A Shore Thing?

Risk and reward have always been major factors in offshore outsourcing. The trick, of course, is to mitigate the former while maximizing the latter.

Gerdes, however, points out that wages have increased in India to the point where some of the cost advantages are vanishing. “A software developer in the U.S. with an M.A. and several specialized certifications gets from $70,000 to $80,000 a year,” he says. “In India, you used to be able to find someone with the same credentials or better for 15 to 20 percent of that, but now the equivalent job is paying $50,000 over there.” And, he adds, if Indian salaries continue to rise, look for China and Russia, among others, to increase their share of the offshore market.

Next, of course, comes the selection of a specific provider. Certainly there’s no shortage of options: India alone has a half-million IT outsourcing workers. Among the largest vendors are Tata Consultancy Services, Wipro Technologies, Infosys Technologies, Satyam Computer Services, and Cognizant Technology Solutions. In other countries, competition is often spread across a range of small and midsize firms.

One of the most important criteria in evaluating a supplier, adds Rose, is its bench strength. “The outsourcer has to have a large-enough bench so it can supply the expertise you need when you need it,” he explains. “We wanted a supplier with 1,000 or more programmers. With that kind of depth, if you suddenly needed, say, someone with expertise in Oracle databases, or a firewall engineer, there’s likely to be a good one available when you need them.”

A vendor should also be able to accommodate clients that may want to expand the portfolio of services they outsource and establish a more-extensive, long-term relationship with the supplier. “More and more,” says Gartner analyst Debashish Sinha, “there’s a shift from viewing offshore outsourcing as a tactical, low-level method of saving money to seeing it as strategic.” As a result, the outsourcer’s capabilities and awareness of a client’s total needs become paramount.

Even if you decide offshoring is not for you, you may be involved with it nonetheless. American IT services and consultancies — including Accenture, Hewlett-Packard, EDS, Computer Sciences, and IBM Global Services — are offshoring with a vengeance. Accenture, for instance, operates in the Philippines and India, while IBM has operations from Mexico to India, including Canada and China. “We started using offshore capabilities for our internal applications in the mid-1990s,” says Mike Dawkins, general manager of global operations for IBM Global Services, “and three or four years ago we incorporated our commercial customers. We believe we can meet any of the price points of competitors, including Indian companies.” —L.McC

A World of Differences

What are the major challenges your company will encounter in offshore outsourcing?
Source: NeoIT

  • Managing communications
  • Managing project timeline or budget
  • Integrating with internal applications and processes
  • Managing change requests and scope of work
  • Negotiating contract terms
  • Understanding the differences among services providers
  • Understanding and quantifying benefits
  • Getting buy-in from management

Oh, Canada

For those who don’t want to venture far from home, there’s yet one more option to consider: near-sourcing. With this approach, you send your software-development projects and related IT work over the border to Canada. The advantages? “The workforce is much closer to what you’d find in the U.S. in terms of skills, and their legal system is similar to ours, which is important in resolving any disputes,” says I-4 research director Mike Gerdes, who notes that courts in other countries such as India can take years to deal with a civil case. Travel time is less, the time zones match, and Canadians are generally price-competitive with more-distant outsourcers. That is, as long as the Canadian dollar remains valued well below the American greenback. —L.McC.

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