Taking IT offshore

Where are the hot spots for offshore outsourcing?

Offshore outsourcing: Like it or loathe it, the ability to get the same work done for less money by overseas workers is likely to be a big draw for U.S. corporations struggling to remain competitive.

The recent news  that IBM executives met to discuss shipping IT jobs overseas has generated controversy. But IBM is just one of a score of organizations that have discussed offshore outsourcing options. According to Gartner, by 2004 more than 80% of all U.S. companies will have considered shifting U.S. IT jobs overseas, while 40% of all U.S. organizations will have completed some type of pilot or will source IT services from non-U.S.-based service providers.

In addition to the cost benefits, shunting tasks such as programming and application migration to foreign lands frees up in-house staff to work on more strategic developments.

As offshore service providers get more experienced at dealing with U.S. corporations, they are beginning to move up the value chain to offer business process outsourcing, call center outsourcing and network infrastructure management .

Countries such as Canada, India and the Philippines are good locations for service providers offering network management outsourcing, says Debashish Sinha, principal analyst of IT services and sourcing at Gartner. Those regions offer large pools of highly trained workers, have a modern telecom infrastructure and are likely to be able to make the required capital investment in building network management centers.

"The Philippines is an archipelago that has high-speed underseas telecom cables between the islands right up to the management centers," Sinha notes, in comparison to continental regions that might rely on older, domestic pipes.

On the other hand, countries that don't have an expansive pool of workers or can't afford big capital investments instead often concentrate in niche areas. Russia, for instance, offers scientists and mathematicians who can help solve large-scale, complex technical problems. There, an average developer salary is about $7,500 per year, according to Gartner.

This guide will show you which regions offer offshore outsourcing and the types of services local providers offer.

CANADA:

CanadaMore nearshore than offshore, Canada's cultural compatibility and time zones are obvious benefits to U.S. organizations considering a safer first step to outsourcing to foreign lands. The country's telecom infrastructure lets our northern neighbor offer network management services.

Specialty: Applications development, business process outsourcing, call center.

Quality indicators: High: Government support, labor pool, infrastructure, educational system, cultural compatibility, legal system. Medium: Cost, process quality. Low: Globalization skills.

CHINA:

ChinaChina could be one of the top three offshore countries as the region matures between 2007 and 2010. The cost of its workforce is 20% to 40% less than India's, and doing business with China is attractive given its entry into the World Trade Organization.

IT workers have strong Linux skills, and the region's role as host of the 2008 Olympics should enable it to improve the national infrastructure. However, its weaknesses include problems with software piracy, poor levels of English language skills and lack of technical innovation.

Specialty: Embedded software, hardware services, localization, application development.

Quality indicators: High: Government support, cost, globalization skills. Medium: Infrastructure, educational system. Low: Labor pool, process quality, cultural compatibility, legal system.

INDIA:

IndiaWith 415,000 IT pros and 70,000 newbies entering the workforce each year, India is the dominant offshore player. Beyond legacy maintenance and staff augmentation, providers now offer infrastructure outsourcing, e-business development and applications integration.

Challenges include cultural differences with the U.S., perception that providers take a subservient approach to their work (customers want providers to challenge their thinking), and increased competition from other countries.

Specialty: Applications/product development, business process outsourcing, call centers.

Quality indicators: High: Government support, labor pool, educational system, cost, process quality. Medium: Globalization skills, infrastructure. Low: Cultural compatibility with U.S., legal system.

IRELAND:

IrelandGartner lists Ireland as an example of a region without a vast labor pool that is focusing on high-value offerings. It's regarded as one of the leading countries for packaged applications and product development, as well as internationalization experience and software localization.

However, labor cost is high compared to other offshore countries. According to the OffshoreIToutsourcing.com Web site, a programmer in Ireland costs roughly $25,000 to $40,000 per year, compared to $6,000 to $20,000 per year in India.

Specialty: Packaged applications, product development, high-end systems.

Quality indicators: High: Government support, infrastructure, educational system, process quality, cultural compatibility, legal system. Medium: Labor pool. Low: Cost, globalization skills.

ISRAEL:

IsraelLike Ireland, Israel has a smaller labor pool and so has had to specialize. The country's higher-education system has helped to produce savvy IT pros.

Specialty: High-end systems, learning systems.

Quality indicators: High: Infrastructure, educational system, cultural compatibility. Medium: Government support, labor pool, cost, process quality, legal system. Low: Globalization skills.

PHILIPPINES:

PhilippinesBusiness and IT services have become a target for the Philippine government. Strengths include a high level of English language proficiency; a consultative, customer-service-oriented workforce; and high-quality, low-cost labor. Weaknesses include low awareness of the Philippines as an offshore contender, lack of experienced operations management teams and migration of workers to the U.S.

Specialty: Call centers, business process outsourcing, animation, application development.

Quality Indicators: High: Cost, cultural compatibility. Medium: Government support, labor pool, infrastructure, educational system, process quality. Low: Legal system, globalization skills.

Copyright © 2003 IDG Communications, Inc.

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