Outsourcing Overseas Has Downsides, U.S. Execs Say

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.

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.

"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."

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.

Maybe not CEO's and CFO yet. But I used to work at a fortune 500 company that outsourced a load of tech R&D to Korea at the first of the year. The managers who made the decision to do so are being laid off now in favor of cheaper Korean help. It has started, their managers decided that outsource even more.

A bud and I started a biz.

That's the real capitalist answer here, without a doubt!

I'm close to doing the same, actually.

But I still plan to do contract work on the side. It's too lucractive to turn down.

I purchased a Dell last December, and had all sorts of problems with it. Tech support was not good to begin with, but when they started answering from India it went rapidly downhill. Dell's policy seemed to be: wait forty five minutes to talk with a person, then spend at least four hours on the phone with a script-reading tech, before they will send someone out on a service call. I had six service calls, mainly they just replaced a component, and then back to India to see if they can make it work.

Dell finally sent me a replacement and it had problems too. I had my lawyer write them a letter saying they wouldn't get the old one back until the new one worked. Now I call a company executive and they have a Level 2 (American) tech call me by appointment. And I'm keeping the original machine until every glitch has been worked out.

Thanks for your info,Dell is not the way I'm going to go.

As far as tech support goes,see my post #24. Why on earth should we have to pay extra for good service? They are as much as admitting that their service stinks.

I was willing to spend about $1000.00 to have something small and simple and they have lost my business.

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