Outsourcing Growing Beyond India

PreacherTom writes "One of the most controversial aspects of the global economy has been the newfound enthusiasm of companies, freed from the constraints of physical location, to outsource jobs. No country had embraced tech outsourcing with more passion than India. Of late, problems are beginning to arise in Indian outsourcing: engineers will start a project, get a few months' experience, and then bolt for greener pastures. The level of attrition can cause the turnover of a project's entire staff within the course of a year. Combine this with salaries in Bangalore that are rising at 12% to 14% per year and it is no surprise that companies are looking beyond India to a slew of emerging hotspots for IT, such as Brazil, China, and Vietnam. Will Ho Chi Minh City be the new Bangalore?" From the article: "India remains an IT outsourcing powerhouse, with $17.7 billion in software and IT services exports in 2005, compared with $3.6 billion for China and $1 billion for Russia... India's outsourcing industry is still growing at a faster pace than that of... other wannabe Bangalores... By the third year of an outsourcing deal, after all the costs have been squeezed out, companies get antsy to find a new locale with an even lower overhead."

Comments

What did they expect?

[dctoastman]

When people find out what they are worth, they start demanding it. Pretty soon, the entire world's IT population will be high-salaried, no matter where you go.

Re:What did they expect?

[Afty0r]

As long as money, products, and information are free to traverse national borders but people aren't, tehn as soon as one region wises up and starts demanding what they are worth, the megacorps will simply move on to the next desperate region. They will let the uppity region become poor again before moving back in.

It's not a zero-sum game.
"Desperate" is a very relative measure, and as India, China and other countries in the Asian sub continent improve their wages, education and quality of life to make greater wage demands, where will the multinationals go? And do you think those that have gained skills and wealth will suddenly drop back into subsistence farming, or maintain at least some quality of life? You know, after SE Asia is raised above the poverty levels it currently has, there isn't a great deal of the worlds populace left to exploit for 10 cents a day... and most of it is in Africa.

Keep the work moving, keep employing new people in new countries, and we might, JUST MIGHT even out the worlds wealth distribution a little.

Outsourcing is bad

[Marxist Hacker 42]

But turnover is the real project killer. But what did they expect? Worker Loyalty after they proved that they had no loyalty? The strange part though is how this infects EVERYTHING- I moved to government for stability, but my sub-sub-department of application developers has a 26% annual turnover rate; for the simple reason that in America we've destroyed the loyalty of the workforce! Now we're doing the same in India. If you treat people like widgets, expect them to act like widgets- and move to the most ecconomically efficient place for them to be.

We haven't figure out how to make India work...

[loony]

So, now that management has run out of ways to prove that their plans work they will find a new, even cheaper place... good luck with that.

So far I have not come across many Fortune 500s where outsourcing actually worked in the end - that means not just a lower rate but comparable quality. There are plenty of CxOs that announce how much money they saved and all, but if you talk to the techs they almost consistently have another story to tell. For each 100 hours of outsourced work I estimate the average will be about 40 hours of US time to review and fix the programs... And those 40 hours will eat up all the cost savings you had in the original 100 hours. Its sad - but in the end for a million line codebase that has a certain quality, it doesn't really matter where you do it - the cost will be the same... The only ones that have a big advantage there is the russians. No idea why but their quality is usually better than you find anywhere else and the prices are reasonable too.

Before outsourcing, look beyond the hourly rate and consider skills. Then analyze your savings after the project has been in production for a while - and check if your expectations actually came true.

Peter.

Wow...irony

[Shoten]

I'm in China at the moment, actually, about to go to a second site here. My purpose? I'm looking at the security of two vendors who are competing for a financial BPO (Business Process Outsourcing) contract with a major corporation. This is my first look at outsourcing up close, and I can see why companies examine the option. Yesterday I looked at a BS 17799 and SAS 70-certified facility, with smart people who cost far less than their counterparts. Also, there was discussion about turnover in India.

Outsourcing is definitely here to stay, but from what I have seen, cost is not the only factor that gets considered these days. (At least, not by the client I'm working for.) They're looking at the whole package, but the biggest thing that has mattered so far are the tools and functionality that the outsourcing provider can bring to bear. At the end of the day, it'll be functionality that matters the most, especially as labor costs in markets like India and China grow. But don't make the mistake of thinking that in such countries lower cost is all they have to offer, because that's not necessarily the case; the provider I visited yesterday had a hell of a great system for handling the complex financial functions that are a main pain point for my client.