Offshore outsourcing of software development,
support and maintenance is gradually emerging as
a source for competitive advantages--and a source
for headaches, too--for a number of companies
study by Gartner attributed the first year-over-year
revenue drop suffered by the IT services industry
in 2002 to growth in offshore outsourcing services,
which is pushing down the prices. Forrester Research
says that the offshore outsourcing is going to rise
from 12 percent of corporate IT budgets in 2000 to
more than 28 percent in 2003. Meta Group predicts
that as much as 50 percent of U.S. IT workers will
shift to contract labor by 2007.
A CEO of a young IT products company recently said
on the panel of a popular Washington, D.C. event
that by offshore outsourcing its R&D center to
Bangalore, India, his company was able to develop
products very efficiently, effectively and with a
minimal amount of cash. With only a $15,000 to $20,000
monthly cash burn rate, his company was able to compete
against 4- or 5-year-old VC-backed companies that
had raised multi-millions.
But is that all there is to offshore outsourcing--reduced
cost? What are the various things that one
should consider while employing offshore
outsourcing? Industry experts say that there
is a lot that stays hidden but has an enormous
impact on the decision to offshore outsource.
Let's examine the experiences of these people
to understand what it takes to successfully
offshore outsource a project.
Outsourcing Is More Than Labor ArbitrageLabor
arbitrage--the ability to pay one labor pool
less than the other--has definitely modified
the fundamentals of offshore outsourcing.
Also, the availability of a greater number
of equally qualified people--India produces
75,000 IT graduates every year as compared
to 26,000 in the United States--has played
a big part in the growth and efficacy of
However, there is more to offshore outsourcing
then just lower HR expenses. There are many
areas including vendor selection, communications,
technical oversight, security/privacy and
specialization, which all need to be considered
while offshore outsourcing work offshore.
Studying best practices in these areas is
a must if you want to be successful. Five
things will help you achieve that.
Select the Right Vendor
As an industry, offshore outsourcing has matured.
There are many documented benefits and pitfalls of
offshore outsourcing. The general awareness has reached
such a level that the case for offshore outsourcing
has been pretty much made. Now the prevalent question
has changed from "Why offshore outsource?" to " Offshore
outsource to whom?"
How you select your vendor will have a significant
impact on your success. There are a host of questions
that you need to get answers to. You need to establish
selection criteria to evaluate vendors. You need
to understand your core competencies, your business
needs and how they relate to the core competencies
of the vendor. You need to evaluate the industry
knowledge of each vendor and their processes and
methodologies, including CMM, ISO9000 or TQM certifications.
You need to understand the cultural diversity and
the impact that it may have on communications and