Despite concerns about quality, cultural barriers and hidden expenses, companies are giving offshore outsourcing high marks, according to a recent study.
The "Managing Change in Offshoring 2003" report found that momentum for sending IT work abroad continues unabated and is delivering benefits for both outsourcing veterans and newcomers alike. The study was conducted by the Paaras Group and the Weissman Center for International Business at Baruch College.
"The major surprise was, we thought we'd hear some great, innovative ideas on how companies have managed change," said Suresh Gupta, managing partner with the Paaras Group. "What we found is, it's really basic blocking and tackling going on. No one has figured out how to do offshoring in a seamless way."
Thirty-eight companies in North America and Europe were interviewed for the study, and 70% had been outsourcing their IT, business-process and contact center work for several years. The rest could be considered relative newcomers, Gupta said.
Findings from the report include:
- Satisfaction levels are high. Of the companies surveyed, 89% reported they were satisfied with their outsourcing initiatives.
- Knowledge transfer and internal commitment, each at 76%, were identified as the major challenges in launching initiatives. Another problem, which has recently been worsening, is public relations fallout, Gupta said.
- The practice of outsourcing IT continues to have the more success than the outsourcing of other types of work.
- One of the major benefits of sending contact center work to India -- the low turnover rate among agents -- is waning. Attrition rates there have reached 52%, Gupta said. "When it comes to back office or call centers, people are still struggling," he said. "They didn't know how to manage a globally diverse team. It's not in discrete buckets, whereas with IT you can pretty much look at discrete buckets of project work or maintenance work."
- Cost savings continue to be the primary reason organizations send work abroad, but 63% of respondents said that accessing skilled resources was a goal, and 51% aspired to improve quality.
For example, in places like India companies can hire college graduates to work as agents, while in the United States, companies are lucky to get high school graduates, Gupta said. Finding highly skilled people at a lower cost is a factor at several positions. A CPA can be hired to do back-office work, and one insurance company in the U.K. has hired physicians in India to work as claims processors.
India is still the most-favored nation when it comes to offshore outsourcing, but other countries are catching up, Gupta said. The Philippines is getting more of the contact center work, and Ireland, Israel, Russia and some of the old Eastern bloc countries are starting to see more of the IT work, Gupta said.
Tsvi Gal, CIO of Warner Music Group in New York, has seen a shift from India to other countries.
With IT work that involves smart algorithms, Russia and former Soviet bloc countries are outdoing the Indians, Gal said, and Israel and Romania have proved to be adept at writing efficient code. For security and areas of innovation, Israel and Ireland have come to the forefront.
"Ten to 12 years ago, India used to be the cheapest," Gal said. "Now, the prices there are increasing, while in these other countries they are decreasing. In the last two visits we had, the Israeli and Russian bids were lower than the Indian [bids]. That was a nice surprise."
The study also identified two keys to success. Eighty-five percent of companies said that a program management office provides the basis for outsourcing success, while another 67% identified a proactive communications program as being key.
Additionally, experienced companies have moved toward "global outsourcing" -- the practice of using multiple offshore locations, Gupta said. Global outsourcing balances the supply of appropriate talent while at the same time minimizing geopolitical risk.