Do offshoring’s benefits outweigh its drawbacks? – Part I

Cracks are appearing in the offshore sidewalk where IT jobs travel from developed countries to places such as India and Costa Rica. There is a plethora of problems that can offset or erase the cost savings of offshoring.

First, offshoring often results in lower customer satisfaction. Outsourcing firms will brag that their employees have excellent English skills, but the reality is often different. The resulting customer dissatisfaction can lead to fewer sales and lost accounts. Language is not just a call centre issue; programmers and engineers also have to communicate complicated concepts to their U.S. counterparts and customers.

Quality of service also can be lower. My husband knows this well. He has used and recommended Dell Inc. computers for years. Calling for service used to be a decent experience. However, when Dell switched to an overseas call centre, his requests for help went from a five-minute debugging session with an experienced techie, to a painful half-hour or more waiting patiently while someone read through a script of questions. His loyalty to Dell is seriously eroded.

Two years ago, Everdream Corp., an IT services provider in Fremont, Calif., shifted some of its work to Costa Rica, expecting to reduce its call centre expenses by 25 per cent. Instead, problems that should have taken five minutes to solve were taking an hour. Promises to call customers back went unfulfilled. Everdream also found that it took twice the number of workers in Costa Rica to handle the same tasks that were done in the U.S. Cost savings and quality of service suffered; productivity was worse.

Today, Everdream has phased out its Costa Rica operation and reopened its U.S. centres.

The New York Times recently reported on the experience of Bladelogic Inc., a U.S. designer of network management software. In the story, Bladelogic CEO Dev Ittycheria said, “The cost savings in India were three to one, but the difference in productivity was six to one.”

Indian entrepreneur Arun Shastry, founder, CEO and CTO of TotalETL, a data integration firm in Westford, Mass., also pulled the plug on overseas development. Shastry cited lack of employee experience, poor code quality and lack of IT project disciplines, such as design, documentation and project management, as some of the reasons for failure.

Then there are the arguments that offshoring U.S. jobs is unpatriotic and hurts the U.S. economic middle class. While a lot of rosy statistics about how offshoring is good for the U.S. economy are coming from industry groups such as the National Association of Software and Service Companies and the Information Technology Association of America, those statistics are based on some major assumptions — for example, that all the savings resulting from offshoring will be invested in new technologies — that may or may not hold true.

Even Gartner is recognizing the cracks in this trend, recently predicting that in 2004, one in four offshore projects will fail. Would you accept that rate of failure in your application code? Before you look your hard-working American employees in the eye and tell them they have to train their foreign replacements before being laid off, you might want to reconsider the business risks of such a plan.

Guyer is president of Alliance@IBM, Communications Workers of America Local 1701, a union of IBM employees. She can be reached at [email protected].

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