Offshore contracting using Indian vendors is a high-quality, low-cost outsourcing option that can also provide significant time-to-market benefits. In the past, many IT organizations used offshore contractors only for legacy grunt work.
But, as e-business technology skills shortages and time-to-market constraints intensified in the late '90s and 2000, many companies looked to Indian vendors to fill the gaps. The vendors responded with relevant skills, quality processes, time-to-market benefits and, of course, cost benefits.
Today, the market continues to mature, and there is increasing acceptance of the value of Indian resources. But, recent political unrest is dampening some firms' enthusiasm and forcing them to take a fresh look at the risks associated with offshore contracting. Fortunately, top-tier Indian vendors understand the risks and have learned how to mitigate them for clients. However, to what extent the Indian vendors can mitigate the risk associated with the recent Indo-Pak situation is a question about which everyone is curious. Insurers will need to re-examine their cost/benefit and risk analysis to determine if the Indian offshore equation still makes sense for them. Understanding the benefits and risks will allow them to make that decision.
-- Cost Savings: Most recent offshore outsourcing decisions were motivated by reduced costs, but were made possible by the quality benefits and improved Indian vendor credibility. Overall price advantages range from 25 to 60 percent. An example of the potential costs benefits: One Giga client recently engaged with an Indian vendor for SAP support. The client now pays $28 per hour per engineer for the support and service levels have actually improved.
-- High-Quality Products: Indian companies produce very high-quality results and have made a clear commitment to software process disciplines. Nearly 140 Indian contracting firms have achieved ISO 9000 certification, and a growing number have been assessed at Level 4 or 5 of the Software Engineering Institute's Capability Maturity Model. In fact, of the firms that achieved this, the vast majority are in India.
-- Normalizing Demand: Cost advantages of offshore contractors would be meaningless if they couldn't do the job. Similarly, if the in-house staff isn't adequate for a particular job, it should be outsourced to the most efficient alternative. Offshore contractors can be used to deal with peak periods of demand while avoiding hiring personnel that will not be needed later. Today, given the technology demands on most organizations, Giga is seeing an increasing number of companies outsource the support of systems or projects in order to free internal staff for more strategic work.
-- Accelerated Delivery: India's distance from North America opens up opportunities to leverage the time difference to achieve, in effect, a 24-hour development operation. By orchestrating in-house and offshore resources efficiently, organizations can compress development cycles. However, the management overhead required makes it easy to fail at this. Using a domestic intermediary can minimize the risks.
-- Support for New Technologies: Indian programmers have been highly inventive in adapting to new technologies. Limited access to IBM mainframes during the era of import tariffs actually spurred experience with Unix, open systems, client/server architectures, and other advanced technologies. For many Indian firms, it is harder to get adequate resources for legacy projects than for client/server jobs.
-- Filling the Skills Gap: Given the breadth and diversity of development skills required, and given the IT skills shortage, offshore outsourcing presents a solution for these issues.
Although Indian programming resources have helped hundreds of companies drive high-quality results using new technologies with time-to-market efficiencieswhile also saving them moneythere are risks associated with this model. Relationships can only be successful when you understand the risks and ensure you and your vendor are able to mitigate them. Fortunately, top-tier Indian vendors understand the risks and have learned how to make offshore outsourcing safe for their clients.
-- Security: Most companies that use offshore resources already adhere to very strict security policies and require their vendors to do the same. This may include staff background and defense checks; armed guards at development facilities; fingerprint/voice/retinal recognition to access client systems; dedicated communications links and client facilities. In addition, for Indian nationals working in the US, the US visa process requires some level of background scrutiny (and this is likely to become more rigorous moving forward). Post 9/11 and now since the Indo-Pak escalation, vendors have increased physical security even more to prevent sabotage or terrorism. New processes include mail scanning, perimeter security and vital-area security.
-- Travel Difficulties, distance to vendor: Traveling to India, even from the East Coast of the US, takes a long time and is a difficult trip. Sometimes, however, projects require in-person collaboration or attention, or at least seem to. Fortunately, many vendors and clients are learning to collaborate remotely using a variety of tools, technologies and processes. Insurers should ensure that the vendors with whom they engage have process and the tools to enable remote collaboration.
-- Time Zones: Time zone differences can be a plus or a minus. They are a plus because they increase time to market. But they are also a problem because teams of developers in two different time zones (between 9.5 and 12.5 hours apart) sometimes have to stay awake to collaborate. What this often means is that team members can become exhausted, which doesn't make for happy or productive teams. Many vendors have strategies for reducing the overtime remote and local teams need to work in order to collaborate.
-- Cultural Issues, culture clash: India's culture is very different from that of the US or France or Germany or the UKjust as each of these country's cultures are very different. These cultural issues will create a communications barrier if they are not addressed at the start of the relationship. Again, many vendors have cultural training classes where they teach their staffs about the customs for the country where they will be working. Some also have cultural training for clients. This training is critical for bridge building and is a critical success factor in offshore relationships.
-- General Country Infrastructure-The county infrastructure in India is not robust. So electricity, water systems and roads, for example, are not reliable. Many of the top-tier vendors have insulated themselves from India's infrastructure by building their own campuses complete with water purification plants, power general capabilities, etc.
-- Political instability: Finally, and most importantly, India has been destabilized due to its conflict with Pakistan. Most of the risks listed above can be mitigated, as we shall see from vendor responses, but we are hard pressed to develop anything but contingency strategies to reduce the risk associated with a war in India. Clients must collaborate with vendors and together create contingency and business continuity plans. Contingencies should include such things as near-site employee pools, systems documentation (available locally as well as in India), and transferring staff from India to the US or other well-connected safe zones.
STEPHANIE MOORE covers IT services and management, e-business application development ande-business consultants and service providers for Giga Information Group (Cambridge, MA). She is also Giga's expert on offshore outsourcing. Giga Information Group provides objective research, action-oriented advice and recommendations, and personalized consulting.