A not so simple path
Sending tech jobs overseas hasn't been as easy as some firms believed. But they persevere.
It seems inevitable: American service and technology jobs are going the way of manufacturing jobs - that is, they're being sent far, far away. But it's not happening as massively or as quickly as the hype might make you believe.Skip to next paragraph
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True, about 1 in 20 Fortune 1000 companies already spends half its IT budgets abroad, according to a new report by Forrester Research in Cambridge, Mass. And programmers in India can be hired at one-tenth the salary of programmers here. Yet labor-cost savings aren't the only factor firms need to consider before jumping on the outsourcing bandwagon. And many still wonder if the benefits surpass the risks.
Part of what gives them pause are the stories of outsourcing gone wrong:
• After a Fortune 500 financial services firm outsourced some IT work abroad, it had to foot a larger-than-expected bill when the transition took more than nine months instead of the projected four to five.
• A skateboarding company brought support services back to the United States because the changing lingo of young American customers was too much for its foreign call center to handle on the other side of the world. (Both of the above companies were described, but not named, by executives at neoIT, an offshore-operations consulting firm in San Ramon, Calif.)
• Sonim Technologies, a start-up in San Mateo, Calif., reportedly brought engineering work back to the US from India after just three months because the skill levels did not meet their expectations.
• Ishoni Networks, another California start-up, filed for bankruptcy last year. Some reports attributed its demise to intellectual property theft by the company's subsidiary in Bangalore, India.
"It is so commonly imagined ... that you can just take anything to India and it will work - and that's just clearly not true," says Debashish Sinha, neoIT's managing director.
But that's not to say opponents of offshore outsourcing should celebrate the trend's demise. Once executives commit to sending service and tech jobs abroad, they have a lot riding on making it work.
"Sometimes they stumble really hard - it's costly, it takes more time, it's a big embarrassment - but they keep on plugging, and eventually they'll get it right," says Prof. Erran Carmel of American University's Kogod School of Business in Washington. Studies suggest that more than half of outsourcing contracts haven't delivered their projected cost savings, but once companies refine their strategies, they can expect to save 20 to 40 percent.
For an example of the refine-but-don't-retreat strategy, look no further than Dell Computers. A few months ago it rerouted some corporate clients' service calls from India to the US. While some viewed the move as an indication that accents and cultural gaps were forcing US companies to pull back from foreign call centers, Dell spokesman Barry French says the "rejiggering" was blown out of proportion. The company routed other calls to India rather than reducing the overall number.
While there's always room for improvement, he adds, Dell "remains committed to India.... There are very talented people there, very strong technical skills."
British companies have also experienced "initial teething troubles" with foreign call centers, but that won't outweigh the labor-cost savings in most cases, according to a recent report by Datamonitor, a market-analysis firm in London. Ryan Powell, the report's author, tells of Indian call-center staff watching "EastEnders," a popular British TV show, to pick up on language and cultural nuances that they wouldn't learn in a class.