IT Leadership // IT Strategy

Outsourcing: Why Onshore Vs. Offshore Isnít The Right Question

Well publicized offshore outsourcing challenges, a narrowing labor-cost gap, and political considerations have some aggressively promoting onshoring. But they're missing the point.

Percentage of Outsourced IT Operations

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User Rank: Strategist
11/30/2013 | 10:10:54 PM
SMART Assessment
When you frist consider or even entertain the thought of outsourcing, it is because you or your organization lack the knowledge or resouces (facts, information, and skills). The goal then is to bridge the gap between the lack of and the desired outcome. The two main hurdles to me are:
  • Deficiencies of the individual enterprise staff involved
  • Incomplete or poorly designed processes/policies

Having clearly defined objectives and well designed processes / policies are a must. The process of outsourcing shouldn't be based on who's the cheapest and who will get something to you the quickest. The process should be based on solid business principles.. Yes the Overseas developer is $8/hr but is that a SMART decesion? The questions of:
  • What is the Project Goal or desired result (who, what, when, why and how)?
  • What is the timeframe?
  • How can quantify (numericallyor descriptively) completion?
  • What skills and resources are necessary?
  • Are you prepared to deal with the commitments, contracts, laws, ect.?

All these questions must be answered honestly. You have to be realistic in your assessment. How much will the $8 Developer really cost you if you have project overruns, a breach of contract or any other issue? Finally, the question of when will project be completed and fully functional?

SMART Sourcing is what you should consider.. I hope that's not a brand (Not endorsing them , if so). By SMART Sourcing, I mean you should source your project based on SMART Goals and Business Objectives. Don't be drawn in by "Rhetoric" (i.e. Made In America). If "Made In America" isn't best for your business and operation model, find what is most effective and efficient for you.

Case and point: - I'm sure it was a good idea at first until the overruns and other issues started creeping up.
hst andre840
hst andre840,
User Rank: Apprentice
11/27/2013 | 1:10:55 PM
Compliance for OffShore vs OnShore
One other item - if you are dealing with governments both state and federal, you may be required to only allow US citizens to be able to access the associated systems and data.

This creates obviousl conflicts for companies employing offshore entities.
User Rank: Apprentice
11/26/2013 | 5:40:14 PM
Re: Reshoring - A Key Factor In Solving Our Nation's Economic Problems
While I agree with Sandy that "Reshoring, producing more of what we consume, is a key element in solving our nation's economic problems", I am realistic enough to know that corporations exist only to provide a return to the shareholder and not solve the nation's problems.

The issue then is how can we provide a value proposition that makes the corporations "reshore". Here is one approach:

No matter which shore, managing software applications development projects continues to be challenging.

The biggest cost driver in app dev is the cost of finding and fixing bugs(i.e. scrap and rework). More than 60% in many studies. The impact of poor quality app dev processes are:

1.The work is not predictable. The buyer's costs for managing the vendor and the project escalate. Unfortunately, most organizations neither track these costs nor allocate them to the project.

2. A significant cost factor is in user acceptance test. Even modest size systems take months to go through acceptance test with most of the cost on the buyer's side.

3. A culture of "Deliver now, Fix later" resulting in almost 80% of the maintenance spend for corrective maintenance (fixing bugs found in production use).

Our company offers value to the corporations by:

1. Delivering extremely high quality on predictable cost and schedule

2.  Reducing scrap and rework cost to less than 10% of total app dev cost.

3. Staffing project teams with more than half the team members straight out of college and mentored  by our senior staff to do quality work

4. Providing guarantee that user acceptance test time and cost will be orders of magnitude lower

4. Providing  lifetime warranty against defects found in production use 


User Rank: Author
11/26/2013 | 5:04:31 PM
Re: Reshoring - A Key Factor In Solving Our Nation's Economic Problems
First there was offshoring, then onshoring, now there's "reshoring"? What next -- dinahshoring?
User Rank: Apprentice
11/26/2013 | 10:55:03 AM
Reshoring - A Key Factor In Solving Our Nation's Economic Problems
Reshoring, producing more of what we consume, is a key element in solving our nation's economic problems. Reshoring has grown rapidly since 2010 and offshoring is slowing to the extent that the two processes are about in balance for the first time in decades!

Many companies that offshored originally didn't really do the math. As many as 60 percent of the decisions were based on miscalculations.

Most companies tended to make sourcing decisions based on the wage rate or the landed cost, and leave out 20 or more other categories.

In analyzing offshoring, firms must get beyond calculations focused on short-term profit such labor cost and incorporate the total cost and risk of international supply chains.

The not-for-profit Reshoring Initiative's free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring.  In many cases companies will find that, although the production cost is lower offshore, the total cost is higher. TCO Estimator

Readers can help bring back jobs and increase profitability by asking their companies to reevaluate offshoring decisions. Suppliers can use the TCO software to convince their customers to reshore. 

You can reach Harry Moser, founder/president of The Reshoring Initiative, at  |

Read ReMaking America AAM's new book on howmanufacturing may see a new dawn in America along with wealth and growth opportunities. Harry Moser wrote the chapter on Reshoring.

User Rank: Author
11/25/2013 | 5:47:52 PM
Re: Sabotage?
The question I hear a lot is "can this outsourcer innovate?" The outsourcer's incentive is often to keep status quo and not to re-invent a process in a way that slashes staffing and costs.
Lorna Garey
Lorna Garey,
User Rank: Author
11/25/2013 | 5:28:26 PM
Re: Sabotage?
Re "I do take exception to the "fox guarding the henhouse" comment."

Would it help if I said I am a fan of foxes? They're clever and adaptable creatures that live by their wiles. Sounds like some IT pros I know.

Hens, on the other hand ...
User Rank: Ninja
11/25/2013 | 4:10:13 PM
Re: RealityCheck
Cheader, I think you mean 1.2 billion. And yes firms that manage to get the equation right are successes, whereas firms that just offshore for the act of off shoring are just a random success or failure. And it is exactly these limiters for example the availability of good universities in developing countries that is keeping off shoring limited, and they are many limiters, but if these limiters disappear then off shoring would only speed up.
User Rank: Ninja
11/25/2013 | 3:58:06 PM
Re: Sabotage?
I feel if we look at any economy then they will be a population distribution where technical capability falls into a set percentile, if graphed then we will see the bell curve. Some economies might have for example 100,000 individuals in the 99th percentile while others might have 200,000 individuals with the same technical skills.

If a firm only has enough resources to hire local/technical capable individuals of the 50th percentile, finds an offer that will result in 60% saving by off shoring and ends up hiring individuals that fall into the 20th percentile, then yes money will be saved but service would be gone. However, if the same firm found an offer that resulted in a 1% saving but individuals were of an equal capacity or higher, that's when things work out, complicated yes, but definitely possible if done right.

Countries that have developed economies are all trying to get these savings. Recently, I have seen France and Germany (among many others) reach out to South Asia and elsewhere, Germany's Ambassador even said that for every $1 earned by export, 60 cents where from importing services and material. Firms in an economy are also competing to get their hands on cost efficient products and services. If everything is ignored then the business next door or the country next door will continue to be better off.


User Rank: Strategist
11/25/2013 | 1:04:45 PM
Re: Sabotage?
Ms. Garey,

I do believe you're views have some merit but as an experienced IT professional I do take exception to the "fox guarding the henhouse" comment.  IT has many functions, and when it comes to our corporate systems we must guard the henhouse whether you're a fox or a chicken. 

I've seen first hand how outsourcing works.  Through my own customer service experiences with our local electric utility to software vendors who have gone almost exclusively offshore.  Quality suffers, communication suffers, and eventually your business will suffer.

In the case of my electric utility, I finally got fed up with the inability to understand the individuals who were answering the phones, I have to admit to having a Texas accent but can understand people from Hawaii to Maine with ease, I finally dumped them and went with a competitor not only for the better cost but because their customer service was far superior. 

The software vendors are difficult as well to work with due to the various time zones and the churn of email responses that can take an issue that could be corrected in hours to weeks.  Cultural differences are an issue as well, what may be an emergency on your part isn't viewed as such in other cultures.

Lost productivity, poor customer service, poor communication skills all add up to bad business and has caused many people to question our need for these services when we have more than capable graduates coming out of our own universities that can't find jobs with a livable wage.  This is because those jobs are now done by someone in a foreign country living on their cost of living and a salary that is far inferior to our own.  Yes it costs more but you get what you pay for.

Are there exceptional individuals in countries outside the US? Absolutely, but not enough of them to outshine the ones who aren't.
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