Is I.T.Offshore Outsourcing Really Cheaper?

Recently, it seems there have been an abundance of articles about how I.T. offshore vendors will be receiving more business because of the perceived cost benefit of hiring overseas labor. The underlying conventional wisdom in these articles assumes that offshore outsourcing is always cheaper then U.S. based knowledge workers.

The time has now come to challenge conventional wisdom.

While rates overseas have been rising, U.S. rates have been falling. In addition, more and more I.T. executives are talking about productivity issues (in addition to other hidden costs) when they go overseas. For example, if they cut a U.S. based Java developer, they may have to hire 2 to 3 overseas to get the same output. Combine that with overseas rates ranging from $24/hr to $29/hr, and the labor arbitrage is not nearly as attractive as it once was. And if we’re not saving money, then what’s the point?

As the article “The Battle For U.S. Tech Jobs” illustrates so well, the U.S. based I.T worker is finding ways to compete. Synergroup Systems is proud to have lead the way, providing a cost competitive offshore outsourcing alternative for over 6 years.  If you’d like to know more about our “Homeland Onshore Model” please email us at  inquiry@itonshore.com, or visit our site at:   www.ITOnshore.com.

Are There Domestic Employment Alternatives To Offshore Outsourcing?

Nothing travels faster than light, with the possible exception of bad news, which follows its own rules. ~Douglas Adams …

I must admit, it’s been hard to pick up read the business section the last few weeks.  Day after day, we’re being barraged with news about lay-offs, poor earnings, and irresponsible (or just plain stupid) executive behavior.

Today I came across an article that really helped to me to crystallize my thoughts about how we can keep jobs here without becoming protectionist.  According to an article in InformationWeek  dated February 2, (IBM Offers To Move Laid Off Workers To India) IBM has implemented something called “Program Match”.  Basically it’s a program whereby laid off  U.S. IBM workers can apply for offshore jobs in countries like India, China and Brazil.  Relocation assistance would be provided.  The article goes on to state that if selected, the employees  ”will be paid according to prevailing norms in the countries to which they relocate.”  

The story got me to wondering:  Do U.S. corporations have any responsibility to mitigate the work they send overseas, assuming that U.S. workers are willing to be competitive or flexible?  Given the millions of lay-offs now taking place in this country, isn’t it possible that U.S. workers would be willing to accept less, rather than losing their jobs entirely?

Put another way, Is there a domestic employment alternative to offshore outsourcing? 

When the total cost of ownership for overseas labor is taken into account (Blended rates, travel time, turnover, dollar devaluation, rework additional management oversight etc.) one might be surprised to find out that the U.S. Knowledge worker might be within striking distance of being very competitive.  With that in mind, here are some concepts worth considering before you decide to go overseas:

1. With 10% plus unemployment expected by the end of 2009, extremely motivated, reasonably priced domestic IT  talent is close by and ready to listen.  Many IT professionals are very flexible and in some cases, open to a virtual office employment at reduced compensation levels.
2. Due to the strained economic climate, there may be  numerous dislocations of experienced and talented knowledge workers within the U.S.  Prime examples are the auto industry migration to the South and the financial industry in the Northeast.  What about the collapse of retail over the past year?  Vast layoffs in the retail sector have created pockets of available talent in many areas of the country. These are resource opportunities that can result in large cost savings within a corporate budget.
3. Depending on size and scope of the resource requirement, regional cost effective solutions may only be a virtual office away.   Imagine experienced and talented reduced rate resources that can be occasionally available on-site, while most production is completed on a remote basis.

So rather than displacing, laying off  and under utilizing our nation’s intellectual capital, maybe what we should be doing is asking whether they would be willing to make a few adjustments.  For example, if a company is willing to relocate some one to India, why not relocate them to a lower cost of living area right here in the U.S., and adjust their pay accordingly? Such actions may offer one solution to the accerating unemployment gripping this country while at the same time support potential growth areas in the U.S.  

There is no doubt that these are tough times, and lay-offs and terminations are as unfortunate as they are necessary for a companies survival.  However, there are domestic alternatives to offshore outsourcing.  With a little creativity, we can impact our growing unemployment issue.  Before  making an unconscious leap into the “swirling offshore waters”, consider how a homeshoring alternative such as the “Homeland Onshore Model”  might work for your organization.  You  may be pleasantly surprised at the comparative risk-reward ratio.  

If you have any thoughts on onshore vs. off shore, we’d love to hear your comments. 

The Satyam Scandal: The Catalyst For Offshore Jobs Returning?

Trust only movement.  Life happens at the level of events, not of words.  Trust movement.  ~Alfred Adler

The bombshell dropped by Satyam chairman Ramalinga Raju is undoubtedly sending another shock wave across the Pacific and directly into U.S. boardrooms (Click Here For Article).  For the second time in less than two months, a major event that has implications for the offshore outsourcing industry has made international headlines.

While no one can exactly predict what affect this will have on the Indian offshore industry, one can probably surmise with some certainty that U.S. executives will begin to take a hard look at their own offshore vendors and strategy.  Just three months ago, Satyam received the Golden Peacock award, given for excellence in corporate governance.  Makes you wonder what changed so dramatically in such a short period of time.

There’s little doubt that this will shine a bright light on other major offshore vendors regardless of the country of origin, and given the rising unemployment in the United States, the timing couldn’t be worse for these companies.  

That being said, the U.S. worker may have just caught a huge break.

What We See In Our Crystal Ball 

As unemployment rises, offshore outsourcing will draw the ire of many in the U.S.  Should the deflationary trend continue for the foreseeable future, many skilled but unemployed workers will be willing to work for considerable less then what they previously earning.  Furthermore, companies located in expensive metropolitan areas will consider utilizing remote workers to fill many of their previously outsourced positions.  This will allow firms to enjoy the benefits of lower cost jurisdictions across the U.S. at prices competitive to what they used to pay offshore vendors.  The employment costs will be offset even more by the tax credits the hiring firm will enjoy (for hiring U.S. workers) courtesy of the Obama administration.  The early adapters of this strategy will have the added advantage of a major PR coup.  Soon, it may seem like a contest to see who can bring the most jobs back home. 

The Homeland Onshore Model Has Already Proven The Point

Our “Homeland Onshore Model” has demonstrated that domestic remote sourcing can work, saving our customers up to 60% over fully burdened FTE costs. The remote model has the extra advantage of being very “Green”, and will do wonders for the life/work balance.

Do You Have A Contingency Plan?

The Homeland Onshore Model is an excellent alternative to Offshore Outsourcing.  In addition, it can be strong part of any contingency plan that calls for repatriating jobs in a hurry.

For more information on the “Homeland Onshore Model” and how it can work for you, please visit www.ITOnshore.com.

Offshore Outsourcing Predictions For 2009

“When our attitude is right, we can see things more clearly. It’s then that we realize that we are all walking on acres and acres of diamonds, right in our own backyard”. – The Moral To The Acres of Diamonds Story

When it comes to offshore outsourcing, we have little doubt that significant changes are coming. Here are some predictions of how things may play out for I.T. offshore outsourcing in 2009.

“U.S.A. First” Will Stage A Comeback

When the offshore trend first started to emerge around 2001, we saw some outrage regarding offshore outsourcing, especially in the I.T. sector. However, given the low unemployment rate and the fact that the 2001 recession was not broad based, that sediment was short lived. In 2009, we are faced with an across the board deep recession, impacting every segment of the economy. It would be naive to think that when faced with 9% to 10% unemployment, the country and it’s leaders will look kindly upon jobs continually streaming overseas, especially when American workers will be willing to work for much less.

The Obama Administration Will Focus On Offshore Outsourcing

It’s highly likely that the Obama administration will be taking a hard look at offshore outsourcing. While it’s doubtful that protectionist policies will be put into place, it is probable that incentives will be implemented which will encourage companies to bring jobs back. To the extent that any tax incentives did exist that supported offshore outsourcing, those will be identified at and probably dismantled.

Companies Will Start Looking At All Offshore Outsourcing Related Costs

Recently, we’ve noticed that our clients have been becoming more aware of the actual costs of having offshore workers. One client told us that he let go of over 20 resources because the vendor was getting too expensive (dollar devaluation). Others have shared with us that they are starting to pay attention to “hidden costs” such as travel expenses, rework, actual blended rates and onshore staff involvement. Executives are also looking at productivity and quality issues.

Global Uncertainty/Instability Will Create A Need For Contingency Planning

The tragic events that occurred in Mumbai in November serve as a not so subtle reminder that many offshore destinations can be dangerous places, and subject to events that we cannot control. Many companies will begin to look at near shore or onshore locations to hedge exposure to unforeseen events. In addition, companies will need to develop contingency plans (probably using onshore resources) in the event that their offshore development centers become inoperable.

As Salaries Stagnate, Many Companies Will Look At Onshore Alternatives

As the Unemployment figures continue to rise throughout 2009, salary growth will slow and in some cases reverse. This will create opportunities for employers to utilize domestic talent at prices not seen since the late 80′s to early 90′s.

Companies Will Take Advantage of Technology to Save Costs.

One way to lower costs will be to utilize talent that lives in lower cost areas throughout the U.S. Deploying remote workers and letting them work from home will not only save significant salary dollars, but also saves a tremendous amount on real estate related overhead costs. Our “Homeland Onshore Model” has demonstrated this can work, saving our customers up to 60% over fully burdened FTE costs. The remote model has the extra advantage of being very “Green”, and will do wonders for the life/work balance.

While 2009 will probably be a very challenging year, it will also create opportunities to get people back to work in a different way. We have acres of diamonds right beneath our feet. It’s time we picked them up and enjoyed them for all their worth.

For more information on the “Homeland Onshore Model” Please visit www.ITOnshore.com.

Offshore Outsourcing Risk: What’s Your Contingency Plan?

“There’s no place like home”   – Dorothy, The Wizard of Oz

The tragic events that occurred in Mumbia last week have rekindled an issue that seemed to have been set aside since the acceleration of offshoring began earlier this decade.  Simply put, that issue is risk.

Articles like this one from Workforce Management:  “Attacks in Mumbai Could Force Execs in U.S. to Rethink Outsourcing Plans”, make the point that the risks associated with moving jobs offshore are real and growing more complex than could have been anticipated years ago.

A recent report by the TowerGroup suggests that companies may now be taking political risk into consideration as part of their offshore decision making process. (MarketWatch December 3, 2008).

Political and financial instability created issues that probably were not factored in when the original decision to move jobs overseas was made (probably by different executive teams) earlier in the decade.  And while experts seem to agree that the Mumbia terrorist attacks probably won’t result and any loss of outsourcing business, it may serve as a wake up call in many board rooms across America.  One way this may manifest itself is in the area of contingency planning.  Contingency planning (in the event the jobs had to be brought back quickly)  may have been set aside in the past because the perceived risk at the time was low.

U.S. Workers Should Be Considered as Part Of Any Contingency Plan

While other offshoring venues around the world will certainly be taken into account, we’d like to suggest that companies should also consider the possibility of bringing at least some of those jobs back to the U.S. as part of any contingency plan. Given the rising unemployment in this country, and the large cost of living discrepancies that exist between cities and outlying areas, companies could hire U.S. workers, let them work remote and still show a significant savings over original costs.  In fact, when all the cost of offshoring are taken into account, companies may find that this approach may actually be preferable to their current offshore operations that require interaction from U.S. business units.

Utilizing our Homeland Onshore Model (HOM), we have been able to successfully demonstrate just how effective this approach can be (Savings up to 50%).  Given the growing issues here at home, we believe the timing is good for U.S. based firms to look within our own borders for creative cost saving answers.  Right now, our country needs to keep people working and stop the cycle of  demand destruction that goes with rising unemployment.

Who knows, the jobs they save just might be their own.

For more information on the “Homeland Onshore Model” Please visit www.ITONshore.com.