Offshore Outsourcing – Common Beliefs and Facts

July 20, 2016 1:03 am | Updated 3 months ago.

In this 25th issue of D2E’ Newsletter, we examine five common beliefs relating to Offshore IT Outsourcing and what D2E believes are the facts. D2E, however, realizes that these beliefs can simply not be wished away. We also, therefore, discuss what factors are contributing to these beliefs even after the IT outsourcing industry has matured over the last 4 decades and what steps need to be taken to address the underlying root cause for these beliefs. D2E has also set up a discussion forum D2E RoundTable to discuss these and other aspects relating to IT Offshore Outsourcing.

  • Most IT companies outsource work offshore to reduce costs.

Fact – It is true that the primary objective of the initial IT outsourcing initiatives was to save cost and to some extent, given the current global economic environment and the uncertainties resulting from events like Brexit, the cost saving will continue to remain as one of the objectives. The primary objective for outsourcing, however, has now changed to global expansion and to add value in terms of capability and capacity. It is simply not possible for any organization today to build skills in all relevant technologies and even if any organization attempted to do so, with technologies changing at a rapid pace, re-skilling the staff will be a real issue. Outsourcing, in D2E’ opinion, is clearly a need rather than simply an option to be exercised by the companies to save cost.

  • A job outsourced to an offshore location is a job lost.

Fact – At the beginning of the IT offshore outsourcing wave in the early to late 1990s, management of both the customers and the vendor organizations worked together to ensure that not only there was no loss of job, but enough care was taken to ensure that there were no negative feelings as almost in all cases the customer personnel was moved up to more value-added jobs in core business areas, as the applications were outsourced to the offshore vendors. With the advent of Y2K and the resulting exponential growth in IT Offshore outsourcing, a number of organizations did not pay enough attention to these critical factors which, in turn, led many to believe that offshore outsourcing means loss of job and this, in turn, caused many companies to re-shore the functions that they had outsourced, taking the clock one full circle.

In D2E’ opinion, if the initiative is managed as it was envisaged at the beginning, then Outsourcing means increased efficiency for customer’ organization. There are, in fact, many economic reports indicating that every position outsourced by the USA, results in creation of 1.3x jobs in the USA, as the employees of the customer organization move into core business functions or managerial roles and, thereby, creating more job opportunities for the resulting improvements in efficiency of the organizations.

 Fact – Most companies that view offshore outsourcing as a tactical initiative to save cost would like to believe that they can simply send the requirements to the offshore vendor and the vendor should be able to deliver the software. In D2E’ opinion, such an approach is bound to fail.

Outsourcing requires active participation and engagement from both the customer and the vendor, more so in today’ environment when agile methodologies and DevOps are being used in most offshore engagements. D2E believes that if vendor selection has been done right, then both the vendor and the customer are jointly responsible for success or failure of the offshore engagement.

  • The government should do more to prevent outsourcing of jobs to offshore locations.

 Fact – Protectionism is isolationism and has a history of failure. In D2E’ opinion, an industry needs to be protected only during its incubation period. In a matured industry, like offshore IT outsourcing, the governments should give adequate freedom to the managements of these companies to develop and generate their own terms and conditions. This will bring more conviction to the engagement from both the customer and the offshore vendor and thus ensure the success of the engagements.

  • Free trade, free labor, and free capital harm the economy.

 Fact:  Economic freedom is necessary for economic growth, new jobs, and higher living standards. Governments do need to ensure that proper wage, IPR, and immigration-related policies are followed, both by the vendor and the customer. However, the imposition of undue restrictions on visa and other work conditions will have an adverse effect on the vendor’ ability to deliver successfully. It goes without saying that the offshore vendors on their part need to ensure that they create local employment in the USA and contribute to the economy of the USA, and maybe more needs to be done on this front.