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Outsourcing is in the news these days, both international
offshoring and domestic onshoring. Offshoring is
sending a project overseas to be developed in another country, the most
popular of which lately is India. Onshoring is
keeping the project in the US
and sending it to a company in a non-metro area where the operating costs
are low for high quality technical expertise and labor. In many cases, outsourcing can make
sense. If your company does not have
the employees who have the skills you need for a task, it might be more
cost effective to outsource the job than to hire, train, and keep an
employee, especially, if the task is not a long-term project. However, is international offshoring a solid, cost efficient solution, or is
domestic onshoring the way to go?
For example, you need a new custom software application
for your business. There is not an
application on the market that fits your needs, and you know that you need
to invest in a new one to keep your business running competitively. You don’t want to hire a programmer
or programmers to create the application, as once it has been written and
installed, the program maintenance will not keep the new hires busy enough
to justify their salaries. You need
to increase efficiency but not increase headcount.
You decide to outsource the custom software application
project, but now you need to decide whether it will be developed by a
company onshore or offshore.
Four
Reasons to Stay Onshore
·
Higher
Quality: A good onshore company
with a small experienced staff can produce a higher quality product than a
larger, less experienced offshore company.
According to Edward Mandla, president of
the Australian Computer Society, in an online media release (http://www.acs.org.au/news/180905.htm),
not everyone can “match the low labour
costs in popular third party offshoring service
providers such as India, Philippines, and Poland” and these offshore
providers admit “they are seriously limited by significant skill-set
shortages and infrastructural inadequacies in terms of managing Analytics
processes.”
·
Minimal
Culture and Time Issues: An
onshore company can keep culture clash to a minimum, and time differences
don’t wreak havoc with schedules and communication.
·
Better
Completion of Projects: A
stable, mature onshore company with a good track record can give you the
security to know that your project will be completed. According to Rolf Jester, VP
Distinguished Analyst at Gartner in the online article “The Pros and
Cons of Offshore Outsourcing” (http://www.gartner.com/2_events/symposium/2003/asset_54356_1115.jsp),
“offshore code is delivered with perhaps only 85 percent of the code
complete, compared with similar work undertaken in mature economies.”
·
Ease
of Knowledge Transfer: Onshore
companies have a better understanding of your clients due to their
proximity and promote an easier transfer of, and reduced loss of, business
knowledge.
Four
Reasons Not to Go Offshore
·
Slower
Return on Investment: When you
go offshore, just because you save capital does not mean you lower your
costs. Hourly offshore costs may be
less due to a larger and less experienced staff which takes more time to
complete the work rather than a higher paid, more experienced, onshore
staff. Once project management
costs, hidden costs, and operational differences are included, some
companies realize little or no cost savings when they send work offshore. Cost savings for projects sent offshore
can take years to re-capture. According
to Jim Howard, CEO of CrownPeak Technology in the
online article “Catch the ‘Onshoring’
Wave” (http://www.aspnews.com/trends/article.php/3344651),
“Software services are often 50 percent or less the cost of installed
and internally managed software when outsourced here at home, while most
analysts predict between 15 percent and 30 percent cost savings from
overseas outsourcing. Moreover, overseas outsourcing projects can often
take years to capture cost benefits, given startup costs, knowledge
transfer and process issues. (Onshore) software services, on the other
hand, can often be live in weeks or months, and cost benefits begin to
accrue immediately. “
·
Decreased
Security: Offshoring
can lead to concerns for keeping data and intellectual property
confidential and for avoiding security breaches.
·
Lower
Savings with Smaller Projects:
Cost savings can be hard to find when sending smaller projects
offshore. According to Rolf Jester, "Indian outsourcers are claiming
they can provide savings of between 30 and 40 percent,"…."But
that is only if a project is large. For a small project, the relatively
minor savings are just not worth the risk."
·
Less
Safe Environment: Political and
economic instability in an offshore country can add another headache to a
project, and if problems arise, it may be difficult to get legal recourse
in a foreign country.
If we go back to our custom software application
example, you may find that a small, stable, onshore company can save you as
much if not more money than going overseas. Communication barriers, both
language and time zones, may be enough to keep the project onshore. If you are trying to work through custom
software application requirements, and you spend an unusual amount of your
time defining your market and transferring knowledge to your offshore
developers, you quickly start to lose the cost advantages of offshoring. Once
you have your custom software program up and running,
and you need a small change, or a quick upgrade, if you are going back to a
stable onshore company, you have a better chance of getting the quick
turnaround you need. If you have
problems with the application, getting help during US business hours is more
likely with an onshore company.
With an onshore company, you can get the cost benefits
of outsourcing without the risk of going overseas. You can be confident in your custom
software application investment by keeping it onshore.
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