Panel: Offshore benefits go beyond savings

Cutting costs is the prime motivation for outsourcing jobs overseas but it is far from the only benefit, a panel of executives with experience in the matter said Tuesday.

When a spike in demand comes along, a business can capitalize on it more easily when it can turn to an offshore partner to help boost capacity or find workers with skills in a particular field, said Garry Johnson, vice president and chief technology officer with Dendrite International, which makes software for the pharmaceuticals industry.

“There are cost savings, but there is also a notion of improved time to market for us. That means core product development as well as implementing customer systems,” he said, speaking at the Software 2004 show in San Francisco Tuesday.

In addition, as good as the U.S. likes to think its technology workers are, there are also highly skilled workers overseas, and outsourcing lets a company take advantage of a broader talent pool, he said.

Cadir Lee, chief software officer with SupportSoft, said offshoring has a side benefit of giving a company a local presence in an emerging market such as India or China. “If you plan to sell there, then you need local support,” he said.

But with the benefits come challenges. Some companies miscalculate the savings they will realize because they don’t consider all the associated costs, such as extra travel and communications, and even hiring a manager to oversee the offshore work, the panelists said.

SupportSoft’s initial outsourcing foray a few years ago was unsuccessful because of the management overhead and other unforeseen costs, Lee said. “Ultimately, it didn’t make sense for us.” The company tried again later, this time establishing a direct presence in India rather than working with an outsourcing partner.

“We were happy with the cost savings, partly because we are here in Silicon Valley. If we were in Montana or Utah (where labor costs are typically lower) then things might look different,” he said.

The panelists disagreed as to whether it is best to have a direct presence overseas or leave it to an offshore partner to hire staff and oversee work. Most favored the latter approach, including Prakash Ramamurthy, vice president of products and technology at Oblix, which makes identity management software and has been outsourcing since 1996.

“I never felt the need to have an entity in India. We have always had a partner there and we leave it to them to weed out candidates while we focus on product development,” he said.

SupportSoft’s Lee disagreed.

“I think direct is the only way to go,” he said. “There are certain things you get with direct that you can’t get any other way. If you want (your overseas workers) to be a part of your team, part of your company, the only way you can do that is if they feel like they are part of your company, if they have your stock, if they see (the name of your company) on their door every day.”

B. Ramaswamy, chief executive of Sonata Software, based in Bangalore, India, said his company helps overseas vendors gain access to the Indian market as part of its outsourcing services. It has a “risk-free” agreement with one Swedish vendor, he said, in which Sonata does not get paid unless the vendor achieves a certain level of revenue in the region.

The best way to set up an outsourcing operation, Lee said, is to seed it with employees from home who are willing to work overseas.

Workers in India are starting to show some of the tendencies their counterparts in Silicon Valley did during the dot-com boom, some of the panelists said. Some are becoming more selective about which companies they work for, and attrition rates in the region have become worse since about 2001, Prakash said.

“The last year has been bad, particularly with (quality assurance) functionality,” he said. “You have to reach out (to overseas workers) and make them feel like they are part of a team.”

When SupportSoft looked for employees in India, it was surprised to find that salary wasn’t the most important concern, Lee said. Workers there prefer to work for well-known companies and to do particular types of work. For some reason, embedded software development seems to carry a particular prestige, he said.

“There’s definitely a pecking order” in India for different vendors and for different types of jobs, he said. “In some ways it’s probably more competitive than anywhere in the world.”