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Outsourcing Overseas Has Downsides, U.S. Execs Say
Reuters ^ | 10-31-03

Posted on 10/31/2003 6:06:21 PM PST by 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."


TOPICS: Business/Economy; Extended News; Foreign Affairs
KEYWORDS: offshoring; outsourcing; violinmusic; whiners
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To: Brian S
Outsourcing must be fought at every level, by boycotts, letter writing, etc.,
21 posted on 11/01/2003 3:39:52 AM PST by tkathy (The islamofascists and the democrats are trying to destroy this country)
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To: Southack
Also notice that the article discusses Accenture.

We both know Accenture. They are the most backstabbish, least proficient, most confused group I've ever seen.

22 posted on 11/01/2003 4:33:19 AM PST by Lazamataz (PROUDLY POSTING WITHOUT READING THE ARTICLE SINCE 1999 !!!!)
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To: harpseal; Dominic Harr
"So, how d'ya like me now...."

Har. I'm loving it.

23 posted on 11/01/2003 5:08:25 AM PST by Lazamataz (PROUDLY POSTING WITHOUT READING THE ARTICLE SINCE 1999 !!!!)
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To: VeniVidiVici; Siamese Princess; jimkress
Dell has something called Express Tech Support which costs $89.00 to give you priority in the tech support queue. I find that distressing in itself,that you have to pay extra for good,quick customer service. It doesn't say anything about the calls being handled in the USA.

I'm confused and will probably have to check with one of my kids who know much more about this stuff than I do.

Thanks to all of you for your most helpful replies.






24 posted on 11/01/2003 5:55:06 AM PST by Mears
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To: Mears
What to do?

One of the most rewarding things in the world IMO is putting together your own computer. Really easy to do these days, and just like working on your own car, it is kind of cool to know what is going on under the hood.

25 posted on 11/01/2003 10:46:56 AM PST by sixmil
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To: Brian S
Uh-oh.. that's can't be the sound of a free market taking care of it's own problems, can it?
26 posted on 11/01/2003 10:54:31 AM PST by Sofa King (-I am Sofa King- tired of liberal BS! http://www.angelfire.com/art2/sofaking/)
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To: Sonny M
What I wouldn't give to see a CEO or CFO get fired, so that his job was outsourced.

I like that!

From your lips to God's ears....

27 posted on 11/01/2003 11:00:29 AM PST by Allegra
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To: Brian S
When I had Comcast Broadband I was experiencing persistent connection problems, called Customer Service and got an Indian who read down the FAQ list until I begged to be bumped up to the next level and finally got an American who got the solution after 15 seconds of questions.
28 posted on 11/01/2003 11:04:22 AM PST by Semper Paratus
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To: A CA Guy
Doesn't a stable home base mean anything?

If they considered ling term effects .... there is not a country in the world that is as free , stable and as untouched by the chaos of war and economic defaults as the USA

29 posted on 11/01/2003 11:05:17 AM PST by Centurion2000 (Virtue untested is innocence)
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To: Lazamataz
They are the most backstabbish, least proficient, most confused group I've ever seen.

The group deemed too evil to remain a part of the pristeen Arthur Andersen ... that is bad, indeed!

30 posted on 11/01/2003 11:05:41 AM PST by TheRightGuy (ERROR CODE 018974523: Random Tagline Compiler Failure)
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To: sixmil
Sixmil---I am a 71 year old lady who never even sent an E-Mail until 3 1/2 years ago.I have to buy it or have it made for me.As far as working on a car,don't ask!!!!!

The only thing I want is E-Mail and Internet,nothing else,so a simple,small devise is all I need but after making a decision on a Dell notebook I find out I may be talking to people in India and that just infuriates me.

I had planned on ordering it today but the outsourcing news stopped me although I may have the same problem with any company I purchase from.

I wonder if they are legally required to tell you the truth if you ask about outsourcing?
31 posted on 11/01/2003 1:48:09 PM PST by Mears
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To: Mears
Mears, if that's all you want to do you can save some money if you consider something like this:

http://www.msntv.com/pc/default.aspx

I keep trying to get my 90-year-old grandmother on the web. She still fights me about it :-)
32 posted on 11/01/2003 2:11:13 PM PST by VeniVidiVici (There is nothing Democratic about the Democrat party.)
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To: Mears
"I wonder if they are legally required to tell you the truth if you ask about outsourcing?"

Yes. Otherwise they are committing fraud.
33 posted on 11/01/2003 4:10:56 PM PST by Sofa King (-I am Sofa King- tired of liberal BS! http://www.angelfire.com/art2/sofaking/)
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To: Centurion2000
Oh yea, what happens if the sh1t hits the fan and companies like the B of A lose everything that is in India.

What then?
34 posted on 11/01/2003 4:28:13 PM PST by A CA Guy (God Bless America, God bless and keep safe our fighting men and women.)
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To: A CA Guy
Then they are screwed .... that was my point ...
35 posted on 11/01/2003 7:26:07 PM PST by Centurion2000 (Virtue untested is innocence)
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To: Brian S
By the time everyone fully understands what this article is explaining, the execs who made the decisions to outsource will have already left these companies along with their multi-million dollar bonuses and golden parachutes. Which in their minds was the only point in the exercise anyway.
36 posted on 11/01/2003 7:33:41 PM PST by LibertyAndJusticeForAll
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To: Centurion2000
I agree with you 100%.

Can you imagine how bad out tax code and liability is here for US companys to leave like they do?
37 posted on 11/01/2003 7:49:06 PM PST by A CA Guy (God Bless America, God bless and keep safe our fighting men and women.)
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To: Lazamataz
Oh, we'll make 'em pay.

As they begin to realize they have to hire Americans again . . . it's already happening. The job sites are really popping again.

38 posted on 11/03/2003 6:54:38 AM PST by Dominic Harr
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To: Dominic Harr
As they begin to realize they have to hire Americans again . . . it's already happening. The job sites are really popping again.

Yeah, just in time for me not to need a job again. :o) A bud and I started a biz.

39 posted on 11/03/2003 6:56:24 AM PST by Lazamataz (PROUDLY SCARING NEWBIES SINCE 1999 !!!!)
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To: Mears
Sixmil---I am a 71 year old lady who never even sent an E-Mail until 3 1/2 years ago.

And you are already coding HTML in your messages.

Now, not only do we computer experts need to worry about kids coming out of college -- we've gotta worry about competition from 71 year old wimmins. ;^)

40 posted on 11/03/2003 6:58:32 AM PST by Lazamataz (PROUDLY SCARING NEWBIES SINCE 1999 !!!!)
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