Date: 10.02.2004

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Indeed there are quite a number of advantages of offshore outsourcing:

Cost reduction and cost structure optimisation: is (still) one of the major driving force of outsourcing. In low income countries labor is cheap compared to wages in Europe or the United States. Companies often offer their services between € 5 - 35/hour. This, of course depends on a number of factors, such as the length and value of the project, number of people involved, qualifications, technology required and many others. Price is also influenced by marketing considerations or the potential of establishing a long term relationship. Beside labour, overhead costs are also often much lower in low income countries than in the USA or Europe. Further, by outsourcing IT processes, companies not only can lower but also re-engineer and optimise their cost structure. Certain fixed cost elements could be turned into variable costs, for instance. Outsourcing can also help to achieve more predictable cost levels.

Immediate access to technical staff: one of the advantages of off-shore outsourcing is the immediate availability of the required number of qualified technical staff. In the last couple of years in Europe we all had problems finding the right people at the right time ... or keep them with the company. Low income (or developing) countries often have qualified, well educated technical staff in abundance. Most companies we have visited in the last couple of years for technical positions only employ people with university degrees. These people often have many years of experience in various technologies, project management methodologies or vertical business domains. 

Immediate access to technology: technology changes rapidly. Following all the developments, even in one or two technology domains, is very time and resource consuming. Staff has to follow courses, learn the new technology, build libraries and gain experience before the newly introduced technology can be used efficiently. IT outsourcing can shorten the learning curve of new technologies and reduce cost spent on training.

Immediate access to business domain expertise: many ITO service providers in low cost countries have built up considerable specialised business domain expertise in various vertical markets. This type of expertise is quite expensive to buy in Europe or the US.

Focus on core competences: for many companies, large and medium size users of information technology, designing, developing and maintaining software or web sites, managing the IT infrastructure are not core activities, however they consume valuable time and resources. By outsourcing these, non-core, activities the company free up resources to sharpen its focus on core competences. 

Speed up time-to-market cycle: But how? Is it that software developers in low income countries develop software faster? That might be... but often for the same amount of money you would pay at home to your software development team you can have three to four times as many people (experienced and highly educated!) working on your project in a low income country. Multi-shift work might also speed up the time-to-market cycle and boost productivity.

Flexibility and scalability: In certain times flexibility and scalability becomes more important than saving cost. When IT spending is declining, projects are stopped or not even started it is quite difficult to convince the top management that the company needs 15 new IT technical staff. But (offshore) outsourcing provides flexibility and scalability not only in terms of people but also in terms of technology.

24 hour work cycle: it looks simple. While your staff is sleeping on the other side of the world 6 time zones away life is just speeding up after the morning coffee. There is a new trend, especially in customer care operation which is called "follow-the-sun". Imagine a global insurance company. When it is in the morning in the Far East, a customer care center in Manila provides support for those customers. As the day goes by and it is getting late in the Philippines, Europe is just getting up. At this moment customer care operation is taken over by a center in Warsaw, Poland. And so on around the globe. But there is a price tag attached: sometimes it is unavoidable to work odd hours (to have a video conference with the software development team in Dhaka for instance) and sometimes companies do not work on days when your company is at the highest gear (there are quite a number of countries where Friday is the weekly holiday but they work on Saturday and Sunday).

Quality improvements: Quality is especially difficult to define in software development. In data entry operation we can measure quality by the number of typing errors per 1000 data records. So when can we say proudly to our partner in software development  "Our quality is excellent"? Well, one thing is customer and partner feedback. But this itself does not justify our proud announcement "Our quality is excellent". We can say that our quality is excellent if, beside customer feedback, we can also  prove that our software is made by using "standards and repeatable process".

Another issue is incompatibility. Indeed it is quite easy to find a company, for example, in Bangladesh or in Vietnam with a higher CMM or with ISO certification. We often hear at European trade fairs that European companies are asking if a company from Thailand, for instance, has a CMM or ISO certification. But the real question is if the European company has any quality certification and if not, chances are that they do not have any quality certification, can they really benefit from these certifications? Can they understand and manage all the processes? Often the answer is no.

Other benefits associated with off-shore outsourcing include freeing-up internal resources, sharing risks, or improving productivity.

In the second part of this paper we shall learn about the risks involved in off-shore outsourcing. As a seasoned project manager put it: there is always a bush (where you might be taken..) near to your off-shore development center...