In recent years, as the economy has made belt-tightening a mandate for many executives, farming out work to India, Russia and other foreign locales has become a relatively commonplace tactic for U.S.-based companies. CEOs like the cost savings, and IT departments appreciate the ability to hammer out a project on a 24/7 schedule.
However, attempts to tap the global village’s resources are not always needed, and sometimes a company will find it is actually cheaper to keep work at home. Deciding whether a project will be outsourced or kept in-house depends largely on performing due diligence, analysts say, and plenty of it. When is a company that never sleeps the best kind?
We Are the World
For a high-tech company that wants to trim the fat from its budgets, few strategies are likely to seem more attractive than shipping IT work overseas. Talented foreign software engineers are abundant, and the Earth’s time zones mean every project can be an around-the-clock affair.
The main benefit, however, is to the bottom line. IDC analyst David Tapper told the E-Commerce Times that overseas workers’ skill sets are equivalent to those of their U.S.-based counterparts, and resources are no more abundant on foreign soil, either.
“It’s all about the cost,” he said, “pure and simple. That’s the only reason for a company to go offshore. If there wasn’t a cost savings, they wouldn’t go.”
How much a company can save depends on the type of labor exported, but some analysts estimate the cost savings at between 30 and 40 percent.
Even companies that are in good shape financially are eyeing foreign countriesfor future project export.
Recently, for example, Intel announced plans to invest US$100 million in India, set up a software development center in Bangalore and expand its number of India-based staff members to 3,000. The company also said it will establish new development centers close to the fastest-growing markets for its products, in China, Russia, Eastern Europe and South America.
According to most analysts, such a move is common. Other companies, ranging from Hewlett-Packard to Electronic Arts, also are migrating some operations to offshore entities.
Amid this wave of outsourcing, firms that have remained exclusively in the United States may be tempted to cut costs and send jobs packing, too, in an effort to stay competitive. If a company perceives that other firms are gaining an edge by exporting work to Bangalore, a ticket to India may seem easier to buy.
However, although many high-tech firms have explored overseas outsourcing, not all companies are doing it correctly.
Companies pondering such a move should look beyond cost and realize there are other factors to consider, said Stephen Lane, research vice president at Aberdeen Group.
“There seems to be a lack of internal due diligence,” Lane told the E-Commerce Times. “Some people believe they can just outsource something and save money, and it’s that simple.
“They fail to understand the processes of what they’re outsourcing,” he added. “In other words, you have to understand how something really works before you have someone else do it for you.”
Know Your Processes
For example, when a company has a process, such as help desk support, it may fail to grasp how that process works within the company. Employees may have developed an intricate system of informal, off-the-record support requests, such as stopping by the tech support department to ask a question or two. If the value of this unofficial business process is not recognized and taken into account before the help desk is outsourced, cost savings estimates will be skewed.
“By not understanding the scope of what you want done, and [not] seeing the interdependencies within the organization,” Lane said, “six months down the road you’re going to be in trouble.”
Another difficulty that some companies may face is a warped perception about what can be achieved by sending work to a foreign country.
Yankee Group senior analyst Carrie Lewis told the E-Commerce Times that in some cases, it is a major benefit to have an expanded workday for certain projects, but also said that companies should not place too much emphasis on the “open all night” aspect of outsourcing.
“There is only so much benefit you can get from going offshore,” she said. “I believe that in the next 12 to 18 months, we’ll hear a little bit more about the failures of offshore. Scalability is going to be difficult, and there will be fulfillment issues as these projects begin to be carried out.”
Lewis added that it is also common for companies to be unrealistic about the real costs of keeping projects in-house.
“If you don’t know what your costs are right now, how are you going to adequately assess what kind of savings you’re getting from outsourcing?” She noted.
Other hurdles to effective outsourcing — such as cultural differences, export regulations and geopolitical strife — also exist, but the arrangement can be of great benefit to companies that enter the arena with eyes wide open.
“There is a lot of fear and uncertainty about sending stuff overseas, but if you do due diligence, there’s a level of trust that can be engendered,” Lane said.
He noted that an outsourcing relationship works best with dedicated project managers, a detailed contract that describes everything from delivery dates to backup procedures, and a solid understanding of what will be accomplished.
“At the end of the day,” he said, “companies often fail to realize that they’re not giving up responsibility just because they ship something overseas. As long as you can maintain communication and do your part in the process, it can be a happy relationship.”