Issues of offshore Outsourcing

“Offshore outsourcing” is the most advantageous and a strategic move taken by the MNC‘s in today’s world. Outsourcing is widely done from the west to the east primarily to reduce the operating and development costs i.e. it maximizes the revenues and reduces the costs. India is one of the best destinations for outsourcing in today’s IT market. There are many issues and benefits that these development centers experience due to the huge distance in spite of having access to the best technologies. The following are the benefits from offshore outsourcing to India:

Cost Advantage - Operational costs are cut down by approximately 50% when compared to the development of similar products in the west. The most recent studies say that the by 2010 the US companies will save $390 billion in IT industry by offshore outsourcing.

Faster Lead Times - Man power is mobilized quickly by providing training to start a new project. These trained teams can be assigned tasks quickly, shortening the project start-up time.

Leverage Expertise - The organization’s most valuable assets is the employee. This brings about the best quality and innovation of new products. Investing on personnel here is the most cost effective strategy.

Access to state of Art Support facilities - It has a 24-hour service model that provides support to any time zone in the world.

Faster time to market - By leveraging the organizations with diverse and discriminatory talent in this remote location will help in executing the IT solutions faster.

Offshore Outsourcing Model:

In spite of having numerous benefits there are issues related to the above model .Some of the benefits can also become issues mainly the time zones and the other issues are crossing the deadlines and so on.


Issues related to outsourcing

There are various issues related to outsourcing like country related issues where integration between two completely different entities from unique socio political environments needs to be done .Vendor related issues include the ownership and security of the information as both the parties should be confidential about the information being exchanged. Personnel related issues relate to the coordination and communication between two teams and in - house flexibility is another concern where the outsourcer should prepare his team to work with different work environments.

Today most of the companies are outsourcing software to India due to the availability of skilled, trained IT professionals and nonetheless factors like on time completion of the project which is the most important factor as this has an effect on the company’s competitive advantage because the entry of the software to the market will be delayed. According to the recent study, companies have increased their net savings by 40% to 60% by offshore IT outsourcing.

Companies face many issues when they outsource software projects as each company follows its own software development life cycle (SDLC) and this becomes an issue to coordinate with the offshore team if it is following a different life cycle model. SDLC is nothing but a set of pre defined methodologies used in software engineering for planning, designing, coding, implementing and testing a software project. The mismatch of SDLC between the client and the outsourcer may lead to project failures and crossing deadlines that drive the company’s revenues and profits down. The following are the most commonly faced issues by the companies,

- Insurance - the outsourcer has to do an insurance against loss, liability or damage of the software.

- Contract duration and commencement - A minimum term of three years is mostly seen. The start date of the contract should be decided in advance to reduce the complexities that arise when the contract is signed between the two parties.

- Service level agreements (SLA) – These agreements are made to test the performance of the outsourcer, this includes quality level agreements and response times. These agreements are revised with respect to the changes that occur.

- Access and security to the system – the outsourcer should have access to limited information on the purchaser‘s system. There are risks associated with outsourcing for example the payroll system where the confidential matters like the employees salaries are being disclosed.

- Personnel Issues – employees are the most valuable assets of the company, it becomes an issue retaining personnel once the project has started. The companies need to maintain employee contracts to avoid disruption when the project is in a transition period.

- Loss of flexibility – There is no complete managerial control over the remote location where the project is being developed. This will cause a slowdown in the rate of software development process and it many eventually fail due to lack of understanding project requirements with the communication barrier.