Posted on 05/27/2003 6:17:45 PM PDT by Lessismore
The economy remains in a slump, and that's exactly why Atul Vashistha is smiling.
As CEO of NeoIT, a consulting firm that helps companies outsource some operations overseas, Vashistha has little trouble these days pitching the value of his company's services. Last year, San Ramon, Calif.-based NeoIT played a part in the signing of offshore outsourcing contracts worth more than $250 million--of which it received a cut. In the first three months of this year, it worked on deals totaling more than $300 million.
"We believe every company can (outsource) offshore," said Vashistha. "The question is, how much should you do?"
American businesses have long outsourced some operations to cut costs, most obviously in manufacturing, and the technology industry also has increasingly outsourced tasks such as applications development. More recently, many businesses have been engaged in process outsourcing, such as moving call center operations offshore.
Low-wage workers are the key draw. The cost of an entry-level programmer in China, for example, is 30 percent to 50 percent less than for one in Tokyo, London or Chicago, according to market analysis firm Forrester Research.
Forrester has estimated that the number of computer jobs moving overseas will grow from 27,171 in 2000 to a cumulative total of 472,632 by 2015. Forrester analysts predict that other services--including call center services and back-office accounting--will follow information technology operations abroad.
But navigating the outsourcing waters abroad can be treacherous. How do you know whether you're getting a good price? Is the foreign company reputable? Will quality slip?
That's where companies such as NeoIT and The Woodlands, Texas-based TPI, which focuses on outsourcing arrangements for clients such as J.P. Morgan Chase, Procter & Gamble and General Motors, come in.
According to TPI chief executive Dennis McGuire, about 30 percent of the time that he works with companies, he advises them not to bother with an outsourcing deal in the first place. "We give an objective answer on whether or not they should outsource," he said.
McGuire's firm traditionally has worked on deals in which companies hooked up with a domestic-services provider. But in recent months, TPI has seen a dramatic shift toward clients looking to include an offshore component in their outsourcing deals.
The percentage of TPI's projects that involve some type of offshore arrangement climbed from 44 percent in March to 52 percent in April, McGuire said. TPI, which has a partnership with NeoIT in order to help it provide advice about offshore deals, saw its revenue jump about 38 percent last year to $58 million. TPI's sales are on pace to climb another 15 percent to 20 percent this year, McGuire said.
Offshore on the money
Other companies are jumping on the bandwagon as well. Law firm Shaw Pittman has brought on business consultants to help it advise companies on outsourcing decisions. Armed with their expertise, the technology division of the law firm has seen its revenue rise from roughly $35 million three years ago to about $45 million last year, said Shaw Pittman attorney Robert Zahler.
"We've done this dozens of times," Zahler said. "We can help them do it more efficiently and know what the issues are."
Those issues include intellectual property protection and geopolitical-stability questions such as, for example, an outsourcer's backup plans in the event of war between India and Pakistan.
Another challenge for companies looking to ship IT-related work abroad is separating legitimate providers from rookie outfits. Mike Atwood, president of Dallas-based outsourcing consulting firm Everest Group, said companies may pitch themselves as offering a "complete" financial services offering--when they're currently prepared to handle accounts-payable services only.
"We do a lot of research into, 'Who are the players, what are their offerings, what's real and what's not real?'," Atwood said.
Atwood, whose staff has grown by 30 percent this year amid a surge in offshore deals, said an Everest official has already taken three trips to India in 2003 to check out the legions of outsourcing companies there.
NeoIT's vice president for business development, Eugene Kublanov, recalls a case where a Chinese company described as a high-tech leader turned out to lack a Web site in English.
Still, although business is brisk, outsourcing consultants do face hurdles. One involves the difficulty of picking winners as consolidation shrinks the ranks of offshore providers.
Events that disrupt international travel, such as the spread of severe acute respiratory syndrome(SARS) that has curtailed visits to and from Asia, are another wild card.
"The moment a customer cancels a trip, you can automatically assume there's going to be a delay of four to eight weeks in the deal," NeoIT's Vashistha said.
A third obstacle is domestic in nature: the growing backlash by American workers to offshore outsourcing. WashTech, a Seattle-based tech-worker advocacy group, has issued a call for Congress to study the trend of moving jobs offshore. The New Jersey Senate has approved a bill that permits only citizens or legal residents of the United States to work on certain state contracts.
TPI's McGuire himself wonders what sorts of jobs will remain in the United States as the offshore outsourcing trend continues. He expects the controversy over domestic job losses to grow in the next six to 12 months.
Companies will need to formulate answers for employees and the public about their plans, McGuire said, which suggests that the domestic threat to companies like his may actually create more work--in helping employers develop those answers. "If you don't have a strategy," he said, "you're in deep trouble."
Henry Ford understod that unless hos workers were paid enogh to own a car there would not be a sufficient market for his automaobiles.
We supposedly have a problem of excess global capacity so the brilliant solution adopted by the managers is to create more capacity outside the USA to save money. So all the good socialists will say that outsourcing is wonderful for the companies and anyone who does not worship it is a socialst. Yet each company that outsources offshore finds profits being squeexed more as they have greater problems with teh services out sourced.
It is inevitable that not too long from now, newly-formed overseas companies will snatch up these American-trained employees, and the trade secrets they have learned, for modest increases in salaries and benefits. In fact, I don't doubt that many new companies will be founded by the outsource employees themselves.
Meanwhile, those companies that have outsourced the most, will find their staffs decimated as they seek to compete against overseas companies that have lower overhead and employees trained at their own expense. The irony is immense.
Outsourcing to foreign countries is nothing more than the first step out the door.
Congratulations to the people of India and other outsourcing meccas. They will benefit far more than anyone else from this fad.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.