OFFSHORE OUTSOURCING By Marcus Mitchell Christopher Shy Joe Willis Laura Reiter Thipsuda Chanlertfa 1
OFFSHORE OUTSOURCING Introduction Case Study – Cognizant Case Study – DFS Galleria Case Study – Lincoln Industrial Case Study – Exult Conclusion 2
Introduction OFFSHORE OUTSOURCING • Began in 1970 s with U. S. computer manufacturers hiring technical staff from India for service centers (initially to save costs). • India developed skilled base of technologists (understand wide range of ops systems and service a variety of hardware). Reference 1 3
Pros of the Trade OFFSHORE OUTSOURCING • Cost savings – up to 80 percent • More resources = attention to core competence, design and business knowledge • Offshore needs meet with competence • Demand for temporary work and consulting met • On-demand, at short notice, without commitments Reference 2 4
Cons of the Trade OFFSHORE OUTSOURCING • Communication due to language/cultural barriers • Time differentiations • Technical/skill mismatches • Quality discrepancies/lack of repeatable process • Security issues • Bad management/hierarchical stubborn organizations Reference 2 5
Not Just India OFFSHORE OUTSOURCING Meeting growing demands for inexpensive yet competent programming talent: • China • Philippines • Russia Reference 3 6
Just India OFFSHORE OUTSOURCING • Most mature here • Holds 85 -90 percent of offshore outsourcing market today • Maturity due to government support for past decades and their continued improvements of the education system built by the British Reference 4 7
Size of Market OFFSHORE OUTSOURCING In 2003: 5% of the US IT services market is operating offshore 300 of Fortune 500 have a relationship with an Indian IT service firm 360, 000 US jobs moved offshore $7 billion dollar market In 2005: 15% of US workforce (2 million) will move offshore. $10 billion market In 2007: $15 billion market By 2015: 3. 3 million US jobs and $136 billion in wages will transfer offshore. Reference 17 8
Market Trends OFFSHORE OUTSOURCING In 2001: Forrester Research found 12% of IT budgets offshore, estimated to be 28% of IT budgets by 2003 (based on interviews with 50 IT executives and survey of 145 IT Directors). In 2001: Forrester Research found that 44 percent of US firms with more than $1 billion in sales performed IT work offshore, estimated to be 67% by 2003. In 2003: Deloitte Research found that 33% of Global Financial Institutions already sent IT work offshore. 75% will move work offshore within next 24 months. Reference 18 9
In 2003 OFFSHORE OUTSOURCING In 2003: 95% of US Offshore IT sourcing activity is taking place in these nations: Canada EU Russia Israel Mexico China Japan India Philippines Singapore Brazil Australia Reference 19 10
Global IT Spending in 2000 OFFSHORE OUTSOURCING Service Line Market Size India Export India’s Market (US$ Billion) Revenues Share Custom Application Development $18 B $2. 5 B 13. 6% Application Outsourcing $11 B $1. 7 B 15. 8% Packaged Software Support $41 B $. 3 B . 7% Systems Integration $72 B $. 15 B . 2% IT Consulting $19 B $. 05 B . 3% Network Management $20 B $. 05 B . 3% $181 B $4. 75 B Total Reference 20 11
Scale of Leading Offshore Venues (2001) OFFSHORE OUTSOURCING Average IT Labor Estimated # Software companies Cost per Year Estimated # IT employees China $8, 952 5, 000 200, 000 India $5, 880 900 415, 00 Ireland $34, 000 750 23, 000 Israel $38, 000 400 35, 000 Malaysia $7, 200 Mexico $1, 400 Philippines $6, 565 1, 000 290, 000 Russia $7, 500 1, 000 8, 000 Reference 21 12
Thus, Labor Arbitrage is Driving Force, OFFSHORE OUTSOURCING But labor savings will be offset by higher transaction costs: • More expensive to contract • Higher transportation costs • Higher management costs (on site vendor staff and in-house project management) • Poor communication • Cultural differences • Lapses in technology infrastructure 13
Offshoring OFFSHORE OUTSOURCING Offshoring, a key element of Global Sourcing, can yield significant benefits. . . Thus, Cost Savings Realized 0% 10% 20% 30% What Drives Offshoring? 40% 19% 0 -10% 0% 20% 40% 60% 80% 100% 33% 38% 31 -50% Saving Cost 94% 92% 10% Improving Quality Improvement 0% 10% 20% 30% 40% 50% 27% 23% Significant Improvement 41% 38% Some Improvement 25% Unchanged Somewhat Decreased 7% 39% 2002 51% 41% Accessing Skilled Resources Reducing Cycle Time 63% 41% 32% 2002 2003 14
Offshore Outcomes OFFSHORE OUTSOURCING 93% of respondents expect offshore outsourcing to reduce costs Very Effective Too Early to Tell Somewhat Effective (Meeting Some Goals and Objectives) Reference 22 Respondents asked 100 18% 9% 32% Survey by A. T. Kearney, Financial services 41% Executives about the Effectiveness of their Effective (Meeting Goals & Objectives) Offshore initiatives 15
Offshore Cost Savings OFFSHORE OUTSOURCING US Companies charge $80 to $120 per hour for programmers Offshore providers charge about $40 per hour More than 50% Less than 10% 9% Thirty to 50% 9% Survey by IBM Consulting Services, Respondents asked percentage of savings 40% from offshore 42% outsourcing of IT Ten to 30% services and software development Reference 23 16
Offshore Quality Improvement OFFSHORE OUTSOURCING Some Decrease Unchanged 7% Significant Improvement 25% 27% Survey by IBM Consulting Services, Respondents asked Level of quality change After offshore outsourcing of IT services and software 41% development Some Improvement Reference 24 17
Offshore: The Quality Issue OFFSHORE OUTSOURCING Out of the top 400 companies, more than 272 Indian companies have already acquired ISO 9000 or SEI level 2 or other equivalent certification Countries India China Russia World Reference 25 Number of SEI Capability Maturity Organizations Level 4 28 0 0 (2) 73 Level 5 46 2 1 69 18
Offshore: The Quality Issue OFFSHORE OUTSOURCING Top 5 Indian Vendors Countries India China Russia World Number of SEI Capability Maturity Organizations Level 4 28 0 0 (2) 73 Level 5 46 2 1 69 Company: Annual Revenues Tate Consultancy Services $689 m Wipro Technologies $661. 7 m Infosys Technologies $413. 9 m Satyam Computer Services $308. 2 m Cognizant Technology Solutions $177. 8 Reference 26 19
IT Activities Moving Offshore OFFSHORE OUTSOURCING Data Centers Study of 42 Current Offshore Users By Gartner Group BPO Transaction Processing Data Integration & Cleansing Packaged Application Implementation Infrastructure Management Contact Centers Application Outsourcing Legacy Transformation IT Consulting Software Testing Application Maintenance Application Design And Development 0 10 20 30 40 50 60 70 Percentage of Respondents Reference 27 20
Most Important Vendor Selection Criteria OFFSHORE OUTSOURCING Study of 42 Current Offshore Users By Gartner Group Not Important Reference 27 Extremely Important 21
Respondents indicated interest in exploring new business models OFFSHORE OUTSOURCING Joint Venture Captive Firm’s own offshore “shared service center. Examples include GE, American Express and HSBC. Highest investment n High management commitment n Potentially high risk if no local knowledge n Greatest opportunity to realize value n Potential to insource n An offshore center with joint ownership of the firm and a third party Facilities Management Outsourced An offshore center built and operated by a third party for a finite time period after which the ownership transfers to the client firm. An offshore center fully owned by the firm; facilities management (real estate, security, transportation, cafeteria, etc. ) provided by a third party. Popular choice for low-end business processes or contact centers. Could have ttwo or more vendors and multiple countries n Helpful when a firm wants to retain control but lacks local knowledge n Also appropriate when vendors lack domain experience n Opportunity to realize full realize value as a “captive” facility “Extended Organization” facility More complex to set up n Moderate investment n Opportunity to share reward n Local knowledge of the JV partner helpful n Build-Operate. Transfer (BOT) n Requires robust vendor management n Heavy management focus in the multi-vendor model n Opportunity to employ Best of breed providers n 22
Which US companies are moving IT work offshore? OFFSHORE OUTSOURCING Non-IT Companies: • • • British Airways Master. Card GE British Telecom GM Ford American Express Xerox World Bank America Online Procter & Gamble IT Companies: • • • Accenture Microsoft Intel EDS IBM 23
Leading the Way: OFFSHORE OUTSOURCING Today’s Companies Infosys Wipro Cognizant 24
Current Trends OFFSHORE OUTSOURCING • Increasing acceptance of value and viability of using remote programming resources. • Companies continue to refine their approach to global sourcing. Reference 7 25
Outsourcing Futures OFFSHORE OUTSOURCING • Offshore outsourcing will grow. (At least 25 percent in 2003) • U. S. - based outsourcing and consulting firms will increase offshore resource pools. (By increasing offshore partners or existing facilities) • India will continue to dominate. (Indian vendors will look offshore for even cheaper help) • Indian vendors will continue to move up the value chain. (By offering architecture, design, development and technology strategy services) Reference 7 26
Outsourcing Futures (Continued) OFFSHORE OUTSOURCING • Business process outsourcing in India will grow at least 65 percent during 2003. (Given the cost benefits and early successes of Indian IT-enabled service outsourcing) • Companies continue to focus on contingency plans for offshore vendor relationships. (New processes and workarounds to ensure safety of their clients’ systems in the event of communications outage or bombing in India) Reference 7 27
Outsourcing Futures (Continued) OFFSHORE OUTSOURCING • Fortune-class companies will require vendors to have mature processes in place before they engage. (Process maturity equals quality) • Companies will increase investments with offshore service providers, even first timers. (In the past - pilot projects were small; in the future – comfort and confidence will increase initial deals) Reference 7 28
Outsourcing Futures (Continued) OFFSHORE OUTSOURCING • Companies will put in place centralized program management offices or governance structures to manage, monitor or consult on offshore outsourcing relationships at the corporate level (Today – companies often have multiple offshore relationships with multiple vendors within different business units or groups) Reference 7 29
Concepts of the Past 25 Years OFFSHORE OUTSOURCING The evolution of the generations 30
First Generation: OFFSHORE OUTSOURCING Staffing • Syntel and Tata – main suppliers of technical personnel. • In the end – minimal cost or value impact. Reference 1 31
Second Generation: OFFSHORE OUTSOURCING Offshore • Tata and Wipro – providers • Totally cost-focused • Suffered from usability and quality issues Reference 1 32
Third Generation: OFFSHORE OUTSOURCING On–site/Offshore • Cognizant and Infosys – Today’s dominant players. • Technical-focused with high quality outcomes and resourcing flexibility. Reference 1 33
Fourth Generation: OFFSHORE OUTSOURCING On–site/Offshore and Business Transformation • Cognizant – with its u. s. and European market base in conjunction with large development facilities in India; pioneer and definer of the fourth generation. Reference 1 34
The Fourth Generation: OFFSHORE OUTSOURCING Transformation and Corporate Executives Reference 5 35
Transformation: OFFSHORE OUTSOURCING Efficient Execution • Requires close partnership-based relationship between client and service provider Conceptual Shifts • Moving from technical to strategic • Treating vendors as colleagues rather than contractors • Outcome focused instead of activity focused Reference 5 36
The Fourth Generation OFFSHORE OUTSOURCING • Allows corps to focus more on the customer and doing business vs. the processes that support it • Dramatically faster flow of knowledge, greater ease of complex strategic problems, high motivation achieving more with less Reference 5 37
The Fourth Generation: OFFSHORE OUTSOURCING Innovative Concept Companies partner with a single integrated provider simultaneously allowing: • Understanding of execution • Supply solutions • Guidance through essential change management process Reference 5 38
OFFSHORE OUTSOURCING A Fourth Generation Case Study Cognizant 39
Cognizant OFFSHORE OUTSOURCING Location: Headquartered in Teaneck, New Jersey History: Started as subsidiary of Dun & Bradstreet to establish a large offshore development center for the parent company Founder: Kumar Mahadeva – chairman and CEO Reference 5 40
Cognizant Figures OFFSHORE OUTSOURCING As of September 30, 2003: • 6, 168 employees • 260. 1 million in past year’s sales • 39. 6 million in past year’s earnings • 1. 129 billion in market value Reference 6 41
Cognizant OFFSHORE OUTSOURCING • Based on client relationships guided by value and shared goals, not rigid, locked contracts. • Operates as technology partner to client. • Always been project oriented as opposed to staffing oriented. Reference 5 42
Cognizant and the Fourth Generation OFFSHORE OUTSOURCING How does Cognizant provide its services to its clients? 43
Fourth Generation Services OFFSHORE OUTSOURCING • Vertical industry domain knowledge: (Knowledge of business) • State-of-the-art technology expertise: (From legacy platforms and major enterprise applications to Java, . net, and XML services) • Business transformation core competency: • Highly disciplined program management and change management competence: (eliminates hurdles of managing complex offshore developments) • Organizational agility: (speed and flexibility to coordinate local and offshore resources) Reference 5 44
A Fourth Generation Model OFFSHORE OUTSOURCING • Creates ‘community of practice’ that fully integrates business strategy with it’s execution. • On site/offshore information technology outsourcing combined with change management practices is key. • Increased speed, quality, productivity are the outcomes (all with lower costs). Reference 1 45
Cognizant’s Differentiators OFFSHORE OUTSOURCING • 100 percent end-user application focused (most others are product and research/development oriented). • Focused on working with business end-users with deep knowledge in key verticals. • Focused on bottom line business results through IT portfolios analysis and change management. Reference 5 46
Cognizant Industries OFFSHORE OUTSOURCING First major offshore company to establish vertical industry practices through experts who know competitive challenges that client companies face. Reference 5 47
Vertical Industry Practices OFFSHORE OUTSOURCING Healthcare Financial Services Sierra Health / Lifeguard / Healthnet Philidelphia Stock Exchange / First Data Corp Telecommunications Manufacturing & Logistics Media & Publishing United States Cold Storage / Coors Nielson Media Research / Dun & Bradstreet Pharmaceuticals Insurance Retail Reference 5 Royal & Sun Alliance / Liberty Mutual / Metlife Ace Hardware / Radioshack / Brinker Int. 48
Some Recent Industry Awards OFFSHORE OUTSOURCING October 2003 topped forbes’s list of ‘hots’ June 2003 8 th overall in business weeks’ list of ‘hot growth companies’ April 2003 15 th on forbes’s ‘ 25 fatest growing tech companies’ (ranked by five-year totals) October 2002 ranked 16 th in fatest growing 100 tech companies list published by business 2. 0 49
Kumar Mahadeva Speaks OFFSHORE OUTSOURCING “Cognizant is a recognized premium player in the offshore IT services industry and is growing faster than its offshore peers because our model is built for the new world of large scale offshore outsourcing. through our industry leading fourth generation servicing model we partner with clients on a process we call ‘transforming while performing’ to drastically cut IT and business costs, while better aligning clients’ IT portfolios with business needs. ” Reference 5 50
Partners OFFSHORE OUTSOURCING 51
OFFSHORE OUTSOURCING Case Study DFS Galleria 52
Case Study: DFS Galleria OFFSHORE OUTSOURCING • Engaged Cognizant Technology Solutions, an Indian offshore service provider, to provide onsite support. • Leading retailer of luxury goods and general merchandise for international travelers. • 6, 000 + employees & several hundred stores. Reference 8 53
Situation OFFSHORE OUTSOURCING • Sept 11 th; Dramatic slowdown in business. • Need for accelerated cost reductions. • Demand for increased speed and quality of IT services. Reference 8 54
Approach OFFSHORE OUTSOURCING • Cognizant proposed its “Transformational Offshore Outsourcing” methodology to achieve large-scale, radical changes needed. – Phase 1 – Mid 2000; Cognizant assumed responsibility for onsite maintenance and enhancements to retailers core merchandising system. • Slow and in phases to help manage risk. • Measured in stages before making long-term commitment. • Fully up to speed in 6 months; comfortable with operation in 12. Reference 8 55
Approach (Continued) OFFSHORE OUTSOURCING – Phase 2 – Early 2001; DFS extended India support to include the second and third shifts. – Phase 3 – Oct 2001; Cognizant became responsible for all the application support and new development activities globally. – Phase 4 – Early 2002; all financial, human resources and email systems were added. Reference 8 56
Results OFFSHORE OUTSOURCING • Overwhelming success: surpassed DFS’s expectations on quantitative and qualitative dimensions. – Significant reduction in application support costs. – Met all original objectives and delivered other value-added services. Reference 8 57
Critical Success Factors OFFSHORE OUTSOURCING • Cooperative culture: Teamwork, strong work ethics and “can do” attitude. • Patience: Success takes time. • Pre-planning: Resources need to be allocated early. • Vendor responsibility: Qualified, trained, mature staff must be utilized in a timely fashion. • Clarity: Roles must be clear with responsibilities and expectations defined. • Outside the box: Both parties must think about advantages beyond cost savings. Reference 8 58
OFFSHORE OUTSOURCING Case Study Lincoln Industrial, Inc. 59
Part #548447 Handheld Grease Gun OFFSHORE OUTSOURCING • Most popular of this line • Annual volume 48, 500+ Reference 9 60
Scenario OFFSHORE OUTSOURCING Reference 9 61
OFFSHORE OUTSOURCING Case Study Exult 62
Exult’s Offshore Outsourcing Plan OFFSHORE OUTSOURCING • Exult, with the assistance of Neo. IT Inc. , signed a deal in early 2003 to move some of its “day-to-day application maintenance” offshore. • Exult’s management deemed this a logical step in their bid to stay competitive in the ever-changing global economy. Reference 12 63
Background - Neo. IT OFFSHORE OUTSOURCING • Neo. IT is the leading offshore advisory and management firm. • “Focus exclusively on assisting companies in maximizing their returns from offshore sourcing of both IT and business processes on either a project or enterprise-wide basis. ” Reference 12 64
Neo. IT OFFSHORE OUTSOURCING • “Capable of delivering results in the form of cost savings, improved governance, reductions in sourcing process time and decreased risks with offshore supplier partnerships. ” • Essentially, Neo. IT focuses on four factors: cost savings, quality, risk & control. Reference 12 65
A Perfect Match OFFSHORE OUTSOURCING • Exult’s VP of Business Model Architecture, Steve Unterberger, was considering offshore outsourcing due to three primary factors: 1. Savings- the economic environment overseas can provide significant cost reductions. Reference 12 66
A Perfect Match (Continued) OFFSHORE OUTSOURCING 2. Skill- By taking application maintenance offshore, Unterberger believed he could tap into new sources of expertise. 3. Scale- Access to skilled offshore providers substantially increases the available resource base, providing the additional capacity to accommodate Exult’s Growing business. Reference 12 67
Exult & Neo. IT OFFSHORE OUTSOURCING • Mr. Unterberger made it clear from the beginning that Exult would be taking a “hands-on” approach. • “What made the relationship even more effective was the unique skill set that each party brought to the table. ” – Neo. IT • “Unterberger understood Exult’s business requirements and drove the decision making activities, while Neo. IT had extensive knowledge of offshore markets and providers” - Neo. IT Reference 12 68
Exult & Neo. IT OFFSHORE OUTSOURCING • “Neo. IT’s understanding of the Indian Vendor environment meant that they knew which buttons to push to create a positive supplier relationship. After meeting the providers…I was completely convinced that both the capabilities and the economics we needed were there. ”- Steve Unterberger Reference 12 69
Exult & Neo. IT OFFSHORE OUTSOURCING • Next, an intense review and due diligence process by both parties was conducted and the supplier list was narrowed to the three most qualified candidates. • Then, Neo. IT sent a team of veteran auditors to perform a detailed assessment of each supplier’s domain, technical and functional knowledge. Reference 12 70
Evaluation Criteria OFFSHORE OUTSOURCING • Neo. IT used a five step process to assess the competency of each of the firms. Their evaluation criteria included: 1. Past Projects 2. People (management of Human Resources. 3. Pricing 4. Performance 5. Platform Reference 12 71
Final Decision OFFSHORE OUTSOURCING • Based on the previous criteria and the extensive due diligence performed by both parties, Exult and Neo. IT were able to identify the two most qualified providers and award the final contracts accordingly. Reference 12 72
Keys to Success OFFSHORE OUTSOURCING • According to Harding Goodman, Global ASM Director for Exult, “the exacting vendor process that Neo. IT had helped coordinate began paying dividend right away. The vendors’ skills and familiarity with our needs were excellent. They knew exactly where we were going and how we wanted to get there. ” Reference 12 73
Keys to Success (Continued) OFFSHORE OUTSOURCING • According to Mr. Goodman: “the keys to a smooth transition process are communication and expectations. You need to have a communications plan in place right from the beginning, and you need to stick with it…you need to make sure everyone involved knows your expectations fro time, quality and other success measurements. ” Reference 12 74
Ongoing Contract Governance & Program Management OFFSHORE OUTSOURCING • Ongoing management responsibilities were given to Exult’s Operations group. • Neo. IT’s work was just beginning; they were now focused on ensuring that the savings negotiated would be delivered consistently and on schedule. Reference 12 75
Managing for Continued Success OFFSHORE OUTSOURCING • Neo. IT provides ongoing program management services to oversee the activities of the offshore suppliers. • With the aid of Neo. IT’s Project Office tool, the suppliers, Neo. IT staff, and Exult managers have the ability to: track milestones, allocate resources, manage service levels, gather feedback, and see invoicing and payment information. Reference 12 76
Managing for Continued Success (Cont. ) OFFSHORE OUTSOURCING • Project Office generates weekly status reports and automatically alerts team members whenever significant events occur – e. g. when performance falls below service levels. • In addition, Neo. IT has a full-time program director based in India to monitor work activities, ensure compliance, and act as an arbitrator if any issue arise. Reference 12 77
Offshore Outsourcing Tips OFFSHORE OUTSOURCING • According to Harding Goodman of Exult, companies considering working with offshore providers should: “Create a single, global team. You can’t have onshore team and another offshore team. Everyone has to play in the same sandbox. ” Reference 12 78
Offshore Outsourcing Tips (Continued) OFFSHORE OUTSOURCING • “Make sure each individual contributor knows what is expected of the team and how their work fits into the big picture. ” – Harding Goodman, Exult • Have a local presence. “The advice of counsel and our Neo. IT representatives in India is invaluable. Our vendors have complete respect for them, but they also know they are working for Exult. ” Reference 12 79
Results OFFSHORE OUTSOURCING • Harding Goodman believes strongly that offshore outsourcing with Neo. IT has helped Exult achieve its goals for savings, skill, and scale: • Savings: “With the economic model of offshore outsourcing, we have been able to achieve somewhat higher savings that we anticipated. ” Reference 12 80
Results (Continued) OFFSHORE OUTSOURCING • Skill: “One of my managers said this is the best team of this sort she’s ever had because of the skills of the individuals. ” • Scalability: “Our offshore vendors have good ‘bench strength. ’ If I need additional skills or people, I can add them quickly. ” Reference 12 81
Update OFFSHORE OUTSOURCING • Exult finalized its deal with Neo. IT in early 2003 and subsequently employed approximately 150 workers at its facility in India. Recently, Exult has stated that they plan to “increase its workers in its BPO facility in India to 2, 000 by 2005. ” Reference 16 82
OFFSHORE OUTSOURCING Conclusion 83
Things to Consider before Outsourcing OFFSHORE OUTSOURCING • Be patient – long term mindset. • Vendor selection costs 1 to 10% premium. – Documenting requirements – Negotiating contracts, legal fees – Travel expenses • Transition period • Cost of layoffs, morale of “survivors” • Cultural cost, communication Reference 10 84
Things to Consider before Outsourcing OFFSHORE OUTSOURCING • • • Reference 10 Quality assurance testing Cost of managing contract offshore Security and privacy Skills and expertise – talent match project Country stability Certification – CMMI (Capabilities Maturity Model Integration) 85
The Latest Trends OFFSHORE OUTSOURCING • Multi-sourcing – Multiple service providers in different • • • countries; search for best skills for best price. Reshuffling Skills – Rebalancing mix of in-house skills with managerial experience and business process knowledge. – IT Architects – which technologies to adopt – Contracting, negotiation, financial & accounting Offshore Handoffs – outsourcers are outsourcing Large savings currently – However, demand will drive up global labor costs. – Negotiations for extended long-terms contracts. Reference 11 86
Offshore Outsourcing Benefits OFFSHORE OUTSOURCING • Cost Savings • Increased Productivity • Time to Market • Access to Expertise and Skills • 24/7 Operation • Higher Software Quality • Make capital funds available-Cash infusion • Sharing of risks 87
Offshore Outsourcing Costs OFFSHORE OUTSOURCING • Unclear objectives and design requirements • Lack of Control • Time zone differences • Language barriers • Domestic layoffs 88
Backlash/Controversy OFFSHORE OUTSOURCING • There are numerous proponents for offshore outsourcing and numerous opponents who believe offshore outsourcing is simply a low-cost, lowquality alternative to keeping jobs in the U. S. Reference 14 89
Opponents OFFSHORE OUTSOURCING • In recent years there have been a number of people who have called for legislation that would limit the ability of U. S. companies to move IT jobs offshore. • Many people who oppose offshore outsourcing are, in fact, workers who have been outplaced by the practice. • Other negative factors that opponents cite include downward pressure on salaries in the IT industry and the potential for a “reverse brain drain, ” where highly skilled IT workers choose to work in countries other than the U. S. Reference 15 90
Government Action? OFFSHORE OUTSOURCING • Recently, the Bush administration has stated that they have “no plans to impede companies efforts to move IT jobs to India or anywhere else. • Thus, the government has decided that it will not, at any time in the near future, enact any sort of legislation that would hinder offshore outsourcing. Reference 15 91
Proponents OFFSHORE OUTSOURCING • Many of those in favor believe that they can in fact get better quality in shorter times at a lower cost by going offshore. • The majority, whether they agree with the previous statement or not, believe that they can attain at least a level of quality consistent with what they have in the U. S. , at a lower cost. Reference 14 92
Proponents (Continued) OFFSHORE OUTSOURCING • Essentially, it comes down to a competitive advantage decision for these global companies. • As Kevin Campbell, COO of Exult states: “…if I thought I could clobber all my [competitors] here by just staying put in the U. S. and outsourcing work here, why wouldn’t I do that? I am not doing that, because that [scenario] does not exist” Reference 13 93
Proponents (Continued) OFFSHORE OUTSOURCING • Again, global companies see it as a crucial element to staying competitive in the global market place. • Some executives, such as Gordon Coburn senior VP and CFO of Cognizant, believe that not making the decision to outsource offshore will eventually cost more jobs because companies will “not be able to survive , because they won’t be price-competitive. ” Reference 13 94
Sink or Swim? OFFSHORE OUTSOURCING • Ultimately, after hearing both sides of the argument, it becomes clear that the executives that are in favor of offshore outsourcing believe that it is a necessity in order to stay competitive. • Essentially, global companies must “evolve or perish. ” 95
References OFFSHORE OUTSOURCING 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. “Tech Vendor Cognizant Harnesses the Force of Y 6” by Cliff Shaffram, The Bottom Line represented from South China Morning Post Sunday Money – Oct 27, 02 www. gislen. com/services/why_outsourcing. htm by Mirael Gislen and M. C. Abruham “Offshore Outsourcing grows to global properties” by Lassy Greenemeies 2/11/02 “More and More Its Offshore” by Jim Erricson Oct 11, 2002 Line 56 www. cognizant. com “Healthcare Informatics 100” “IT Trends 2003: Offshore Outsourcing” by Stephanic Moose-Idea Byte Oct 21, 2002 www. gartnerconnects. com on 10. 08. 03 Interview: Tom Johnson, Plant Manager on 11. 12. 03 www. web. lexis-nexis. com, www. proquest. umi. com on 10. 23. 03 Copyright 2003 “PR Newswire Association, Inc. ” Copyright 2003 “Neo. IT, Inc. ” Copyright 2003 “Living Media India, Ltd. ” Copyright 2003 “CMP Media, LLC” Information Week Copyright 2003 “Computerworld, Inc. ” Copyright 2003 “Financial Times Information” Carmel, E. , and Agarwal, R. , “The Maturation of Offshore Sourcing of Information Technology, ” MIS Quarterly Executive, Vol. 1, 2, pp. 65 -77. Greenemeier, L. , “Offshore Outsourcing Grows to Global Proportions, ” Information. Week, Feb 11, 2002 Morstead, S. , and Blout, Greg, Offshore Ready, Isani Press, 2003. Vijayan, J. , “Companies Expected to Boost Offshore Outsourcing, ” Computer. World, Feb 17, 2003. 96
References OFFSHORE OUTSOURCING 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. Rosenthal, B. , “Deloitte Study Discovers 75% of Global Financial Institutions Pan to Outsource Offshore, ” Everest Partners, L. P. , Dallas Texas, June, 2003 Morstead, S. , and Blout, Greg, Offshore Ready, Isani Press, 2003. Carmel, E. , and Agarwal, R. , “The Maturation of Offshore Sourcing of Information Technology, ” MIS Quarterly Executive, Vol. 1, 2, pp. 65 -77. NASSCOM, Mc. Kinsey Report, 2002 Morstead, S. , and Blout, Greg, Offshore Ready, Isani Press, 2003. Mac. Sweeney, G. , “Offshore Can Improve Quality, ” Insurance and Technology, July 2003, Vol. 28, 7, p. 39. Thibodeau, P. , “Offshore’s Rise is Relentless, Computer. World, Vol. 37, 25, June 30, 2003, p. 1, 16. Mc. Carthy, Kack, “Redefining Offshore Outsourcing, ” Info. World, December 2, 2002, Vol. 24, 28, p. 56. Auriga. com, Carnegie Mellon University, Software Engineering Institute (SEI), May 2002 http: //www. sei. cmu. edu/cmm/high-maturity/High. Mat. Orgs. pdf Greenemeier, L. , “Offshore Outsourcing Grows to Global Proportions, ” Information. Week, Feb 11, 2002 Weiss, P. , “Behind the Numbers: Offshore Outsourcing’s Cost Effective Edge, Information. Week, Nov 25, 2002, Vol. 916, p. 66. 97
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