Offshore Outsourcing's Cost-Effective Edge

Renewed tension between Pakistan and India or escalation of military action in the Middle East might cause a reassessment of offshore outsourcing, but for now businesses are exploring IT services vendors beyond U.S. borders as a cost-effective way to manage select IT initiatives.

Application development, maintenance, and testing make up the lion's share of offshore operations, according to Gartner's report, Demand Analysis Of Offshore IT Services. Software testing and IT consulting also are popular. Some companies depend on offshore providers for general IT support, but they're less likely to hand over their business processes.

Price and resources are key considerations, but maturity of an outsourcer's business processes and practices is the biggest factor when selecting an offshore provider.

The person in charge of the relationship "may need additional training. IT divisions are used to handling project manage- ment, not relationship management," says Jarnail Lail of W. W. Grainger in "Panel Warns Of Pitfalls In Offshore Outsourcing" (April 5; informationweek.com/882/outsourcing.htm). That's insightful, considering that managing communications is the biggest challenge for users of offshore IT services.

InformationWeek is hosting a series of events on offshore outsourcing in December. To learn more, E-mail us at the address below or visit informationweek.com/events.

Peter Weiss
Senior Managing Editor, Events
[email protected]

Not Just Yet
What are your company's planned offshore IT services initiatives?

While application development and management are frequently farmed out to offshore outsourcers, there are some business functions that companies are less willing to send overseas. Of the companies Gartner interviewed, 10% report using an offshore outsourcer to manage transaction processing, and 14% have handed data integration and data cleansing to an overseas IT services vendor. Survey results indicate that there's little interest in expanding this reliance over the next six months.

Third-Party Help
Who manages your offshore relationships?

It's not surprising that IT divisions most commonly handle offshore partnerships. With their inside knowledge of IT protocol, legacy requirements, and company IT expectations, the choice makes sense. What's interesting is that some businesses remove themselves entirely from directly managing their offshore vendors. Instead of allocating in-house time to relationship management, these companies rely on middlemen and external services vendors to ensure that offshore relationships work.

Interesting Perspective
What's the employee mix of your company's IT services vendors?

Companies surveyed by Gartner report that slightly more than two-thirds of their IT services vendors' employees are in the United States, and 32% of the employees work offshore. This is likely to change, though, as more companies increase their reliance on services providers located outside the United States and as U.S. service providers increase their use of services companies and IT professionals situated abroad.

Improvements Needed
What challenges has your company encountered in offshore outsourcing?

Offshore outsourcing might still be in its infancy, but to ensure its growth, offshore vendors will have to improve two key areas of operations. When asked what has proved challenging in offshore outsourcing, companies report difficulty in getting their vendors to deliver projects on time and within budget. Considering that cost and speed are important drivers behind most offshore partnering, that's troubling for future outsourcing relationships.