Friday, May 27, 2005

Offshore outsourcing

Offshore outsourcing -- it's a hot issue -- and everyone, from our late night talk show hosts to politicians in Washington, has something to say. But what do we really know about offshoring? Are American jobs at stake? Is the shift in economic power tilting towards China and India? How will it actually affect the American economy in the long run?
"There's a global supply chain emerging beneath our feet, and there are a set of widely-held 'misconceptions' about offshoring that will hurt American business over the long run," said Mark Wesker, who founded portal technology company Sequoia Software, now a part of Citrix Systems, and is now Chief Executive Officer of Artifact, which provides software outsourcing project management solutions.
"Once we better understand the offshore outsourcing opportunity and ways to bring visibility and control to projects taking place thousands of miles away, we'll all benefit," suggests Wesker. Here's his take on four big lies about offshoring:
1. Lie Number One: Offshore Outsourcing is a Threat to American Economic Prosperity
China, Russia and India may be gaining jobs, but is America losing out? The fact is that companies that have outsourced work abroad have created efficiencies that led them to hire twice as many workers here in America as their non-outsourcing counterparts. According to a recent Dartmouth study, outsourcers are job creators here in America. Since 1992, the U.S. lost 361 million jobs, but gained 380 million jobs back, for a net increase of 19 million jobs.
Offshoring is becoming an increasingly important part of competing in today's global economy, and if start-up companies don't have an offshoring strategy in their two year plan, there's less chance that they'll secure venture funding. Even if companies aren't doing it now, META Group, now a part of market research firm Gartner, says that 88% of firms are moving to establish an enterprise-wide offshore strategy.
"There are strategic advantages to offshoring, perhaps the most important being the ability to offload less strategic tasks, and help American companies to focus where they shine -- innovation," notes Artifact CEO Wesker. "This makes us more competitive within the global economy."
Lie Number Two: Offshore Outsourcing is a Recent Phenomenon
Opportunistic politicians and naysayers have tried to make the American public believe that offshoring is a new practice. History tells us otherwise. The United Kingdom once outsourced it's basket-weaving to India, when it was still a British colony. American companies have outsourced manufacturing for decades. And today, as many of the business processes of America's companies are commoditized and easily delivered through technology, India and many other nations are again playing a supporting role, from customer service, to back-office support and even news-headline writing.
"As lower level functions in manufacturing, from cars to software, are commoditized, American companies must move from assembly to architecture, design, and general contracting of the global supply chain," says Wesker.
Offshoring helps developing countries to build stronger economies, while consumption of less expensive products and services in more established markets continue to fuel global economic growth.
3. Lie Number Three: Offshore Outsourcing is Only About Cost-Cutting and Compromises Quality
Some Americans are convinced that companies engaged in offshoring are just trying to save a few bucks instead of paying an American worker what he or she is worth. While there are industries where the primary driver is cost, and where working conditions should be thoroughly investigated for mistreatment of workers, this isn't the case across the board.
In fact, some of the software supply chain's greatest producers now reside in India and Russia, where the workforce is as highly educated, talented and motivated as American developers. In some cases, they're better.
But today's accelerated rate of offshoring has created a new business model that's more complex in every way and at all levels. Big providers of offshore services, such as Bangalore's Infosys Technologies Ltd., have the resources to create project management tools that bridge the gap created by this new reality. But for smaller customers and providers, the options for delivering world class projects and services haven't kept up. This can translate into major cost, quality and time overruns that can kill a business.
However, "a new breed of solutions have been designed to help companies flourish," according to Wesker, whose company offers a service that addresses these challenges. "What companies need is a greater level of visibility and control over their projects and service partners. Today, we can deliver services on-demand over the Internet that give customers a minute-by-minute view of where the projects stands, how its progressing on its stated goals and the ability to change course in real-time."
4. Lie Number Four: Offshore Outsourcing is Optional
Many people view offshoring as optional. Again, another myth. It's a matter of survival. American firms need to outsource processes where they can't compete, and to focus where they can -- on innovation. Those businesses that do not -- will face certain and aggressive price competition from domestic or foreign firms who can perform the commoditized tasks more cheaply.
Global sourcing creates greater opportunity for all parties and countries involved by allowing more developed economies to innovate, while allowing developing countries to get into the game and begin growing themselves. In essence, offshoring is essential for global business growth. And the U.S. steel industry is a good example of the fate awaiting U.S. companies that turn a blind eye.
"Outsourcing and offshoring aren't optional, and they pose as many opportunities as they do risks," says Wesker. "Innovative companies need to get over the fear factor and implement new processes to manage offshoring's risks in order to stay competitive and prosper."