Study Says Outsourcing Not Big Savings

There is a new study on offshore outsourcing I.T. contracts which says instead of saving money by labor arbitraging workers, the costs can actually increase by 20%.

While staff costs may be 40 percent lower in offshore locations, Compass research found these savings were undermined by a 60 percent drop in productivity in operations where the full lifecycle of application development has been outsourced.

"This means that the decision to migrate development, when you include additional management control, increased infrastructure spend, employee attrition, language, and cultural issues, can end up costing up to 20 percent more than current in-house operations," said the consultant group.

PC World:

Staff attrition related to moving application development to offshore locations, particularly the loss of functional expertise, will have having a "negative effect" on productivity.

In other words, throwing away highly skilled and experienced tech people has a tendency to return crap on software development and I.T. services.

So, why, one must ask, is the offshore outsourcing of I.T. as well as all Science, Engineering, Technology and Mathematics so prevalent?

Could it be sales, marketing, who you know and plain ole payola?

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Just Ask Walmart

Walmart never outsourced their systems. The first thing you loose is you competitive advantage in reducing "time to market" products. Some of the companies are coming back because of telecommunications costs/infrastructure problems, and the costs of keeping onshore/offshore sites which are just duplication of personnel functions.


It seems also to me that these contract bidders, somehow have all of the right elements in place to obtain the contracts but inability to really execute.

I mean the medical and pharmaceutical companies are stuck with pathetic systems, clearly not designed on the best database back end, inflexibility and incompatibilities.

Same with the health insurance industry and then our government, lordy, lordy, they keep awarding these large contracts to companies like SAIC, Accenture, IBM, etc.
and can't even get a working line of code.

It's like they discount technical expertise 100% and are shocked with advanced skills actually matter.

Another example would be the immigration system. Ya know, the credit rating agencies know, pretty much in real time, exactly what kind of toilet paper you just bought or how many drinks in what bar you just had....

yet when it comes to contracts, they can't even get it together to validate social security numbers.

The lost tech generation of America

While I cannot improve upon Mr. Oak's remarks, I would like to add the obvious: when an American applicant used to go through months of a vetting process prior to being hired, these agencies like Ta Ta simply go out and pick up the latest batch of grads in Bangalore.

Please recall that Intel lost (reportedly lost, it was probably more) $1 billion on their attempt to offshore chip development to India. The clownish corporate idea that experience and learning never really count, and progress comes from anything which focuses on the bottom line, has always been a sure description for failure and regression, not progression.

Remember that phoney McKinsey Global Institute report? The one which claimed that offshoring of jobs was profitable?'

The "study" whereby they started off with the assumption (a k a: "wishful thinking") that offshoring was profitable, and the "result" of the study was that "offshoring jobs is profitable."

And Atlantic Monthly still publishes Virginia Postrel and the rest of those lowbrows for hire.....


I read that study by Catherine Mann and it was significantly flawed in it's assumptions.

Then, few realize, McKinsey's business is to offshore outsource so they have a vested interest in promoting it.

Paul Samuelson wrote a paper that showed offshore outsourcing is "not good" for America and he did it by simply varying a few labor variables in a trade equation.

The truth is right there and I find it disgusting that these various people sell their souls, ruin the concept of quality research, objective study by writing up "spin with statistics" as present it as fact.

I wish there was an ethics review board for all PhDs that had real consequence for turning out caca, as in strip these people of their graduate degrees.

They also aren't paying

They also aren't paying these new grads [from Bangalore, et al] squat. They lack experience, and often their work quality is not so great. (I know this from experience.) They're basically very young folks willing to take any pay rate for their first job, and who can blame them?

Well, all the so called

Well, all the so called "vetting" in the hiring processes (espcially of top managements) have really paid off well. And, outsourcing and offshoring are really working swimmingly as well, as can be seen today by the stellar financial conditions (and credit ratings) of U.S. Global conglomerates.

sales & marketing

They literally would have "conferences" inviting executives at $500/head to listen to their offshore outsourcing sales pitches.

All of the CEOs "jumped on the bus" as this being a "great thing"...

idiots, I'd like to sell them the Brooklyn Bridge too.

The Other Bottom Line

Lost in all the discussion about the relative merits and value of offshoring is what it does to the workers that remain. No squawking when benefits are reduced and those raises stop coming. That, I think, is where the real benefits come in. These guys are bean counters and they understand that offshoring does not produce the savings that one would think would accrue simply by looking at labor costs. But a workforce that is scared shitless and willing to do more and more for less and less, that is where the real boost comes from.