IT Outsourcing- Myths and Facts

Across the country, workers with blue and with white collars are up in arms about the jobs being outsourced to cheap labor in other countries. Our livelihoods flowing overseas! But is this the reality? Are jobs really flowing overseas to fill the pockets of greedy investors and robbing the poor common man of his source of income?

Or is the reality different - does outsourcing your IT actually create more jobs? And are there better ways to outsource than moving jobs overseas?

Rural Outsourcing - Taking It To the Country

When companies talk about outsourcing, they often cast their eyes overseas, thinking about the fact that an Indian software engineer makes between a sixth and a quarter of what his American counterpart earns. This is an attractive thought - reduce your workforce costs by 75% while still maintaining quality!

The math doesn\'t work like this, however. Outsourcing your IT to a foreign country has unexpected hidden costs - setting up a separate HR overseas, dealing with taxes, regulations, and unexpected fees, and arranging for proper equipment to be installed in areas that may not be perfectly set up for it can be much more expensive than expected.

One old outsourcing solution that companies disillusioned with outsourcing to foreign countries have turned to is places in America where costs and labor are cheaper, but where you still have a strong infrastructure and more or less the same laws. For instance, a worker in New York City typically makes twice the salary as a worker in rural Pennsylvania, not all that far away. And many rural communities, eager for jobs to come to their area, give tax breaks, land grants, and other deal sweeteners to large companies bringing jobs to their areas.

Car manufacturers and other related industries have done this for years; anywhere you find a major Ford or Toyota plant, you find dozens of satellite companies in close proximity that supply them with needed parts and equipment. But IT companies, seeing the possibilities of zero transportation cost and time and really cheap labor overseas, as well as a perception of rural areas as not providing properly-qualified workers, eschewed that option.

If You Build It, They Will Come

Truth is, qualified employees in depressed areas tend to flock to companies that will offer them a good job at a fair salary. Rural communities, eager to have the injection of cash and jobs in their area, will work with you, not against you - and for the rare exception, well, there are always more places to look.

The facts are, after the unanticipated costs of outsourcing part of your labor pool overseas, your savings are comparable to outsourcing to a rural community. And in addition to not costing yourself more money than you would anyway, you have the very marketable fact to advertise that you stayed in your home country, instead of taking jobs overseas. Most of your customers are probably from your area, not from the country you outsourced to. Take advantage of that fact.

There are other non-financial disadvantages to outsourcing to another country - time zone differences, language barriers, unexpected cultural differences, and the necessity for data security are all areas that could make your offshoring more of a hassle than your financial savings are worth. In fact, though many US companies say they save almost half of their expenses by outsourcing offshore, the actual savings are probably more like twenty to twenty-five percent - numbers very comparable to your savings by remaining in the country but outsourcing to a financially depressed region.

Outsourcing Woes

Part of the problem with outsourcing of any kind today is what\'s being outsourced. Many companies started with peripheral expenses, like janitorial services and fleet management, and wound up outsourcing crucial core company functions, like accounting and even secretarial services. A company is no more than the sum of its workers. When you remove all the workers and replace them with cheap contractors, are you really saving money?

Performance issues naturally follow from this shedding of too much weight. According to research by groups like Socitm, many companies that outsource - either domestically or internationally-- don\'t perform as well as before the outsourcing; the average user satisfaction deficit, according to their recent study, was 13 percent. Other criteria, like value for money and company perception by customers, showed similar drops. One has to ask oneself if it\'s really worth it.

Numbers like this should give companies pause when considering outsourcing. Clearly, the savings are not as great as they might seem; and the savings you do achieve may not be worth the impact to customer satisfaction.

But like any other business decision, it\'s something that only the individual company can decide. Weight all the variables together, and come up with a plan for dealing with the flaws of outsourcing before you make the decision. Think creatively. Look at the quality of companies you\'re considering outsourcing to. And deliberate carefully before leaping forward

Srini Saripalli a Technologist, Marketer & an IT evangelist. He is an expert on Oracle technologies and has held many strategic positions in Silicon Valley companies. He is also the founder of ITInnerCircle.com a company dedicated to transforming IT professionals into Business and Technology Leaders. To signup for Srinis FREE audio newsletter on IT Leadership visit http://www.itinnercircle.com

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This entry was posted on Sunday, August 24th, 2008 at 10:21 pm and is filed under Outsourcing Solutions . You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.