| Many business executives believe "offshoring" to be | | | | standards of customer service, and business analysis |
| the destiny of any company that wants to remain | | | | often requires a good understanding of American |
| competitive. Labor costs can be reduced by 25-30% | | | | business practices. Cultural differences may be the |
| or more, and companies across the country are doing | | | | source of some disconcerting surprises.· |
| it. How can responsible corporate officers not | | | | Language: It may be obvious, but language |
| consider the offshoring option for their companies? | | | | differences can be a major stumbling block to getting |
| But what are the real benefits and the pitfalls of | | | | the work product and the working relationship you |
| offshoring? When does it make sense to pursue | | | | expect. Even different dialects and accents can cause |
| outsourcing, and how can you safely take advantage | | | | problems in areas involving direct customer |
| of lower cost resources in other countries without | | | | contact.· Infrastructure: The country's |
| risk or loss of quality?Background:Moving jobs to | | | | telecommunications infrastructure may be inadequate |
| cheaper work forces is nothing new. Even as | | | | for some types of IT work. Even poor roads and |
| recently as a few decades ago, significant segments | | | | airports may cause major headaches.· Security |
| of the manufacturing sector were transferred to | | | | & Property Rights: Security and the status of |
| locations such as Mexico, where labor was cheaper. | | | | intellectual property rights are often major |
| Although the transfer caused some social turmoil, it | | | | considerations for those organizations dealing with |
| was regarded as a growing pain on the way to a | | | | sensitive data.· Movement of Money & People: |
| more sophisticated economy. Workers were | | | | Some countries impose burdensome restrictions on |
| retrained in new skills and assimilated into the "new" | | | | the movement of money out of the country. And |
| economy, based largely upon free trade and | | | | obtaining visas in short order may be impossible for |
| emerging technologies. It was reluctantly | | | | residents of some countries.· Politics: Finally, the |
| acknowledged that those jobs were gone forever, | | | | political stability of the country must be considered, |
| and that in the end both the workers and the | | | | and the laws of the location must be carefully |
| economy would be better off.A new variation on this | | | | examined to avoid unforeseen consequences." By |
| familiar story occurred in the late 1990's. As the | | | | following some basic guidelines and having a clear plan |
| technology boom reached its peak, demand for | | | | of execution, offshoring may be the right strategy |
| skilled IT workers was far exceeding supply, driving | | | | for your company."Tips For Success:· Scope the |
| labor costs to unsustainable levels and leaving | | | | work: Carefully define and scope the work to be |
| companies without personnel for new projects. With | | | | offshored. Know what you want to accomplish and |
| the Y2K crisis putting additional pressure on | | | | how much it should cost you.· Offshore |
| technology, companies began to look to other | | | | non-critical functions: Maintain the integrity of your |
| locations to fill some of the excess demand for IT | | | | core competencies by offshoring only non-critical |
| workers.India and other countries had a wealth of | | | | functions. And start small. Just as you wouldn't jump |
| highly skilled workers willing to work for dramatically | | | | in too deeply with a domestic company before |
| less than was demanded by comparably skilled | | | | gaining some history and confidence in the company, |
| American workers.With the Y2K crisis, the current | | | | so should you be similarly cautious with offshoring |
| wave of IT and other white collar job sector | | | | partners.· Know what to offshore: Software |
| offshoring was initiated."The new telecommunications | | | | development, data entry, and transaction processing |
| technologies are now making possible this pitting of | | | | have been successful; customer service and voice |
| domestic workforces against foreign workforces just | | | | interaction are more risky.· Choose the right |
| as for centuries before domestic products have been | | | | location: The type of work being outsourced will |
| pitted against foreign products."Current State:It is | | | | influence the location. India has gained a reputation |
| estimated by Goldman Sachs that since 2000 U.S. | | | | for software development. Between 2003 and 2004 |
| companies have sent 400,000 service jobs overseas, | | | | it has seen over a 30% growth in software and IT |
| and the Information Technology Association of | | | | service exports, and by the year ending in March, |
| America (ITAA) believes that during the same period | | | | 2004, Indian companies have earned $12.5 billion in |
| 104,000 technology jobs have moved overseas. | | | | technology exports. But India is not the only source |
| Everyone agrees that this number will grow | | | | of reliable but inexpensive labor. Countries such as |
| dramatically over the next five years. Some have | | | | China, the Philippines, Romania, Argentina, and even |
| estimated that as many as one million jobs may be | | | | Ghana and Ireland are all centers for offshore |
| sent to India alone by the end of the year, and that | | | | operations of various kinds.Matching an outsourcing |
| a million jobs a year may be lost to overseas | | | | effort with the appropriate labor force requires |
| locations for the next several years. But who is | | | | consideration of a whole host of factors.· |
| offshoring, what kinds of jobs are being transferred, | | | | Measure performance: A plan for measuring |
| and how is it working?Forty percent of the Fortune | | | | performance and evaluating success must be in place. |
| 1000 firms have begun to offshore, according to | | | | Companies must be able to measure the work. In |
| Forrester Research, Inc., though 25 to 30 percent of | | | | order to measure the financial success of the |
| these are offshoring on a limited basis, for small | | | | offshore operation, current costs must be |
| projects, spending no more than 5 percent of their | | | | understood. Pay may be linked to performance |
| IT budgets on offshore work. Only 5 to 10 percent | | | | benchmarks to safeguard against poor |
| are using offshoring for complex projects and | | | | performance.An overall savings of 20 to 30% is |
| mission-critical operations. However, this is likely to | | | | reasonable to expect as a bottom line measure of |
| change.Sixty-four percent of finance executives | | | | success.· Monitor the work: Monitoring the work |
| polled recently responded that they planned to do | | | | is critical if surprises are to be avoided. Personal |
| more offshoring in the next two years. A great | | | | interaction with the offshore site should be |
| portion of recently offshored jobs paid $50,000 or | | | | incorporated in some fashion. Placing one or more |
| more before being transferred overseas. Although | | | | managers on-site is ideal, but at least some |
| much of the offshoring has been in the information | | | | face-to-face contact should be planned. An on-site |
| technology area, call centers, finance functions, data | | | | presence will also help to alleviate security |
| entry, and human resource operations have also been | | | | concerns.· Consult experts: Extra caution must |
| outsourced.Benefits:There is no doubt that the | | | | be used when negotiating the deal. International |
| primary benefit of offshoring is the cost savings. The | | | | specialists should be consulted and intellectual |
| ITAA estimates that outsourcing currently saves U.S. | | | | property rights retained.· Exit strategy: An exit |
| companies about $7 billion and that by 2008 the | | | | strategy should be place in case the operation does |
| number will climb to $20 billion. The savings from | | | | not work out.Summary:With large populations of |
| offshoring varies. In the same survey cited above, | | | | educated workers in foreign lands willing to work for |
| over forty percent surveyed said they were saving | | | | considerably less than similar workers in the U.S., the |
| as much as twenty percent or more. Nearly the | | | | offshoring of strategic segments of work traditionally |
| same number are saving from ten to twenty | | | | thought of as white collar work has begun. And this |
| percent.Hazards:The savings do not tell the whole | | | | shift of work and work forces will continue as long |
| story, however. Offshoring does have hazards which | | | | as these conditions exist. Companies with operations |
| companies considering the option must weigh.· | | | | ripe for offshoring must consider this option if they |
| Finding Skilled Labor: Before investing in a region, you | | | | are to remain competitive.About Ralph Dandrea:Ralph |
| must be sure there will continue to be an adequate | | | | Dandrea is the President of ITX Corp., and leads its |
| supply of labor skilled in your areas of need. Look at | | | | Business Performance practice. He is experienced in |
| the rates of graduation and the demand for the skills | | | | business and information technology management |
| in the country.· Geography Gap: Inherent in | | | | and holds graduate degrees in business and law.About |
| offshoring is the distance obstacle. Since work is | | | | ITX:ITX Corp is a business consulting and technology |
| being done in a different country, it is often more | | | | solutions firm focused in eight practice areas including |
| difficult to ensure that companies are getting what | | | | Business Performance, Internet Marketing, IT |
| they are paying for until it is too late. Rework and | | | | Staffing, IT Solution Strategies, IT Solutions |
| quality control are problems.Distances also mean | | | | Implementation, Technical Services, Internet Services, |
| travel and other communication costs.· Cultural | | | | and Technology Research. To learn more about what |
| Gap: Cultural gaps may be a problem for some types | | | | ITX can do for you visit our website at or contact |
| of work, such as call centers and business analysis. | | | | us at (800) 600-7785. |
| For example, different cultures may have differing | | | | |