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Meta: Outsourcing laws still a long way off

Offshore outsourcing is a moving target for both state and federal lawmakers. So far, none of the bills have become laws, and right now CIOs shouldn't dwell on the legal rhetoric. There are plenty of other offshore risks to worry about.

SAN DIEGO -- Campaign rhetoric from presidential hopefuls suddenly has more than just CIOs and IT workers talking about the role of offshore outsourcing. Lawmakers are raising red flags too.

Yet, the juxtaposition of the fast-paced world of business and the more plodding world of government should reassure those thinking of getting into offshore outsourcing, said one analyst with Meta Group.

So far, 21 states have introduced 39 bills to limit offshore outsourcing, but not one has been passed into law, said John Goggin, vice president and director at Stamford, Conn.-based Meta at the analyst firm's METAmorphosis conference. With 11 governors up for re-election this year and another 36 next year, expect offshore outsourcing to continue to garner headlines.

"Truly, this is politically driven," Goggin said. "[Politicians] want to go back to their constituents and say, 'I've done something about this.'"

The bills range from eliminating all governmental offshore outsourcing, to allowing offshore work only if it passes a governor's board set up to review such matters. Many of the laws target call center work, Goggin noted.

Partisan wrangling and the length of time it takes to get legislation through two bodies of government should prevent the legislation from being passed any time soon, Goggin said. There is, in fact, a disconnect between what government's understanding of outsourcing and CIOs' understanding.

"[CIOs] are not policy people," Goggin said. "On the other hand, God help us all if legislators get into drafting what makes outsourcing."

Outsourcing legislation is only going to get more complicated as outsourcing vendors offer options both in the United States and abroad. For example, is it offshore outsourcing if part of the work is done in the United States?

"There's a lot of blurring that's going to go on over the next few years, and it's already happening," said Dean Davison, vice president and director at Meta.

Davison suggested that any losses that come at the hand of bad public relations due to outsourcing will not impact the bottom line. For example, customers choosing Company B because Company A outsources should have a negligible effect.

"We can sympathize with the individual stories, but I believe it amounts to a reporting error," Davison said.

Meta is establishing a theory that companies would best be served by earmarking 3% to 5% of the money they save through outsourcing back into the community such as new training programs.

Goggin said that any laws that are passed will not affect the economy the way politicians are hoping and that the government has a poor track record when it comes to looking ahead.

Offshore risks

When considering offshore outsourcing, organizations should pay closer attention to other risk factors, Meta warned.

Security, particularly when it comes to intellectual property protection, is a serious consideration, especially in China, which is quickly catching up to India as an offshore destination, Davison said. Organizations also need to consider geopolitical factors such as war, terrorism and politics and protectionism abroad and make contingency plans. Some organizations are balancing this out through global outsourcing, spreading projects to different countries.

Knowledge transfer is also emerging as a problem and can impact the expected bottom line. IT organizations experience a 20% decline in productivity during the first year of an agreement due largely to transferring technical and business knowledge, according to Meta research.

Finally, most projects do not remain at a fixed price; they change up to 15% during the development cycle, according to research. Organizations can stipulate wages but ultimately will lose quality as inflation drives up wages and the contractor swaps out the more experienced engineers with newcomers, Davison said. Conversely, if something like a minimum education level is required in contracts, costs are likely to rise.

Offshore outsourcing continues to be about money, but organizations need to be wary that labor arbitrage will yield savings on a person-to-person comparison. In reality there is a general savings of 15% to 20% in the first year, Davison said.


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