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"Outsourcing" The Competitive Edge versus the Offshore Controversy

The Competitive Edge

Local and state agencies today are faced with severe budget cuts, and turn to outsourcing as a solution. From Fortune 500 companies to the smallest of business owners’, companies are looking for ways in which to keep afloat. Many of which, are aware of what outsourcing has to offer, while others are just learning what it’s all about.

Outsourcing – Can it meet Your Needs?

Outsourcing is the reassigning of duties or obligations to an outside person or persons. When outsourcing is carried out, a business can then regain routine procedures that can work hand-in-hand or parallel with an outsourcing project. The management of the project can remain the sole responsibility of the original business or can be put in with the rest of the outsourcing project needs. Outsourcing can bring a much needed consistency to a project, and can even affect cost structure. When outsourcing, just a portion of a project may be outsourced, or the entire project, all of which depends upon the needs and resources of the business.

There are several conditions in which a business may consider outsourcing. The most common functions that are considered for outsourcing, usually originate from the Information Technology Department. Since IT can become rather specialized, companies tend to outsource functions to keep costs down. Making the decision to outsource often depends upon the severity of a given problem or circumstance, along with the availability of outside resources to perform the task at hand.

Considering the high costs of Information Technology, some companies may not even have an IT department. Outsourcing allows businesses to be relieved of the duty of keeping up with the latest and greatest technology available, without having to spend a lot of extra time and money on the learning curve of educating employees. A few IT circumstances that businesses would consider outsourcing are:

  • Business is not keeping up with competition along the lines of changing technology
  • High personnel turnover
  • IT budget unaffordable or unpredictable
  • Not ready for ‘eBusiness’
  • IT and business focus not consistent
  • Runaway IT projects and missed delivery dates
  • Documentation unavailable for repeated or measurable IT strategy
  • Availability of world wide standard hardware and software platforms
  • Communication through the use of the Internet
  • Availability of on-line data processing from remote locations

Planning for outsourcing may often take a considerable amount of time, so one should plan ahead for upcoming projects, or have a backup plan if the need should arise for IT outsourcing. IT outsourcing can become a very important part of a company’s successful structure.

The Offshore Controversy

With all that can be gained from outsourcing, the controversy lies not in, if one should outsource, but, where to outsource. If a U.S. company chooses to outsource out of the United States, Are you hurting anyone by doing so? Outsourcing, is it the root for stealing high-paying U.S. IT jobs, or does it represent high quality IT talent at lower prices? As the controversy continues, the world is seeking the answers to these vary questions.

The following twenty-eight states have legislatures now seeking to ban offshore outsourcing for state agency contracts.

  • Alabama
  • Arizona
  • California
  • Colorado
  • Connecticut
  • Georgia
  • Hawaii
  • Indiana
  • Illinois
  • Iowa
  • Kansas
  • Maryland
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • Nebraska
  • New Jersey
  • New Mexico
  • New York
  • North Carolina
  • Rhode Island
  • South Carolina
  • South Dakota
  • Tennessee
  • Vermont
  • Virginia
  • Washington

These proposed laws stipulate that employees of a contracted company must be US citizens, or at least have the ability to work in the U.S. legally. Other state and local governments facing budget cuts could consider offshore outsourcing. On the bidding circuit nowadays, most RFP’s now have stipulations that require the job be completed in the United States.

Negative press towards offshore outsourcing has many jumping on the “no overseas outsourcing” bandwagon, at least for now. On the other hand, some may compare prices and feel the savings is worth the risk. If one leads, then others may choose to follow.

The number one reason to outsource in general is to save money, so if outsourcing offshore will save even more money, then why not do it. There are several reasons why there is a cost difference between U.S. workers performing an outsourcing project, and offshore workers. The cost for application development is lower because programmers in foreign countries are paid from a much lower pay scale sometimes even three times lower than their American counterparts.

A large misconception of offshore outsourcing, is that lower wages equals large savings. Often time’s companies don’t look at the ‘big picture’. Companies may not take into consideration other costs associated with offshore outsourcing. The savings that are generated from the difference in employee wages is often decreased by other aspects of offshore outsourcing.

One of the questions one must ask before offshore outsourcing is: How effective can long distance communication be? Will cultural differences along with the geographic distance between the companies cause any added expense? Many times interpretation of instructions itself can be difficult, when different language barriers are added, those instructions could become confusing and could result in added costs. The effectiveness of the external service provider (ESP) whether it is a few hundred miles away or thousands of miles away will depend on the experience of the ESP, technically and managerially.

Project management and business domain also depends on the geographical difference. Different time zones could pose communication problems, and essentially electronic communication becomes the sole source of communication. One is left to then build a relationship and trust without ever meeting eye to eye. How effective is this way of communicating? The measure of effectiveness from this type of arrangement, could possibly take a portion of the savings from the lower billing rates.

Besides the communication issues with offshore outsourcing, the U.S. is now facing educational hurdles. Recent studies have indicated that the IT professionals in the United States are falling behind in technology. At one point in time, the U.S. was ahead of the technology game, but has since struggled to keep in the race. The number of IT professionals offshore far out number their counter-parts in the United States. For example, in 1986 India only had an estimated 6,800 skilled IT workers by the end of 2002 their number had risen to approximately 520,000. By the year 2008, it is expected that there will be 17 million skilled workers.

Not only is the U.S. outnumbered, but the skill sets have fallen behind. IT professional in U.S. schools have been setting their technology goals toward graphical appeal to entice the on-looker to be pulled into the website. Today’s skills that are lacking, are the skills needed to do a portal such as basic programming languages, data architecting, architecting portals and understanding all of the underpinning of IT. Given the fact that American’s started returning to school for the needed skills to compete in today’s job market, they won’t graduate in time to fill all the job opportunities that are being sent offshore anytime soon.

Residual Effects of Offshore Outsourcing

Many questions are left unanswered, such as: With the growing controversy over offshore outsourcing, could a ban on offshore outsourcing or added taxes bring a negative impact on U.S. exports to foreign governments? Or, will other countries continue to purchase from the U.S. if there is such a ban? The certainty of the long term outcome of this situation is not clear. There are so many questions left unanswered when it comes to offshore outsourcing. Outsourcing has become part of capitalism, in which capitalism is strictly for profit; one seeking out the cheapest market price for the best commodities, while global capitalism is about efficiency.

One side of the controversy insists offshore outsourcing will create jobs, while the other side views outsourcing as a loss of American jobs to other countries. Creating jobs and purchasing goods and services here in the United States, is a growing concern of many Americans, especially those within the IT industry. Outsourcing can be a power tool when used in the right environment. No matter which side of the fence your opinion sits, there seems to be no end in sight for this controversy.