And they suggest some solution by their research like placing some vendor employees in client's location and another one is arranging the time which is mutually agree for both parties of employees and final one is offering the holidays for both employee parties at the time of national holidays of both countries respectively. I agree with the authors view apart from that these time zone differences may affect the productivity of employees at both ends, because of unusual working hours where people willing to take several brake times to control the in connivance caused by late work nature. Sometimes cultural factors may adversely affect the work environment like Indian people are very concern about their religious practises at the time of holy festivals, if employer ask to work on those days may be get negative response which can delay the project execution schedules. To avoid these kind of behaviour employer has to offer a mutual benefit solution to compensate the late working hours. Some of the authors delivered their views on time zone differences. Work time schedules and time zone differs across the globe that often separate the working teams in offshore outsourcing projects, these differences have good and bad implications, mainly the project work activities continued around the world on 24/7 basis and efficiency, performance can be increased. In case of, San Francisco, USA and Bangalore, India the time difference is 12 hours, which can affect the scheduling meetings between project managers, developers and late working hours not possible. Because of these vendor selection and management activities should address the problem of time zone differences, which can show an impact on project works (Ghosh,J, 2009).And the "friction of distance" can delay joint development (Ra0 2004).Globally distributed teams (GDTs) are using to perform critical and knowledge intensive work, which are combination of two or more co-located subgroups in different geographical areas, like onsite and offshore subgroups and members hardly interact very less, as well as depend up on less of communication with other sub group members. The 24/7 development environment" that includes several subgroups situated around the globe to concentrate on the one solution and perform the same activity on a successive basis (Mattarelli,E. et al 2009 ).For instance, my previous employer practised a best method for our company's one team of software developers and management support team, where they used a US time model in this we used to start our shift according to USA time structure to eliminate the time gap from Indian perspectives, because of this we used to feel the normal job timings here we had the correct time for our daily activities but it's not suited at the time festival times. To overcome this employer offered a best compensation plan for who are going to attend those particular time frames. Even though my team mates express their view to work on general time but there is no that much impact on productivity except increasing level of employee's illness.

The future implication of this lesson has same impact on client and vendor. And there is a chance to reduce the time differences by choosing the near geographical area where the time frames are same, but it is little bit expensive for client and vendor.

CONCLUSION:

Offshore Outsourcing has become a strategic alternative for many business organizations for cost savings and subsequent equity returns for investors and the benefits customers in the form of lower prices. It offers great opportunity to go ahead of association and gain strategic increment in business practice performance and other important point is loss of IT jobs and intellectual resources as fiscal concerns. The success of offshore outsourcing does not come from doing the same repetitive operations in the same way along with respect to low labour costs. Business organizations must establish a clear ownership of the outsourcing engagements and their governance, operations through a vigorous partner selection process, significant performance dimensions, and the utilisation of renewed world-class processes. It is difficult to define how business entity will assess success and seize outsourcing partner responsible for performing to its commitments. And selection of right outsourcing partner is kick starts with capabilities and made the smooth transition into global sourcing activity arena. Organizations that invest in creating effective approaches for global offshore outsourcing will be compensated with major, solid improvements in overall bottom line business performance levels.

REFERENCES:

Journals, Articles, Books:
  • Aron, R. and Singh, J.V. (2005), "Getting offshore outsourcing right", Harvard Business Review,Vol. 83 No. 12, pp. 138-40.
  • Agarwal,S.,Khaitan,S.,Shrivastava,S.,Banks,M.(2005).Destination India:Offshore Outsourcing And ITS Implications, PP 248,Accessed on 25 November 2009,Avilable at: http://www.almtlegal.com/articles/AlmtArticle9_Destination%20India.pdf
  • Bakalov,R.(2004).Risk Management Strategies for Offshore Application and Systems Development,Information System and Control Journal,5,P 2-3.
  • Dibbern, J., T. Goles, R. Hirschheim, and B. Jayatilaka,.(2009) "Information Systems Outsourcing: A Survey and Analysis of the Literature", Accessed on 20 November 2009,Avilable at www.ecis2009.it/papers/ecis2009-0652.pdf,P2.
  • Drezner, D.W. (2004), "The outsourcing bogeyman", Foreign Affairs, Accessed on 25 November 2009,Available at: http://www.foreignaffairs.com/articles/59889/daniel-w-drezner/the-outsourcing-bogeyman.
  • Gonzalez,R.,Gasco,J.,Llopis,J.(2006).Information Systems Offshore outsourcing: A descriptive analysis,Industrial Management & Data Systems,106(9),pp 1241-1243.
  • Farrell, D. (2003),Offshoring: Is It a Win-Win Game?, McKinsey Global Institute, San Francisco, CA, August, pp. 3-5,
  • Feeny, D., Lacity, M. and Willcocks, L.P. (2004), "12 capabilities to evaluate in your business outsourcing provider", accessed on 28 November 2009,available at: http://www.umsl.edu/~lacitym/smr12capabilities.pdf
  • Ghosh,J.,Dasgupta,R.(2009). Offshoring IT projects: Vendor Selection and Management.Accessed on 25 November 2009,Avilable at: http://www.scribd.com/doc/21704373/Offshore-Projects-Vendor-Selection-and-Management
  • Hirschheim,R.,George,B.,wong,F.S.(2009).Information Technology Outsourcing:The Move Towards Offshoring.PP 6-8,Accessed on 29 Novemeber 2009,Avilable at www.Ebesco.com.
  • Overby, S. (2003), "The hidden costs of offshore outsourcing", Accessed 20 November 2009, Available at: http://www.cio.com/article/29654/The_Hidden_Costs_of_Offshore_Outsourcing
  • Kumar, S., Eickhoff, J.H. (2006), "Outsourcing: when and how should it be done?", Information, Knowledge, Systems Management, Vol. 5 No.4, pp.247-50.
  • Mattarelli,E.,Gupta,A.(2009).Offshore-onsite subgroup dynamics in globally distributed teams.Information Technology & People,22(3),pp 244-246.
  • Pai,K,A.,Basu,S.(2007)."Offshore technology outsourcing : overview of management and legal issues",Business Process Management Journal,13(1),pp 19-22,27-30.
  • Pfannenstein, L. and Tsai, R. (2004), "Offshore outsourcing: current and future effects on American industry", Information Systems Management, Vol. 21 No. 4, pp. 72-74
  • Herath,T.,Kishore,R.(2009).Offshore Outsourcing:risks,Challeges, and potential solutions ,Information Systems Management, 26((4),PP 312 - 314.
  • Snir, E. M., and Hitt, L. M. 2004. "Vendor Screening in Information Technology Contracting With a Pilot Project," Journal of Organizational Computing and Electronic Commerce (14:1), pp. 61-88
  • Snir, E. M., and Hitt, L. M. (1999).VENDOR SCREENING IN INFORMATION TECHNOLOGY CONTRACTING WITH A PILOT PROJECT ,PP 34-37.Accessed on 27 November 2009,Avilable at http://tecom.cox.smu.edu/esnir/Screen.pdf
  • Madhu.T.Rao,.(2004).KEY ISSUES FOR GLOBAL IT SOURCING: COUNTRY AND INDIVIDUAL FACTORS,Accessed on November 29 2009,Avialble at:http://mites.amrita.edu/mits/courses/information-security/ites-_ia_project/Rao_2004_Key%20Issues%20in%20Global%20IT%20Sourcing.pdf
  • Shinetechchina.(2008). Shinetech intellectual property (IP) protection policy,Accessed on 25 November 2009,Avilable at: http://www.shinetechchina.com/softwave/downloads/Intellectual-Property.htm

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