Much of the early off shoring and outsourcing of IT support, from the 1980’s to 2010, went to India. Initially, the huge cost differential in technical labor was the deciding factor for outsourcing corporations. Indian firms promised highly skilled programmers and IT support staff with good language skills at hourly costs of one tenth, or less, of onshore workers. This drove India’s outsourcing contract share to 65% of off-shore outsourced work in 2008. However, over the past 10 years, business analysts have identified significant issues in this business model, many driven by global economic and legal changes. For many of you that have already been outsourcing to India, most of this will already be understood.
Decreasing labor cost differential and problems with quality.
Partially due to the success of the off shoring work, wages for prized skills in India have been rising. The wage differential is estimated to have shrunk from 80% to closer to 30% or 40%. These companies still have a large, untapped labor force to bring on board, but they are mainly those whose skills are still developing and may not be what are promised by the vendor marketing for outsourcing to India.High personnel turnover.
Stability of the workforce and support personnel is a major concern for any business. When a company places their business operations in the hands of a provider, prioritization of the best resource allocation will shift. This may mean that more focus will be given to business activities which are less important to the client, or top support personnel may be shifted to other clients.
High turnover is also a recognized problem for vendors that offer outsourcing to India. Jumping to new opportunities is an accepted practice in the work force – job loyalty is not highly valued. Also, the work frequently assigned to higher qualified people is still repetitive or low level. Workers often move on to better career opportunities. The largest major Indian outsourcing firms show a turnover rate of 10 to 25 per cent.Language and cultural barriers.
English proficiency is a highly prized skill in outsourcing personnel who interface with customers. The high rate of turnover in India can present a situation where the support position has to be filled hurriedly by someone with poor communication skills, and a mastery of a second language does not guarantee good communication.
In negotiation of requirements for IT support, web design and business process, breakdowns
in clear understanding can bring about expensive, sometimes disastrous results.Intellectual property (IP) and confidential data risk.
Firms outsourcing programming and design work must build strong IP protection into their contracts toguarantee ownership of the work for which they have paid. IP protection laws vary in different countries, and at times in the past, the courts tended to favor the home country’s business.
New laws considering the handling and transmission of personal data recently enacted in India, China, the U.S. and elsewhere are making the handling of sensitive personal data much more complicated and risky across country borders. Rules around the consent of the data owner are becoming more restrictive.Changing laws
Businesses considering off shoring must understand the legal complexities of these arrangements, and ensure that they are contractually protected. They must also understand which country’s laws are to be applied, and where disputes will be resolved. This could be written into contract terms, where those terms don’t conflict with country laws. The global legal structure is in flux on areas relating to these services. In the U.S., recent L-1 Visa law changes on outsourcing restrict the movement of offshore vendor employees.Political and economic stability
Since many major outsourcing contracts are long-term, ongoing political instability or unrest is a serious concern. Upheavals or minor street protests can significantly impact worker availability. The economic viability of the vendor is also critical to the health of the ongoing services. Financial meltdowns can happen in any country, but due diligence can be much more difficult across political and cultural borders.High overhead contract management costs
The outsourcing contract and working arrangements need to accommodate the local government and working culture. SLA’s crafted for on-shore services may not apply well. A thorough investigation of the vendor for security and quality control may require travel and engaging local consultants.
In sum, the many concerns around moving a critical part of a company’s business by outsourcing to India will drive higher analysis, management, communications and legal costs. This has been true since the beginning of the practice, but now the narrowing labor cost gap is making it an even larger factor.
At Be Different Solutions, our employees and staff are based in one of our two offices in the United States or Europe and are highly qualified and motivated. You can depend on fast delivery of quality support responses. Our people aren't just brilliant. They’re highly dedicated and driven too. They take great pride in what they do, and they’re in it for the long haul. This is a career path, not a mere stepping stone.------------------------------------------------------
Sherman, Erik. 2011. New Privacy Laws in India and China could make IT Oursourcing Ugly. CBS News Moneywatch. http://www.cbsnews.com/news/new-privacy-laws-in-india-and-china-could-make-it-outsourcing-ugly
Disadvantages of Indian Outsourcing. Passion Computing. http://www.passioncomputing.com.au/articles/disadvantages-of-indian-outsourcing
Viteri, Armando. What are the Problems with Outsourcing today? Neubloc. http://www.neubloc.com/pdf/WP_ProblemsWithIndia.pdf