How does Build-Operate-Transfer (BOT) work

Build-operate-transfer (BOT) function is something not uncommon in outsourcing and offshore staffing relationships.  It is something every client should be aware of when commencing their outsourcing journey.

In general, the BOT model helps businesses contribute to the economy of a country by putting up infrastructures for the government to attract foreign investors. With this model, different infrastructures such as roads, government offices, and public institutions are built and maintained for public and business use.

However, BOT doesn’t just exist in private and public partnerships. It also gained popularity in outsourcing as a way to expand operations to different countries.

What is Build-Operate-Transfer (BOT)?

Build-Operate-Transfer (BOT) is a method of financing a project involving two or more parties. It is also a flexible form of outsourcing that combines the elements of the “build” option (insourcing) and the “buy” option (outsourcing). The term is most common with large infrastructures of real estate companies and public-private partnerships (PPPs) for government infrastructures. 

Few countries and locations in the world such as the Philippines, India, Taiwan, China, and several states in the United States already practice BOT. Meanwhile, in countries such as Canada and Australia, they use build-own-operate-transfer (BOOT).

How Build-Operate-Transfer (BOT) works

In a usual BOT set up, the public sector taps a private contractor to build and operate a facility or infrastructure. The contractor will initially finance the project within the agreed project period. After the facility is complete, the government and the contractor will undergo a purchasing agreement and will open it for “shareholders.” The revenues earned through this purchase will be used for the operation costs, maintenance, and financing costs of the project.

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Usually, this method doesn’t just involve two parties. Lenders, suppliers, and construction contractors are also included in their process.

Variations of Build-Operate-Transfer (BOT)

The method works in several ways, depending on what the project requires.

Build-own-operate-transfer (BOOT)

A company owns and operates the facility to recover the investment costs while gaining margin profit on the project. This method usually involves large-infrastructure projects done through private funding.

Build-own-operate (BOO)

Here, a private organization builds, owns, and operates a part of a facility with encouragement from the government. In return, the organization receives financial incentives such as tax-exempt status. This mostly applies to BPO companies in different countries.

Build-lease-transfer (BLT)

Upon completion of a project, the company sets a joint venture agreement with the public sector for the ownership of the facility. Then they will lease it back for a minimum of 10 years to operate as a business. This is usually common in healthcare facilities and institutions.

Build-lease-operate-transfer (BLOT)

Lastly, in this method, the private organization builds and operates a facility in a publicly-leased land for a limited time. Once the lease duration is due, the organization transfers back the leased land to the public institution that owns it.

Build-Operate-Transfer outsourcing
Build-Operate-Transfer outsourcing

Build-Operate-Transfer (BOT) model in outsourcing

BOT in outsourcing, meanwhile, works differently and serves a different purpose. Businesses use this model as a way of building a separate office outside the country. During the first term, the client starts through staff leasing, seat leasing, or business process outsourcing to test the waters. Once they’re ready to operate on their own, the third party transfers the entire operation to their client.

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During the “build” stage, the third party provides the required documents for renting or leasing an office space. This includes the set up of internet, electricity, and network for the team. Also, they will include the equipment needed such as desktops, phones, and office supplies.

On the “operate” stage, the third party starts hiring the employees needed. Here, they will provide human resource management services such as training, onboarding, documentary compliance, and payroll. The company handles the operation for at least three to five years, depending on their agreed term. After that, when the client is ready, the entire operation, along with the facilities and manpower, is transferred to them.

Pros and cons of the BOT model

ProsCons
Short setup timeLong-term employee retention
Shared knowledge and resourcesOperational retention risks
Access to a larger talent poolHigher transfer rates
Low building and operation riskCultural differences

Pros of Built-Operate-Transfer

  • Short setup time: Companies save up time and effort in building their team on their own. As a result, they can focus more on building up strategies to make their business grow.
  • Shared knowledge and resources: Companies can learn from their service provider on setting up a team. They even share the resources used during building and operation.
  • Access to a larger talent pool: Hiring an offshore service provider allows them to access a larget talent pool of employees. With this, they can have a wider insight into how a task is done.
  • Low building and operation risk: With BOT, they won’t have to worry about the documentary requirements they need in building and operating an offshore team. Their service provider will do it for them.

Cons of Build-Operate-Transfer

  • Long-term employee retention: Upon transfer, employees now require long-term retention to the company. This setup is not ideal when a role has a specific demand and they decide to scale down.
  • Operational retention risks: When a team transfers, companies should comply with a long process of documentation. This consumes time, effort, and expertise since they deal with legalities.
  • Higher transfer rates: Some service providers charge a higher rate for BOT. With this, companies should make sure to plan their offshore operations and how they would handle it.
  • Cultural differences: Lastly, companies and their offshore teams might experience culture shock since they come from different countries and cultures. To prevent this, companies should get to know their teams and teach their culture to better understand each other.

 

Common outsourced services suited for BOT

Most tasks that can be outsourced can be relevant for BOT. However, not all of these work effectively. Some are better outsourced differently.  The most common services applied through BOT include:

Self-managed services

Typically offshore operations that are self-managed (ie the day-to-day operations are managed by the client), are the ideal candidate for eventual BOT.  If the client is managing most, or all, of the day-to-day operations, then there is little difference in moving to an entirely self-managed environment.  Though, it is easy to overlook all of the activity that goes on in maintaining a facility and ensuring employee compliance.

Customer service

This is one of the most common services that can be outsourced either through BOT or BPO. Most companies, to help their customer service team handle their customers better, hire them through BOT. This is to have more hands-on training and supervision to improve their services.

IT network

IT outsourcing through BOT has become popular for tech companies in the West. This includes setting up a cloud network for employees of organizations for a better workflow. Companies often outsource their IT network management to countries like the Philippines and Poland to save on costs and assure better security.

Software development. After building by an offshored team, software and system management are turned over to its clients for handling and distribution. With this, some companies retain the team to do software and system maintenance since they are already involved in the project.

Web development

Same with software, website management is usually turned over to the client after setting up. One of the reasons service providers transfer the team to the client to help them better with maintaining and improving the security of their websites and databases.

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