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ECT News Community   »   CRM Buyer Talkback   »   Re: The Downside of Offshoring

Re: The Downside of Offshoring
Posted by: Ann Bednarz 2004-07-13 20:56:59
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Economics lured Hemant Kurande to look to India, his birthplace, for more affordable engineering talent. Three years ago his company hired two service providers to do some core programming for a line of storage management products. The results were mixed, says Kurande, CTO of Storability. The providers built products that were suitable as prototypes for R&D, but not production. That gap put the burden on Storability employees to shore up the code.

Re: The Downside of Offshoring
Posted by: ISN 2004-07-15 18:51:42 In reply to: Ann Bednarz
The Downside of Offshoring has great pointers in it, such as going slowly and not overestimating potential savings of going offshore, particularly in a stand-alone mode.
The following comments are intended to help U.S. employers and employees gain a better understanding of offshoring, and how to benefit from it.
For software development, going offshore puts more pressure on U.S. employees and supervisors to develop good formal specifications, which in small feature-rich application development projects can be half of the level of effort. In-house arrangements may allow for specifications development on the fly. Outsourcing calls for better program planning by U.S. clients. And for more talented, systematic U.S. employees. Higher quality applications are usually the result, applications that are less expensive to deploy and less expensive to support.
For voice services, offshore outsourcing, particularly to South Asia, provides access not only to reasonably priced talent, but often to better, cheaper technology (much of it made in the U.S.A.). In our inbound voice program placement work, for example, we use U.S.-made interactive voice response equipment and other labor-reduction tools for inbound work that would be unaffordable if managed by an American firm rather than from offshore.
The examples that 'The Downside of Offshoring' gives about Conseco and Dell were far different in reality than are commonly portrayed in media accounts. Conseco had cost control and cost accounting issues in the U.S. and India that overshadowed the management of their Indian operation. Their Indian operation had a good reputation for customer service. Their price points were high, greater than what can be obtained in Canada.
Dell's announcement of a 'return' of support activities to the U.S. was produced for consumption by U.S. voters. Their Bangalore facility clearly had problems, however. The support center's manager was reportedly poorly recruited, their program and staff ramp up times were too fast, and support from the U.S. for the center was inadequate. It also appeared that their support policies were not thought through well enough or not supported by adequate training and U.S.-based quality assurance. These are common problems in support operations both onshore and offshore. None of this is the fault of Dell's Indian agents.
The word in the industry is that Dell received a call from the White House asking for some demonstration of outsourcing being reduced. And Dell responded positively. Their statements to the Indian press, however, stressed that there would be no reduction in their commitment to building their organization and workforce in India.
Both Dell and Conseco have been used as examples to show that Bangalore is saturated, overpriced, and is suffering from management issues in an industry that did not even exist five years ago. Pakistan, rural Tamil Nadu (especially Coimbatore), and rural Karnataka are good locations now. Calcutta and Sri Lanka are the destinations of the near future. Calcutta alone (now called Kolkata) has enough pent up economic energy and brainpower to change the world economy by itself. And it will.
Coverage in the U.S. media of offshoring of voice and data services has focused on large firms, which can afford high transaction costs for gaining access to the advantages of overseas talent. Issues regarding smaller firms moving less than 200 seats have largely been ignored.
Issues of the Indian information technology outsourcing industry have been covered only in terms of the five or six most successful firms, firms that because of price and capacity issues are not good vendor choices for the vast majority if U.S. firms that will be using IT outsourcing in the next 5-10 years.
For hardware manufacturing, which was the initial example of 'The Downside of Offshoring', key business challenges of octroi (internal revenue assessments), black (undeclared) money, and bureaucratic hurdles (especially those relating to banking and currency conversion) can be more challenging than staffing issues.
The service industry also faces those challenges. Profit repatriation, an uncertain tax regime, and local government issues loom large for those American firms that choose to go it alone in establishing a service operation, rather than work through contractors. Both the hardware and service sides of the IT industry in South Asia are highly sensitive to environmental issues, as the recent collapse of the aquifer in Chennai and the impacts of recurrent flooding of more than 70% of Bangladesh so tragically illustrate.
American firms would do well to consider delaying going it alone (as shown in 'The Downside of Offshoring') and work through contractors for a year or two at least, to minimize risk and to build a staff that can be hired out of the contractor's organization. Taxation and labor force issues in South Asia are going to be a lot different in 2008. To be competitive, Americans working globally will need to be out in front of those issues, rather than being dragged along behind them.
Anthony Mitchell, CEO
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