Looking to hold down the cost of your I.T. budget? More and more companies are turning to business offshore outsourcing partners to extend in-house resources and keep a lid on costs.
Outsourcing is not new to the I.T. departments of large companies. Large multinationals like Texas Instruments, IBM and Unisys have been working this way for years. Now, smaller companies are starting to utilize overseas support services as well, thanks to enabling technologies that are becoming more commonly available.
Business Offshore Outsourcing
Offshore software development allows a company to implement software solutions from worldwide locations where the development, manpower and operational costs are substantially lower. One Indian technology consultant offers its services for less than a tenth of what the same service would cost in the U.S.
Time zone differences also offer a huge strategic advantage.
The U.S. and India, for example, have an average 12-hour time zone difference. Using high-speed datacom links, an offshore software developer in India can provide a virtual 24-hour office to a client in the U.S. — translating into immense time and cost savings.
Shelton, Conn.-based SAI Systems International Inc., a technology consulting company that aims to meet the I.T. needs of businesses in the U.S., has established two subsidiaries located in Pune, India.
“Opening these subsidiaries in India allows us to offer high quality service at great bargains,” says Ramesh Wadhwani, president of SAI. “Companies can farm out work to I.T. houses in India ranging from $180-$300 per professional day compared to $600-$4,000 per day in the U.S.” What’s more, “the time difference between U.S. and India is ideal for maintenance and support type programs. A client reporting a bug from here during the end of the day could get the fix the next morning.”
Technology Offshore Outsourcing
There are three ways a business can partner with offshore suppliers: time and materials, fixed price and joint ventures.
- Time and materials is ideal when one wants to consider setting up a long distance I.T. development and maintenance center offshore under direct control of the U.S. client, notes Wadhwani. This gives flexibility and allows one to make changes to project specs — which are inevitable in the I.T. industry. This avoids project failures and finger-pointing when projects get delayed.
- Fixed prices are a better option if a project is well defined and no changes are envisioned. This way there are no surprises or cost overruns.
- Joint ventures work well if the client eventually wants to take over the team or hold a joint-venture ownership in the offshore house to break into a new market.
Before establishing an overseas relationship, however, companies need to consider the drawbacks. Communication can sometimes be a stumbling block in these ventures. If the offshore development center has problems understanding English, a company could spend an awful lot of time explaining an assignment. That’s why English-speaking countries like India, Ireland, South Africa and Israel are the most popular sources of offshore I.T. services.
Companies looking into offshore outsourcing also can encounter resistance from people within their organization. “People do not give up their mission-critical business processes easily,” says Harry Tse, analyst at the Yankee Group. “It’s mostly psychological, but they aren’t willing to turn over a critical part of the business.”
Despite these minor hitches, offshore outsourcing is thriving for one important reason — it makes business sense.