Some Things to Consider Before You Try Outsourcing Your Business

Offshore outsourcing success stories have encouraged many more companies to opt for it. However, many of them commit themselves to offshoring without realizing what they are in and then find themselves in a very large muddle.

Much of the success of offshoring rests on the selection of a suitable vendor. This entails a lot of expenditure, some very conspicuous, others not quite apparent. The cost of selecting a vendor, it is believed, can be as high as 2% to 10% of the total business done annually by the company. Costs include documenting needs, seeking, and evaluating applications, drawing up contracts, legal fees, and travel expenses. The selection is done in-house by a project leader, assigned the responsibility. The process of selection has to be slow and deliberate so that the selected vendor meets all the expectation of the client company.

During the transition period, companies can expect no saving. On the contrary, they may actually see an increase in expenditure. The transition period lasts from one to 3 years. The vendor cannot deliver profits right away. Knowledge transfer has to take place and this happens by two ways. The offshore developers have to be provided temporary visas in the country of the outsourcer (say U.S) so that they may be acquainted with processes and techniques, and then they may return home and implement those. Their salaries will be comparable to that paid to those existing in the client's industry.

Else, the outsourcer has to send its own staff offshore to expedite the transfer of knowledge. During the training period, they are not contributing to actual production or business. In both cases, expenses are incurred and most vendors make it clear that the clients have to pay the bill. An additional cost of up to 3% during the transition is likely.

When a company decides on outsourcing, it has to layoff many of its employees. This is unavoidable. The employees have to be taken into confidence even when outsourcing is being considered or the uncertainty of their future is going to be reflected in the quality of work. Employees have to be retained for as long as the transition period. They have to be paid bonuses to ensure that they remain and share all their knowledge with their new counterparts. Not paying them adequate retention bonuses may only mount transition costs.

Alternatively, the option of retraining the staff for a different system, as opposed to layoff, can be studied. Again, this will increase the cost of transition. There is a possibility that employees whose services have been terminated may resort to legal action. Thus, layoffs may cause up to 5% addition to the total cost of outsourcing.

Productivity is major factor in outsourcing. This is determined largely by the experience, and competence of the employees in the vendor firm. The work environment and culture prevalent in the country where the vendor company is operating is often overlooked. Productivity differences can cost up to an estimated 20% to 27% of the off shore contract. Attrition is a major obstacle in outsourcing. They are as high as 35% in India. Cost of improving the quality of software development process, managing and maintaining an offshore contract have to be added.

To conclude, outsourcing may not be the best strategy for all businesses. It is a long-term strategy requiring patience, perseverance and tact.