Offshore vs. Onshore Outsourcing: Pros and Cons05 Jul
Your company has made the decision to outsource several critical business processes, but should you choose an offshore or onshore solution? There is a growing number of business process outsourcing (BPO) companies available today, with some located onshore in the United States and others in offshore locations like the Philippines. Offshore and onshore outsourcing companies both have pros and cons. The outsourcing partner that is right for your company depends on several factors, including your budget, the need and accessibility of face-to-face meetings, and your organization’s ability to manage cross-cultural communication.
Onshore Partners: Cultural Convenience at a Cost
The obvious strength of onshore outsourcing is that you will be readily able to meet face-to-face with your outsourcing partner if it is necessary. There are also added benefits to doing business with an outsourcing partner domestically, such as barrier-free communication, and there is no need to learn or adapt to new business etiquette. In the event that a complex problem arises, you can quickly mobilize for an onsite meeting with your outsourcing partner if necessary.
Unfortunately, onshore outsourcing, with its significant cultural advantages, features a high price tag that can be a strain on the average outsourcing budget. A domestic outsourcing partner will come at a much higher cost than one located offshore.
Offshore Partners: Expertise with a Budget-Friendly Price Tag
Some of the popular sites for offshoring include the Philippines and India, two countries with strong economies. They feature energetic and enthusiastic workforces that are ready to meet your business process outsourcing needs. While face-to-face meetings are less accessible with offshoring, there are significant financial benefits. In comparison with standard wages in the United States, countries like the Philippines and India demand a much lower employee wage. This is a tremendous benefit when it comes to BPO because it creates a significant reduction in out-of-pocket expenses for companies in the United States. Offshoring is much more affordable than onshore outsourcing. Offshore outsourcing firms also have state-of-the-art call centers in place to handle and issues and solve complex problems that may arise.
In your search for an outsourcing partner, you will discover that companies all over the globe have impressive track records, strong leadership and management teams, and employees with the right combination of skills to serve you. The key in choosing an outsourcing partner is deciding what is best for your budget. While onshore and offshore outsourcing partners have the skills and know-how that your business needs, the price of services will ultimately make or break the deal.
17 Responses to “Offshore vs. Onshore Outsourcing: Pros and Cons”
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The argument for BPO offshore outsourcing may hold water, but it does not apply when it comes to finding a partner to create innovative software products. The real costs of offshore can be found not in the unit labor costs, but in the cost of ownership associated with doing business offshore. There are the obvious ones such as the cost of travel, the cost of communication, and the cost processing H1B visas. The real costs are associated with having inexperienced people with a non- North American development culture attempting to meet the innovative demands of new software products that will meet market demand and enable a profitable business.
Start with the fact that only in North America do developers work in an iterative way with the marketing department to develop a product that meets the demands of the customer base. Going offshore means you are with an inexperienced work force that only knows how to build to specification. No room for déviation or créativité. Products just don’t get developed that way in the US, so the resulting build to spec product has to be built over and over again until finally it is market ready.
Compound this problem with the fact that the people building the product are unfamiliar with the technology and the problem becomes even more severe. Not to mention the fact that the people that started on the project probably are not the ones that are working on it when it is finished, since employee turnover can reach 40%-50% per year in many offshore locations. Oh by the way, did I mention that the language is different, and since the time zones are totally out of synch, there is limited real time communication to keep things on track. Then there is the management issue. Since you are dealing with an inexperienced development team thousands of miles and many time zones away, you need to dedicate staff to managing the team. Also, that manager must spend a lot of time in the foreign country, away from home and family, not doing much for employee morale back home. Hopefully, once the product does get built, your intellectual property will not get stolen and find its way to a position on the shelf next to yours at a fraction of the price.
Unit labor costs of doing business offshore is certainly lest than doing development onshore. But you get what you pay for, which is a big migraine and not ,much more.
Paul Gasparro is the Co-Founder and Vice President of Business Development for MapleWorks Technology, headquartered in Gatineau, Quebec. Paul has over 30 years of experience working with many major telecommunications service providers, telephone and computer equipment manufacturers, and with Fortune 100 companies to help deliver and improve products, services and operational performances of their businesses. MapleWorks Technology is an on-shore software outsourcing company focused on network communications – from network management to telecom products to voice, data and video convergence. For more information or discussion about Mapleworks, visit their website at Mapleworks.com. Contact 819.776.6066 or email info@mapleworks.com.
You are clearly someone who has probably never gone out of america or visited a top american university.if you did you would notice less than a fifth of computer and engineering graduates studying there are american-so your claim of “creativity” is nonsense.The same goes for the innovation angle:I work in the risk analysis space and the products we got from places like finland,russia were far superior to those that we saw in america.you are under the delusion that higher cost = higher quality.One can also assume that the rate at hwich outsourcing is growing all those companies are not idiots,sure there is a bad case but that happens to be the exception rather than the rule.
PS: people outsourcing is good as you get BETTER quality programmers for less cost.IP except in places like china is strong.India has a IP protection office specifically set up to deal with problems.get rid of the silly xenophobia and ask your kids to study engineering rather than coming and ranting about having to compete with “lower” cost
Very Well Said Arun.
I fully underline your comments! Possibly Paul Gasparro doesn´t have experience with professional BPO companies outside USA. With Skype or other Video-Conferencing Tools it´s easy to follow up even if e.g. India or Philippines are in different time zones for North American companies.
[...] always possible to maintain constant communication with your partner. If you outsource work to an offshore partner in the Philippines, for example, you must account for the time zone [...]
Paul,
Thank you for taking the time to post on our blog and give your views. While I don’t believe it’s necessarily true that you “get what you pay for” when comparing onshore / offshore outsourcing (Back-office processing, “light” customer facing activities, etc. come to mind), I agree with you that product development offshore can potentially include hidden costs that the outsourcing company will often neglect to mention. (Late to market, untested products, poor communication, etc.) Please read our post on “5 Questions to Ask to Find an Outsource Partner Match Made in Heaven” to see how to avoid these types of problems and companies.
While I believe there are development teams that are quite capable offshore, our personal experience and the experience of our customers and associates has been quite poor across the board. I don’t believe we’re too far off from having more capable teams worldwide (15…30 years?) but at this point we often have development done in the US as well.
Most of this is moot for our company as we only provide back-end services and support, but I think the larger point holds true and I appreciate your post greatly.
Best,
Justin
TryBPO.com
Informative. Well explained article that gives information to readers.
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I work for a company that has an offshore operations unit in India and we have problems with many factors; data quality, sense of urgency, and they have trouble relating to the US Market. Yes, they make 1/10th of what we make in the US but they are not the answer for a company that is doing business in the US Market. I am always shocked to receive a presentation where the data quality is poor and the numbers are not formatted from someone with many Masters degrees. If they were a US employee they would be on a performance improvement plan. I guess you get what you pay for. Truly the worst form of outsourcing I have ever seen. Not to mention the time you spend correcting their work.
@Michelle
Sounds like you are suffering from a communication bottleneck. Are you able to work directly with offshore assets? At TryBPO, we have a “cubicle next door” policy that ensures agents are available by Skype, email and phone during your business hours. This allows you to bounce ideas off remote personnel and provide feedback if something needs to be corrected.
My hunch is this is not being done at your company. Many India based firms prefer all communication go through a head manager who usually has hos interests at heart. Plus he is not a native speaker making feedback and open communication difficult if not impossible.
If you are interested in working with a western managed, fully open outsource provider I suggest giving us a call. Or at least pass our information on to your manager! ;-D At the very least we can provide some suggestions for improving your current relationship.
The site is slightly off in Chrome it seems. Just a slight issue though. Good post.
i like your writing style btw ..
Even with Skype, Communicator, Webex, or any collaboration tool your offshore outsourcing ultimately will suffer from impossible implementation issues. I was just laid off from my 300000+ employee fortune 500 where mostly all development and support is done oversees. I never understood how could customers continue purchasing such buggy products and get poor quality and support.
Now with India taking with a lot of our operations, communications for starters are very bad. Time zones make it very difficult to coordinate and have live meetings (e.g. 10am Utah, 12pm Bangalore). People there are not as ordered as we thought they could be. We continually have to track down errors in code and documentation. The turnaround is bad (40%+ or more) even with 3 different time shifts. Engineers in India prefer to make money in American dollars than in their local currency. Coming to America with HB1 is better. Lots of holidays and cultural differences makes it difficult to find people during emergencies. Sure, you get to have 4 engineers or more for the price of 1 American engineer, but still even if the Indian/Russian graduates from top 1 or 2 universities they are still slow compared to American graduates at any level. In-house copyrights is very common and I have not doubt that our code is already own by our competitors. High level customers and government agencies here in the state don’t trust no one without U.S. Citizenship, which makes it hard for us to support our software with only U.S. based engineers. They don’t speak other languages either. American engineers tend to speak other languages (French, Chinese, Spanish) which help with our north and south American customers a lot. Fixing of bugs can take months or years vs. non-US engineers where it used to take weeks before moving to offshore development.
All in all the good all saying “save a penny, loose a pound” is still a living proof.
Correction! Fixing of bugs can take months or years vs. US-Only Engineers where it can only take a few weeks.