Merits and Demerits of Indian Offshore Outsourcing
Outsourcing has been successful in India as the merits of outsourcing overshadow the demerits of Outsourcing businesses to an offshore location. This may not be applicable to all parts of the Globe and to other offshore destinations across the whole world.
The benefits of outsourcing far outweigh the disadvantages of outsourcing. Monetary benefit and cost cutting are not the only advantages of outsourcing. There are a lot of other merits as well as demerits. Let us look into them in good detail.
Cost Benefits
Cost related benefits are, however, the first and foremost benefit of Offshore Outsourcing. Companies had been outsourcing time consuming support services for a considerable period of time before starting to outsource high-end processes to India. The cost effectiveness in outsourcing back-end support services has been applied on high-end services. This saves enormous costs for the company that outsources projects to offshore destinations.
Increased concentration on mainstream business
Outsourcing leads to saving a lot of managerial efforts, time and cost to concentrate on research and development and core products and services of companies. Concentrating more on the main business streams will lead to increased returns.
Alternative Hiring Options
While Outsourcing to Offshore destinations, you have a lot of options in hiring. You can hire according to what the project demands. Not all projects are similar and so, you may want to hire resources on a weekly, monthly, and annual basis depending upon the cost and duration of the project. You choose offshore destinations to reduce costs and these hiring options will prove to be efficient for you.
Some of the demerits of Outsourcing include:
Transfer of Management and lack of supervision – You will have to trust the offshore company and entitle almost 80% of ownership to that company. You do know little about the management and policies of the offshore company than to take ‘on-paper’ documents as corroborating of their track record. You will reap the benefits only after delivery of the work.
Creates necessity to disclose Intellectual Property
If you outsource, you will have to let the other company know of inside information, plans and future actions to some extent. Non-Disclosure Agreements are very important in protecting company related information.
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Indian Outsourcing Costs & Huge Benefit For Outsourcing Companies
The labor costs are the biggest expense for any company. When this cost is significantly reduced, it leads to higher returns on investment. Wages of Indians remain around 5-10% of the wages incurred on an American or an European counterpart. Now, the rise in demand has led to an increase in the costs at least for employees who are highly experienced.
Programmers, developers, web developers or any kind of software professional or BPO personnel are paid at set standards ensuring that the IT Industry remains at par with the expectations of the employees, society and the country as a whole. The league of talents required to perform different jobs within a project varies in experience and compensation. Huge amount of cost is saved with those who are less experienced.
This means that more of opportunities are available for fresh talents and those with experience of around 1-3 years. Those with 1-3 years’ experience are paid between Rs. 240,000-250,000 ($5250 approximately) and Rs. 360,000-400,000($7800-9000 approximately). This can vary according to a lot of internal and external factors. These are figures that a software professional expects to be paid.
Experienced employees are not hired as much as fresh talents and lesser experienced employees are hired. The cost of hiring seniors is around 30% of the total cost. Seniors are paid around Rs. 720,000 ($15000) to Rs. 1,800,000 ($40000). Similarly, commercial and office spaces also offer significant cost advantage.
The top brass consists of lesser number of resources who manage a pyramid of juniors below them. This means that the costs incurred on seniors do not escalate the total costs.
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ref: Indian Outsourcing Costs & Huge Benefit For Outsourcing Companies
Impact of US Policies on India As Offshore Outsourcing Destination
The US suffers an unemployment rate of 9.9% which has triggered a need for several amendments in US policies towards Outsourcing and the companies that outsource jobs to India. Among those who outsource vastly are the giant US conglomerate GE (General Electric Company) and IBM (International Business Machines).
Recently, the health care bill passed in the US led to 35 million Americans being given fresh health insurance cover. As the Bill was passed on March 23 and was made a law on March 30, Companies in India had turned hugely optimistic over the imminent revenue inflow that followed. Processes like enrollment, insurance claims, transactions and customer services that followed were to provide employment opportunities to India.
This was because Health care providers were forced to operate at lesser cost in providing healthcare services to Americans. Who will convert all those paper records into electronic and digital formats? Hence, Indians grew optimistic and had already secured contracts with major health care providers to provide services. The Health care Bill is expected to bring employment to Indians for the next 10 years.
On the other hand, ‘American Jobs and Closing Tax Loopholes Act’ was passed in the House of Representatives recently which was supposed to exempt companies from certain taxes if they generate more number of employment within the US. Citigroup, IBM and GE have been the major gainers from their Offshore Outsourcing activities creating employment opportunities in India.
However, predictions suggest that this is not going to affect outsourcing to India as the bill was aimed at increasing job opportunities within the US and was not intended to curb the profits made by these companies from outsourcing their jobs to India.
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ref: Impact of US Policies on India As Offshore Outsourcing Destination
A Case Study of Offshore Outsourcing
In offshore outsourcing, an external organization is hired from a foreign country to accomplish a project just because the offshore software development companies charges lesser cost when compared to in-house consulting without any compromise in the quality or time management. Let us go through the case study of this topic.
Reasons for the boom of offshore outsourcing
1. Globalization
2. Competition in IT and ITES industry
3. Cutting costs and revenue potential
4. Need for highly skilled and dedicated developers
5. Need for Internationally standard experts
6. Need for an organization for doing subsidiary tasks
7. Successful track records of offshore software entrepreneurship
Risk factors in offshore software development
1. Exposure of trade secrets
2. Deficiency of staff proximity
3. Difficulty to oversee remote management
4. Communication and cultural barrier
5. Increasing labour costs
Solutions to the problems in OSD
1. Educate and train the workers on communication improvement and cultural difference
2. Hire Experienced and well-skilled offshore consulting
3. Analyze the infrastructure, communication lines, Internet, electricity and overall management
4. Scan through the protection law, managerial documentation and government policies
5. Compare the labour cost advantages and the proximity of the offshore destinations
Today offshore outsourcing is unavoidable business management among contemporary competitors. Year by year the growth and average income of this business have been successful. India, Ireland, Canada, Russia, Philippines and few more countries have seen remarkable profit in offshore software development which have almost led to the revolution in the economic policies and employment opportunities of the respective countries.
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read more: A Case Study of Offshore Outsourcing
Challenges and Solutions to Offshore Outsourcing
Outsourcing companies and offshore companies differ in their communication with respect to word pronunciation, usage of slangs and dialect, intonation, phonetics and style of the speech. Personnel in offshore countries do not communicate in a way the stakeholders feel convenient to understand things. The best possible solution in this scenario is, speaking in an accent that the client would feel better to communicate. Try to speak in a neutral accent.
The cultural differences between the onshore and offshore companies may complicate the things further. The consequence of misunderstanding or not understanding the culture will result in delay in delivering the products, complexity in the project development, missing creativity and innovation, etc., and finally affecting the entire process. This problem can be handled easily when the working staff are given cultural training and general knowledge.
Companies find it difficult to deal with inexperienced offshore development teams from the basic establishment to product finish. The best way to solve this issue is appointing a good mediator or agent who is well-versed with the offshore management strategies, experienced and communicative to deal with the entire process starting from selecting a vendor ending with delivering the finished product between the supplier and the customer.
Outsourcing companies may assign long-term projects to offshore consulting to reduce the cost considerably as well as to avoid communication misunderstanding.
Now-a-days offshore software development companies in India, Ireland, Canada, Philippines, etc., are shining in this business concept as they are disciplined and congenial in their approach with the foreign stakeholders.