Send It Offshore or Keep It Onshore?
Issue No. 20
Outsourcing is in the news these days, both international offshoring and domestic onshoring. Offshoring is sending a project overseas to be developed in another country, the most popular of which lately is India. Onshoring is keeping the project in the US and sending it to a company in a non-metro area where the operating costs are low for high quality technical expertise and labor. In many cases, outsourcing can make sense. If your company does not have the employees who have the skills you need for a task, it might be more cost effective to outsource the job than to hire, train, and keep an employee, especially, if the task is not a long-term project. However, is international offshoring a solid, cost efficient solution, or is domestic onshoring the way to go?
For example, you need a new custom software application for your business. There is not an application on the market that fits your needs, and you know that you need to invest in a new one to keep your business running competitively. You don’t want to hire a programmer or programmers to create the application, as once it has been written and installed, the program maintenance will not keep the new hires busy enough to justify their salaries. You need to increase efficiency but not increase headcount.
You decide to outsource the custom software application project, but now you need to decide whether it will be developed by a company onshore or offshore.
Four Reasons to Stay Onshore
Higher Quality: A good onshore company with a small experienced staff can produce a higher quality product than a larger, less experienced offshore company. According to Edward Mandla, president of the Australian Computer Society, in an online media release, not everyone can “match the low labour costs in popular third party offshoring service providers such as India, Philippines, and Poland” and these offshore providers admit “they are seriously limited by significant skill-set shortages and infrastructural inadequacies in terms of managing Analytics processes.”
Minimal Culture and Time Issues: An onshore company can keep culture clash to a minimum, and time differences don’t wreak havoc with schedules and communication.
Better Completion of Projects: A stable, mature onshore company with a good track record can give you the security to know that your project will be completed. According to Rolf Jester, VP Distinguished Analyst at Gartner in the online article “The Pros and Cons of Offshore Outsourcing”, “offshore code is delivered with perhaps only 85 percent of the code complete, compared with similar work undertaken in mature economies.”
Ease of Knowledge Transfer: Onshore companies have a better understanding of your clients due to their proximity and promote an easier transfer of, and reduced loss of, business knowledge.
Four Reasons Not to Go Offshore
Slower Return on Investment: When you go offshore, just because you save capital does not mean you lower your costs. Hourly offshore costs may be less due to a larger and less experienced staff which takes more time to complete the work rather than a higher paid, more experienced, onshore staff. Once project management costs, hidden costs, and operational differences are included, some companies realize little or no cost savings when they send work offshore. Cost savings for projects sent offshore can take years to re-capture. According to Jim Howard, CEO of CrownPeak Technology in the online article “Catch the ‘Onshoring’ Wave”, “Software services are often 50 percent or less the cost of installed and internally managed software when outsourced here at home, while most analysts predict between 15 percent and 30 percent cost savings from overseas outsourcing. Moreover, overseas outsourcing projects can often take years to capture cost benefits, given startup costs, knowledge transfer and process issues. (Onshore) software services, on the other hand, can often be live in weeks or months, and cost benefits begin to accrue immediately.”
Decreased Security: Offshoring can lead to concerns for keeping data and intellectual property confidential and for avoiding security breaches.
Lower Savings with Smaller Projects: Cost savings can be hard to find when sending smaller projects offshore. According to Rolf Jester, “Indian outsourcers are claiming they can provide savings of between 30 and 40 percent,”…. “But that is only if a project is large. For a small project, the relatively minor savings are just not worth the risk.”
Less Safe Environment: Political and economic instability in an offshore country can add another headache to a project, and if problems arise, it may be difficult to get legal recourse in a foreign country. If we go back to our custom software application example, you may find that a small, stable, onshore company can save you as much if not more money than going overseas. Communication barriers, both language and time zones, may be enough to keep the project onshore. If you are trying to work through custom software application requirements, and you spend an unusual amount of your time defining your market and transferring knowledge to your offshore developers, you quickly start to lose the cost advantages of offshoring. Once you have your custom software program up and running, and you need a small change, or a quick upgrade, if you are going back to a stable onshore company, you have a better chance of getting the quick turnaround you need. If you have problems with the application, getting help during US business hours is more likely with an onshore company.
With an onshore company, you can get the cost benefits of outsourcing without the risk of going overseas. You can be confident in your custom software application investment by keeping it onshore.