Why We Picked China For IT Outsourcing - InformationWeek

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IT Leadership // IT Strategy
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9/17/2008
04:30 PM
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Why We Picked China For IT Outsourcing

The decision to outsource product development to China pays off for NeatReceipts.

After several years of strong sales, a growing worldwide customer base, and increasing competition, NeatReceipts reached a crossroads in 2007: Should we continue product development efforts in-house in the United States, or outsource some of these efforts?

Several factors spurred us to consider outsourcing. For one, we'd been trying to fill a number of open positions without much success. We manufacture products based on cutting-edge optical character recognition technology, and the engineering is complex and demanding. Product development cycles are short. However, because we're based in Philadelphia--not a technology capital--we don't have access to a broad pool of engineering talent. Outsourcing product development could potentially lower our development costs and get products to customers faster.

The decision to outsource some of our development was by no means an easy one. We wanted to keep strategic development onshore, close to our stakeholders, and use an offshore team to add skills that we have a difficult time hiring in the United States. However, we were wary of outsourcing because we had to safeguard our intellectual property, as well as customer and employee data, and weren't sure outsourcing partners could deliver high-quality work against an aggressive product development cycle. We also needed to ensure that we could effectively integrate an outsourcing partner into an already high-performing team.

After detailed discussions with our IT and business decision makers, we decided the benefits of outsourcing product development did indeed outweigh the risks. Of course, cost can't be overlooked when determining whether outsourcing product development is the right decision. An analysis of the numbers validated our decision to move ahead with outsourcing.

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Outsourcing development would be significantly less expensive than recruiting, managing, and retaining a team of U.S.-based engineers, but India is becoming increasingly expensive--with engineering talent on average costing about 75% to 80% of what we would pay onshore.

China is decidedly more affordable, with engineering talent costing about half of what we would have to pay onshore.

NeatReceipts competes globally with larger rivals, so the cost advantages of outsourcing our product development to China were compelling. We also thought that since we have manufacturing operations in China, it made sense to build a software development presence there.

In October 2007, we decided to outsource our product development operations to China.

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