The downside of offshoring

Poor communication, cultural differences and lack of expertise can derail engagements.

By Ann Bednarz, Network World
July 05, 2004 12:10 AM ET

Economics lured Hemant Kurande to look to India, his birthplace, for more affordable engineering talent. Three years ago his company hired two service providers to do some core programming for a line of storage management products.

The results were mixed, says Kurande, CTO of Storability. The providers built products that were suitable as prototypes for R&D, but not production. That gap put the burden on Storability employees to shore up the code.

"We were not getting the quality we wanted," Kurande says. "The offshore companies provided a high degree of innovation, but a lower degree of readiness to ship."

The root of the problem was a lack of knowledge on the part of the outsourcing providers. "The depth of storage expertise we needed was very difficult to find," Kurande says.

After maintaining the offshore arrangements for two years, Storability concluded that some work is best kept in-house. Kurande didn't give up on India, though. Instead, Storability set up its own office in Pune. It employs 25 people there and is adding about five employees per month. Having control over hiring, training and retention, as well as product development processes, makes a big difference, Kurande says.

Storability is not alone in reevaluating offshore outsourcing plans that fell short of initial expectations.

In recent months, a handful of big-name companies have decided to return certain offshore work to the U.S. Insurer Conseco recalled its customer service operations as it worked to emerge from bankruptcy. Following complaints about the quality of service, investment bank Lehman Brothers canceled an offshore help desk engagement. Similarly, Dell brought back a technical support center after corporate clients complained about communication and service.

About 21% of IT executives surveyed recently by management consulting firm DiamondCluster International said they had prematurely terminated offshore arrangements in the prior 12 months. The most common reasons cited: the provider had financial difficulties; the provider failed to deliver on commitments; or the buyer consolidated its outsourcing vendors.

Nonetheless, the amount of work coming back is a trickle compared with the flood of work leaving U.S. shores.

What’s the big deal?
Unrealistic expectations about cost savings, loss of control over intellectual property and management gaps are among the issues that can derail an offshore outsourcing project.

By the numbers
How’s it going? More companies using offshore outsourcing services are dissatisfied with the relationship than those using national service providers, according to AMR Research.
SOURCE: ABERDEEN GROUP