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Orlando Sentinel: `Offshoring' jobs doesn't always pay

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    http://www.orlandosentinel.com/business/orl-subizo ffshore01020104feb01,1,3802377.story?coll=orl-business-headlines (free registration required) `Offshoring
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      `Offshoring' jobs doesn't always pay
      By Justin Pope
      The Associated Press

      February 1, 2004

      BOSTON -- Like many Americans, Michael Prince worries about the
      economic impact of "offshoring," the trend of sending
      information-technology jobs to countries such as India and the

      But politics isn't why Prince isn't exporting info-tech work at his
      own company. The IT chief at retail chain Burlington Coat Factory
      simply isn't convinced it's good business.

      "I'm always under pressure to squeeze out savings," said Prince, who
      supervises a staff of about 180 that keeps the Burlington, N.J.,
      company and its 300-plus stores humming. "But you can work cheap, or
      you can work smart."

      The migration of tech jobs to countries that offer skilled workers and
      cheap wages is not just a fad. Forrester Research predicts at least
      3.3 million white-collar jobs and $136 billion in wages will leave the
      United States by 2015.

      For businesses, the appeal is undeniable. Thanks to the Internet, jobs
      like software development and systems maintenance can be handled in
      countries where workers are well-trained and speak English, but
      command about one-sixth the wages of an American worker.

      But as the offshoring wave breaks around them, some executives like
      Prince are holding firm, insisting it isn't the panacea.

      "It's absolutely cheaper," said Jim Burdiss, the chief information
      officer at Smurfit-Stone Container Corp., a Chicago-based manufacturer
      of paper packaging products that has eschewed sending tech work
      offshore. "But you have to look at the risk associated with it, both
      geopolitical as well as the morale factor with your employees."

      Experts say plenty of companies are handling offshoring well and
      reaping genuine rewards.

      But many of the well-doers are big, IT-heavy companies like General
      Electric and Citigroup. They have been at it for years and have taken
      things slowly. They also have huge economies of scale, whereas Burdiss
      said the math simply didn't add up for his smaller company.

      There is some evidence of a slowdown in outsourcing, the more general
      trend of which tech offshoring is a subset.

      A survey by TPI Inc., an outsourcing adviser, found that the biggest
      outsourcing contracts ($200 million and up) were flat in 2003 at $55.7
      billion, while the number of smaller contracts fell.

      Peter Allen, a TPI managing director, said that when clients ask for
      advice on outsourcing, 30 percent of the time he advises against it.

      Many companies already have had a bad experience.

      In a survey conducted by DiamondCluster, a Chicago consulting firm, 78
      percent reported having prematurely ended at least one outsourcing
      contract. Because it's a hot political topic, those failures tend to
      attract attention when they involve offshoring; investment bank Lehman
      Brothers and Dell Computer Corp. have been in headlines after moving
      call-center work back to the United States.

      "It's amazing under economic pressures how many folks will jump and
      look for the silver bullet, and later it doesn't turn out to be what
      they thought it was going to be," said Chris Disher, a vice president
      at Booz Allen Hamilton, a management consulting firm.

      In some industries, like accounting and drug development, worries
      about how U.S. regulators will respond have slowed offshoring, said
      Christopher Koch, executive editor of CIO magazine, a publication for
      corporate information officers. Similarly, defense contractors face
      rules limiting involvement by foreign nationals in some projects.

      But the more common problems relate to communications -- and not just
      trouble understanding accents. Experts say companies often fail to
      anticipate how much money and energy they'll spend dealing with
      cultural differences.

      "Companies look at offshore and see the salary difference and say,
      'Wow, the salary difference is 90 percent,' " said Atul Vashistha,
      chief executive of outsourcing advisory firm neoIT. "What they really
      forget is that there's other investments that they have to make --
      investments in training, in cultural understanding on both sides."

      With those costs, many analysts put the real savings at 20 percent to
      40 percent.

      Most importantly, however, experts say many companies fail to
      anticipate the way offshoring will affect their own companies. Too
      sudden a shift can do more harm than good.

      "You get renegade business units that decide the outsourced services
      don't meet their needs," TPI's Allen said. "They end up creating
      shadow organizations and you have redundancies."

      Prince, the Burlington Coat Factory executive, said he wants his
      info-tech staff to know his entire business, and the only way to learn
      it is to be fully involved in all facets.

      Prince isn't persuaded that kind of rapport is possible with an
      outside vendor -- especially one half a world away. And the last thing
      he wants is to farm out the work and then have to do it anyway.
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