Google search on 10 myths in offshore outsourcing brings a few good articles written 3 – 7 years ago, some of them are still worth looking at even though some of the top myths lost their mystical nature, some debunked myths turned out to be facts, so it is worth taking a new look at what the myths are and whether they are worth debunking…
Let me start with a few Facts that are often called Myths:
Fact # 1. Offshore outsourcing is costing U.S. jobs. This myth has been debunked so often that by now we should strongly believe in its opposite. Supposedly someone very trustworthy institution calculated that for every dollar spent on a business process that is outsourced to India, the U.S. economy gains at least $1.12. An easy way to fix the economy, isn’t it? Should we pass the idea to the new administration? Well, I am not planning on questioning this global statement. What I can say with certainty is that every outsourced IT job is a local IT opportunity lost.
Fact # 2. The cost benefits of outsourcing are overstated. I touched on this subject in several earlier posts (e.g. Outsourcing Myths: cost advantage). The reason I wrote on the topic is exactly that “the cost benefits of outsourcing are overstated”. I would not call IT outsourcing “the best story ever sold” yet there is a large portion of exaggeration to almost every offshore vendor presentation I’ve ever seen. Fortunately many of buyers came to grips with the fact that on any meaningful scale IT outsourcing can at best save 20-30%, if handled well.
Fact # 3. There are “huge” cultural barriers. For anyone who’s been through any substantial outsourcing initiative there is nothing mythical about cultural barriers. The fact that they are not necessarily huge and sometimes only subtle doesn’t make them easier to deal with. Especially now when “IT outsourcing” doesn’t equal “Outsourcing to India” underestimating complexity and challenges associated with cultural differences can trip over otherwise bulletproof engagements.
Now let me switch to some of the most popular misconceptions that fit the definition of “Myth”:
Myth 1: India is the best destination for IT outsourcing. India is a leader in IT outsourcing no matter what angle you look at – sheer volumes, number of providers, process maturity, breadth and depth of service offering and so on. It doesn’t make India the best destination in every case though. In particular India is farshore destination for European and US-based companies vs. nearshore option provided by Eastern Europe or Latin America correspondingly. There are other Cons to India as the destination (take a look at Pros and Cons of Outsourcing to India). Growing competition from almost every country in the world cuts into India market share and offers multiple alternatives to buyers across the world.
Myth 2: Offshoring is the best strategy for cutting costs. Offshore outsourcing is just one of the strategies that companies can use deploy in tough economic climate. There are many areas that should be considered by the companies looking for bottom line improvements. In many cases the steps should include rationalization of IT portfolio, SDLC and other process improvements, usage of tools, etc. Offshoring is a very powerful weapon and as other ones is a double-edged sward.
Myth 3: Offshoring drives IT salaries down. Offshore outsourcing is of course a contributor and plays its role in salary dynamics, it is however less important factor than other elements of the economy and geography. The areas that are affected the most are actually wages of “local outsourcers” – freelancers, contractors, etc. Take a look at oConomy you will see some staggering trends catering to the concept of “flat world”. Hit with homesourcing many US freelancers had to drop their rates to what market is ready to pay nowadays. On the other hand some comp. packages increased in size: consider for example rates you need to pay people running distributed engagements.
Myth 4: Offshoring will result in significant unemployment in the technology sector. Similar to salary dynamics offshoring affects employment trends, and so far did not deliver the impact feared. High-end IT professional continue to be one of the scarcest commodities in the world, even low-end IT workforce still remains gainfully employed in a large degree despite huge economy downturn. It remains to be seen how far IT unemployment figures would go and would be the geographical distribution.
Myth 5: Quality of offshore IT operations is lower than in the US. That is almost as bad of a generalization as they get. As a matter of fact having seen IT operations in many companies in this country and some of the best operations offshore I can say that there is much to be learn from IT companies in China, India and other countries. As a matter of fact how many CMMI5 companies are there in US and how many in India? It would be interesting to see average maturity across IT outfits in different countries.
Myth 6: Quality of code produced by offshore organizations is very poor. Quality of code produced by outsourcing companies is another topic being frequently discussed. And again I would not venture to generalize; the code is produced by people, not organizations. Bad programmers write bad code and bad programmers are one of the most numerous creatures in the IT habitat. High wages of IT and huge demand on it attracted large volume of mediocrity into the field across the world and even in exclusive locations such as Silicon Valley you will come across of horrible code on a regular basis. Add to that the possibilities of writing bad code that have been opened by new “forgiving” technologies such as Java or PHP and you get where we are today…
Myth 7: Offshoring is a never ending nightmare. Funny enough I hear this one more and more often nowadays. Yet when you deep dive into the reasons behind nightmare they often point much more towards the organization outsourcing the IT tasks rather than to the vendor. As I said many times it takes knowledge and skill to apply outsourcing tools to the benefit of your organization. You can not get rid of a problem by throwing offshoring at it. Organizational inefficiencies such as broken communications are only amplified by outsourcing and can result in the nightmares.
There are more common misconceptions about outsourcing, it’s not surprising as it is still a somewhat new and rapidly changing phenomenon, but I think I should stop at this point as I met my quota of top 10…