At Nielsen Media Research Inc., the TV and radio audience measurement company, offshore outsourcing plays a part in nearly every link of the product chain. But it's not the whole chain.
"We choose to outsource a lot of different things, but we manage these projects as if there's a single staff made up of three groups — an offshore team, an onshore team and a core group that remains internal to the company," says Nielsen CIO Kim Ross. In so doing, Nielsen is pioneering a new and more selective approach to outsourcing that relies less on transferring IT jobs abroad and more on using overseas talent in tandem with IT personnel stationed closer to home.
Offshoring is growing
By all accounts, more companies are shifting IT functions overseas. AMR Research Inc. reports that 20 per cent of U.S. IT organizations already have moved portions of their technology services offshore. Gartner Inc. says the real percentage is twice that and will jump to 80 per cent of large corporate IT departments this year.
"The reason for this growth is really quite simple," says AMR researcher Lance Travis. "Cost savings from offshore outsourcing are too compelling to ignore."
The savings come from farming out work to places such as India, China and the Philippines, where programmers are paid as little as US$10 per hour. The salary differential between developers in the U.S. and similarly skilled professionals in countries where wages are significantly lower can mean annual savings as high as 50 per cent, according to James Brewer, vice-president of global services delivery at Keane, a provider of application outsourcing services in Boston.
Michael Doane, an analyst at Meta Group Inc., says the savings is closer to 15 to 20 per cent. "The biggest mistake companies make is to assume that their savings will match the salary differential," he says. "There are other expenses that need to be taken into account, such as the cost of additional project oversight, communications and travel."
But the advantages of offshore development go beyond simple cost reduction. "For new development projects," Doane says, "taking a follow-the-sun approach allows the work to proceed 24-7. Completed work can be reviewed and next steps planned during the onshore cycle, and then coding can move forward during the offshore cycle."
Known as global sourcing, globalization or the global virtual resource, this development model generally involves three groups of IT professionals working closely together: company employees who can work face-to-face with users and translate business requirements into technical specifications; third-party developers who work in the U.S. or in Canada (where wages are lower than in the U.S., but not nearly as low as in a country such as India) and share the same time zone with the internal team; and offshore personnel who perform a variety of functions at a fraction of what it would cost in the U.S.