Economics lured Hemant Kurande to look to India, his birthplace, for more affordable engineering talent. Three years ago his company hired two service providers to do some core programming for a line of storage management products.
The results were mixed, says Kurande, CTO of Storability. The providers built products that were suitable as prototypes for R&D, but not production. That gap put the burden on Storability employees to shore up the code.
"We were not getting the quality we wanted," Kurande says. "The offshore companies provided a high degree of innovation, but a lower degree of readiness to ship."
The root of the problem was a lack of knowledge on the part of the outsourcing providers. "The depth of storage expertise we needed was very difficult to find," Kurande says.
After maintaining the offshore arrangements for two years, Storability concluded that some work is best kept in-house. Kurande didn't give up on India, though. Instead, Storability set up its own office in Pune. It employs 25 people there and is adding about five employees per month. Having control over hiring, training and retention, as well as product development processes, makes a big difference, Kurande says.
Storability is not alone in reevaluating offshore outsourcing plans that fell short of initial expectations.
In recent months, a handful of big-name companies have decided to return certain offshore work to the U.S. Insurer Conseco Inc. recalled its customer service operations as it worked to emerge from bankruptcy. Following complaints about the quality of service, investment bank Lehman Brothers Inc. canceled an offshore help desk engagement. Similarly, Dell Inc. brought back a technical support centre after corporate clients complained about communication and service.
About 21 per cent of IT executives surveyed recently by management consulting firm DiamondCluster International Inc. said they had prematurely terminated offshore arrangements in the prior 12 months. The most common reasons cited: the provider had financial difficulties; the provider failed to deliver on commitments; or the buyer consolidated its outsourcing vendors.
Nonetheless, the amount of work coming back is a trickle compared with the flood of work leaving U.S. shores.
The availability of lower-cost technical labour in countries such as India, Russia and the Philippines is winning over resource-strapped U.S. businesses. In the DiamondCluster survey, 86 per cent of respondents said they expect to increase their use of offshore outsourcing over the next 12 months, up from 32 per cent in 2002.
But analysts agree, satisfaction isn't guaranteed. Companies offshoring are more than twice as likely to be dissatisfied with the relationship than those using national service providers, according to AMR Research Inc.
A big part of the disenchantment stems from inflated expectations. In particular, cost savings are frequently overestimated.