Outsourcing Overseas Has Downsides, U.S. Execs Say

Reuters ^ | 10-31-03

[Brian S]

Fri October 31, 2003 07:13 PM ET

By Wei Gu NEW YORK (Reuters) - Umang Gupta, chief executive of Keynote Systems Inc., says he has no plans to join the popular trend of shifting operations to his native India to save money.

Even though most other U.S. technology companies are eyeing low-cost offshore centers as a way to boost profits, he said the problems presented by the south Asian country are not worth the benefits -- given his company's large computer networks.

"Data center involves sophisticated work and needs a reliable network," he said. "The infrastructure in India is not good enough; it has constant power outages."

Many large technology companies are not as cautious. Oracle Corp. this week set up a second research center in China. Computer maker Dell Inc. has transferred call centers to India. Bank of America Corp., along with other financial services giants, has been steadily moving technology functions abroad.

But experts warn that outsourcing could do more harm than good. "There is an opportunity to create a lot of value," said Rudy Puryear, a vice president with Bains & Co. "But outsourcing could also destroy a lot of value."

Indeed, 66 percent of companies surveyed were disappointed with their outsourcing contracts, said PA Consulting Group. The survey shows only 39 percent of the companies would renew contracts with their existing outsourcing suppliers, and 15 percent planned to bring services back in-house.

SECURITY HAZARDS

Dave Lakhani, president of business consulting firm Bold Approach Inc. said only 40 percent of the outsourcing projects are successful. Pitfalls include security hazards, cultural differences, and logistics nightmares.

Referring to a client who hired an India software developer based solely on price, Lakhani said "every deadline was missed; every time the software came back it had more than 1,000 errors. They were never able to resolve the issue."

"After investing tens of thousands of dollars, they had to quit," he added, noting the client wished to remain anonymous.

To be sure, Puryear, said most technology outsourcing work is still done domestically, rather than abroad. But companies are increasingly attracted by the modestly paid programmers in India, Russia and China, and the prospects of 24-hour shifts as they work while America sleeps.

Experts say the time difference also has its downsides, when queries do not get immediate responses.

"Some of things that can go wrong particularly in India are that there are a significant number of religious holidays that can cost delays," said Lakhani. "There are a number of issues related to language barriers."

Offshore call center operators often try to immerse employees in the American culture to establish a rapport with their customers by educating them about current events and U.S. holidays.

INFRASTRUCTURE SHORTFALLS

But not every customer is happy about the change.

"Don't give me a PhD from India who may be very well trained and expect the two of us to communicate flawlessly," said Scott Lorenz, president of Westwind Communications, about his experience with Dell customer support staff.

Security is another reason some companies pass on offshore outsourcing, particularly if they are dealing with sensitive financial information.

"You are better off leaving the data in the U.S.," said Atul Vashistha, head of outsourcing advisory firm NeoIT.

He said that in general such tasks as manufacturing, software development and maintenance tend to work better offshore. Moving data center infrastructures does not because it is prohibitively expensive to set up a reliable network in India.

But overall, the trend looks to be irreversible. Driven by cost-cutting needs, companies will increase the amount of work they transfer abroad, Gartner Dataquest said.

The technology research firm expects worldwide business process revenue to grow 10 percent to $122 billion this year from 2002, and more than 40 percent to $157 billion in 2006.

Lured by the huge market, Accenture Ltd., BearingPoint Inc. and Computer Sciences Corp. have expanded staff in low-cost countries and profited handsomely.

While those companies tend to be more experienced in outsourcing, mid-sized companies that plan to deal directly with offshore vendors may have a harder time, said Lakhani.

"Most of them don't understand the potential problems," he said. "They feel whatever problems there may arise, they will be easily offset by the savings. That's really not true."

[CGASMIA68]

Your network is only as good as the weekest link or (lastlink) and if that is a piece of station wire going into some ones shack/hut/abode in a 3rd word country then stand bye and get what you deserve...........
you aint seen nothing yet.....when it goes down it goes down hard and long and there aint no calling the local carrier...
Pay now/Pay later.

[sixmil]

Blind leading the blind BUMP.

[Ciexyz]

Ordinary Americans are well aware of the outsourcing problems with computer call centers. My hairdresser, a lady in her fifties, complains that whenever she calls computer support, she gets someone who can't speak English well and who doesn't understand what she needs. Do companies really believe that this won't came back to bite them in the a**?

[hedgetrimmer]

Ping

[maui_hawaii]

BUMP

[A CA Guy]

True, and the cost of bringing another countryup to speed isn't worth it.

Just think, if Pakastan Nukes India, B of A and all those other companies could nearly have to fold as well.

Doesn't a stable home base mean anything?

Meanwhile we have to maintain higher and higher minimum wages, yet companies can leave and hire slave wage earners to do the job away from America, lawsuits and protests...go figure.

[stands2reason]

You get what you pay for.

[Sonny M]

another problem that outsourcing is going to have to deal with, is the high turnover, and the inevitable rising salaries of the workers. Indians with masters degrees do not see these jobs as keepers and aren't exactley happy with them, but are greatfull for the short term. Eventually, if this keeps up, those companies are going to get burned.

What I wouldn't give to see a CEO or CFO get fired, so that his job was outsourced.

[TaxRelief]

And your hairdresser calls computer support, regularly, why?

[Mears]

I've talked to Dell several times in the past week(sales,not support)because I'm planning on placing an order with them.

Now I see,from this article that their call centers have been outsourced to India, which dismays me.

What to do?

[jimkress]

BUMP!! Article is going directly to the family executive whose company is obsessively fixated on outsourcing everything to China or India.

I keep trying to get her to suggest that they outsource the janitorial service to China but all I get as a response are dirty looks.

[jimkress]

Build your own or buy from a local supplier. there are many small, local firms who will build your system(s) at very competitive prices.

[VeniVidiVici]

Now I see,from this article that their call centers have been outsourced to India, which dismays me.

What to do?

Learn to speak Indian.

But thanks for reminding me why I won't buy Dell.

Someone please correct me if I'm wrong but I thought I read somewhere that you could pay extra if you wanted support from Dell that was Stateside? Or is that their next level support tier that you pay extra for anyhow?

[Southack]

"66 percent of companies surveyed were disappointed with their outsourcing contracts, said PA Consulting Group. The survey shows only 39 percent of the companies would renew contracts with their existing outsourcing suppliers, and 15 percent planned to bring services back in-house."

This is just the tip of the iceberg. As the U.S. Dollar devalues versus foreign currencies, outsourcing offshore will become progressively more expensive in addition to having all of the technical problems that these firms have already found.

Also notice that the article discusses Accenture. Accenture is fine with taking your company's data offshore, but they keep all of theirs here in the U.S. This is due in no small part to the massive turnover in employees offshore. Disgruntled employees leaving your offshore project are the most likely types to steal valuable code and data, and the high turnover overseas encourages this sort of thing on a grand scale.

[Siamese Princess]

I've talked to Dell several times in the past week(sales,not support)because I'm planning on placing an order with them.

Now I see,from this article that their call centers have been outsourced to India, which dismays me.

What to do?

A co-worker of mine purchased a Dell computer earlier this year, ran into a problem and called Customer Service repeatedly, in India. There was, let's say, a difficulty in communicating. Her brother-in-law ended up building a new system for her.

My old computer, purchased Christmas '98, was a Dell. I'm still using the keyboard and monitor but the hard drive was custom built. The reason I decided against buying another Dell was because they outsourced American jobs.

[Jorge]

Ha Ha...this is what they get.

[FITZ]

And your hairdresser calls computer support, regularly, why?

Probably because they couldn't help her the first time she called.... or the second time... or the third so she keeps on calling.

[The Duke]

Overseas outsourcing does not necessarily equate to India, and it is not necessarily a bad experience. A couple of years ago I saw the trend and decided that, rather than have my software dev company be a victim we'd go with the flow - and it's been a very good experience. Our business is great, and we're transferring all the stress out of the country to willing workers, while retaining good portions of project work here in the US as well (for such reasons as protection of intellectual property).

Our our case, however, we thought India was an insane choice, and instead focused on Argentina and Chile as outsourcing locations. No time zone problems, and more than adequate political stability. (And the employees we've found to be tremendous assets - especially since we tripled thier incomes overnight!)

[goody2shooz]

...66 percent of companies surveyed were disappointed with their outsourcing contracts,...only 39 percent of the companies [surveyed] would renew contracts with their existing outsourcing suppliers, and 15 percent planned to bring services back in-house.

Uh-huh. I predicted this a few months back. In the meantime all those former employees in the U.S. have either gotten new jobs and/or safely and profitably invested their termination packages. Will they be eager to be rehired? No doubt some will leap at the opportunity. Lightning does strike twice, you know.