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7 Responses to “Global Outsourcing Friend or Foe?” - Leave a Reply

1. Tim Sunderland Says:
   November 27th, 2006 at 10:37 am

   Outsourcing on a global basis is a tricky thing. I don’t pretend to be the expert. Far from it. I have just read a lot about it and thought a lot about it.

   I know some computer programmer operations that do it. In my opinion, you need to test each instance against whether it works for your business. Truth it, yes, there will be some testing, and who knows how long you will have to test before you find an off-shore, outsourcing company that is a good match, From a consumer point of view, I have had to work with MicroSoft help lines, and at times it has gone well. Other times I have been frustrated.

   How do clients feel about it? I think you need to ask them. Some are probably more open to it than others. For some it is the money; for others it is the fact that, “Hey, I’m outsourcing. I’m part of the global business community.”

   I recommend two books by Thomas Friedman — “The Lexus and the Olive Tree”, and “The World is Flat.” Friedman, despite what he says, is unabashedly pro-globalism, but he has some interesting insights, and he is not blind to the downsides.

   I also suggest you get yourself an iPod and listen to the podcasts of Phil McKinney at http://www.killerinnovations.com. McKinney’s comments about the Creative Economy ring as true and do Friedman’s about globalism. Additionally, McKinney’s comments about creativity and innovation also tell us how we can exist and excel in a global world.

2. Ravi Raina Says:
   November 29th, 2006 at 11:24 am

   Hey Merrill – I expected to see a flurry of comments on this topic but I guess people are still trickling back from the long weekend.

   As you know, I am very bullish on offshoring. My reasoning is very simple. Market research is a knowledge industry … we sell the sweat of our brains. Technology has now made it possible for us to access a very large pool of brains that are available at a much lower cost. The market will always find ways of leveraging such a resource to its advantage … and that does not necessarily mean cost savings alone. In a lot of ways, the issues surrounding offshoring are very similar to the ones that online data collection had to work through before it became mainstream. And for what it is worth, my assessment is that offshoring has moved from Innovation/Early Adoption to the Growth stage in its lifecycle.

   Most large research firms have at least taken a look-see at offshoring. The results range from enthusiastic embrace to frustrated rejection. But the bottom line is that offshoring can give a significant edge to companies that figure out how to make it work for them.

   Like any other innovative business process, the key to success in this area is understanding what it is, what it can do for you and how to deploy it to your advantage. Here then, is my list of do’s and don’t for offshoring.

   Don’t think of offshoring as only a cost reduction tool. You can look at it as something that helps you do more with less. Research questions that earlier could not be answered within the available budget can become viable investigations. Because of the manner in which this service sector has evolved, you typically have one-stop access to a breadth of services that one would usually need a series of vendors for. Most importantly, offshoring gives you on-demand scalability … where else can you find a dozen trained analysts ready to work on a 4 week assignment at one week’s notice?

   Find the right partner. Glossy brochures and slick sales materials are not a true predictor of performance. Ask for samples of work, references and ask a ton of questions to see if they know what they’re talking about. Ask your friends and colleagues if they know/have worked with the firm.

   Do not go it alone. Don’t fly solo even if your corporate HQ mandates having captive resources. In such a situation, I recommend you try the BOT model … ie, have someone set up the team for you and then transfer control slowly over a couple of years as you become more and more comfortable in that environment. Setting up shop in a very different social/business culture is like swimming in a turbulent sea … you don’t want to jump in before you’ve learnt how to swim well.

   A “test” is good but not enough. Asking the vendor to run a parallel test or a replication of something you’ve done previously is a good way to test their capabilities. However, just as a phone room will put their best interviewers on the line for the monitoring session, the offshore vendor will give you his best people for the “test”. Their true capabilities will emerge only once you start working with them.

   Start slow. Try it out in non-critical/low-risk situations. Looking for offshore help when your internal resources are already stretched to the limit increases the chances of failure and frustration. The first couple of projects you take offshore will require more of your management time … it is like training a new employee. So start slow, go through a couple/three iterations to get a good idea of how the process works and to educate your partner about how you do things.

   Take it for a spin. Once the relationship is stable, throw them a few curve balls … load them with a few difficult assignments to get a read on the depth of their capabilities. You want to see how they perform under fire before you start relying on them … ie, before you walk away from your alternate onshore resources.

   Try the impossible. Don’t let traditional service classifications define what you can expect from your offshore vendor. It is a new paradigm, so feel free to explore new areas where their unique strengths can be brought to bear … be creative and they may just surprise you.

   Don’t put all your offshore eggs in one basket. Just as you have multiple vendors for everything you do onshore, try out a few other offshore vendors to build redundancy. But don’t initiate multiple relationships simultaneously … apply learnings from the first relationship to the subsequent ones … it gets easier the further you go.

   Finally, take a longer term view. Giving up on it because the first one or two projects ate up more of your management time than an onshore vendor would have, is shortsighted. In my experience, most of the initial “issues” you’ll face in offshoring can be sourced to one problem … miscommunication. The good news is that both you and the vendor can quickly learn each other’s language/practices and overcome this hurdle. The first hill is the hardest to climb. After that it gets easier and easier.

   I hope this isn’t too long for a blog posting … Merrill’s is the only one I read. I’d love to hear other folks views on this.

   Ravi

   PS: In the interest of full disclosure, for those who I’ve not met let me first state that I work for an offshoring firm that focuses exclusively on the market research industry. Second, let me also assure you that this is not a sales pitch … I am a researcher first and would rather sell used cars than mislead my peers.

3. Brendan Sammon Says:
   November 30th, 2006 at 8:55 am

   Hi Merrill,

   Global outsourcing is a very tricky and complex issue for us at Q. One on hand, there are a great many overseas companies that offer CATI and Web data collection services to MR firms much like we do. Hence, they are our competitors. One the other hand, these same companies are knocking down our door to get our “overflow” work. We have been fortunate to experience excellent growth over the past few years. So much so, that we were forced to look at outsourcing until we could build up our internal resources. I think we did all of the right things in looking for an appropriate outsourcing partner such as, face-to-face meetings with these companies, reference checking, etc. It still came out to be a hit and miss for us. Communication was the main issues. Basically we felt we were not always in control of our clients projects.

   In the end, we stopped outsourcing because;

   1) It was very difficult for us to implement our project standards that are a must for us and our clients.
   2) Our clients generally did not want us to do it.
   3) We were fortunate enough to gain the internal resources to meet increasing volume.

   Much like in the US, I am sure there are a number of decent overseas firms that can meet client expectations.

   Based on our experience, we feel our data collection resources and expertise is better internally than what we can get overseas. Nevertheless, the challenge for me as a salesperson always has been to prove that cost is always second to providing our clients with the necessary resources to help them increase their research business.

4. Lance Hoffman Says:
   November 30th, 2006 at 8:57 am

   OK, Merrill - you baited me! First, you should note that Western Wats has an offshore facility in the Phillipines, and it is kept quite busy. I say that because while we have our own offshore solution in the Dominican Republic, which is also quite busy, they are much bigger than us. Why are we both at capacity? Is it becasue all of our clients only care about costs? Could be, but doubtful.

   There is no denying that cost is a driving factor - anyone who claims otherwise is likely ill-informed or lying. Then again, when has cost not been a factor? We have all encountered statements like “cost is not the most important thing I consider when choosing a vendor.” However, my experience with this is similar to my reaction when someone starts off a sentence “To tell you the truth . . .:” it usually means they are lying. I do not know of a signle opportunity I have lost where the decision was NOT made on price when all other things were equal (resources, capabilities, etc.) However, you were looking for an answer other than cost, right?

   Anyone who is familiar with our side of the business (primarily telephone interviewing) knows what the typical phone room staff consists of. Generally speaking, it’s bright people waiting for the rest of their life to happen, or currently working on the rest of their life. They are hourly employees, and in our NY facility, many of them are students, people in between jobs or working here as a second job, actors, retirees, etc. However, if something better were to come along, they would likely take it. Such is the nature of the US telephone interviewing business, which is why companies such as ours are constantly hiring and training new interviewers. However, in our Dominican facility, you get a different class of person altogether.

   In the Dominican Republic (and I believe it’s the same in many other countries), the employment laws are much different. These are all full-time employees, yielding little to no turnover. In comparison to the US-based mindset of waiting for the BBD (Bigger and Better Deal), these people get up and come to work everyday and say to themselves “I am a professional marketing research interviewer.” It is a white collar job that, compared to local standards, compensates at a white collar rate. Quite different than here in the States.

   Everyone in the industry wants the absolute best interviewer to work on their studies. However, with minimum wage increases, as well as bonus structures and other pay variables, to attract these “best interviewers” could result in a cost that is much higher than clients are willing to pay, based on their ACTIONS (not their comments about price, but their decisions that they seem to make time and time again). The only way to give the clients what they want is to go where you can find better employees at less cost - hence overseas/offshore. And yes - you can read that again - better employees.

   Communication is also key, which is why all of our communication with our clients is still out of our NY headquarters. This not only ensures that the client does not have to deal with any world time differential, but also that our efforts don’t get slighted by either miscommunication or prejudice. Furthermore, it gives us greater control, as the same project coordinators, scriptwritiers, and account executives are working with the same clients, regardless of where the study may be running. The only difference is cost and the interviewers working on the project, whom the client(s) never speak to anyway.

   In an industry and an economy where people are constantly striving for higher quality and demanding it at a lower cost, global outsourcing offers the same benefits that domestic outsourcing offers - only the cost savings are that much more. There are many products and services out there in the market that for some reason or another, certain people choose to use them while other people don’t. This is the same thing, but it’s up to provider to make the differences as few as possible in order to create a greater comfort level, at least intitially. Once a client has some experience with the process, there is much less to overcome, if it is done well, as Ravi seems to allude to. One must also keep in mind that not all outsourcing is the same, and a lot depends on how and where the company sets up the offshore solution, because not all things are equal when comparing offshore solutions. Large companies such as Dell and IBM found this out when they tried outbound calling from India and were met with so much resistence, that they in turn started using India solely for inbound support, seemingly with the philosphy in mind that “if the customer is calling us, they’ll deal with it.” This, however, is not the case with other global locations for outsourcing solutions. At least, that has been our experience.

5. Ed Ledek Says:
   December 13th, 2006 at 6:04 pm

   Merrill:

   I’ve been on the road…and I’m finally catching up with my emails. Like Lance, how can I not respond?!

   Of course, WW has established our own offshore center in Philippines and will continue to grow that over the next several months. In fact, we will probably expand and open a second location. Things are going quite well. I agree with what all of the postings have said regarding the subject. Of course, one point does stand out…

   it is about PRICE! Small, medium and even large H50 companies are all looking to meet their client’s pricing needs and/or feed their bottom line. In my opinion, that is truly the reason why anyone looks to outsource these types of functions. Having said that, we continue to grow both domestically, internationally and with our web offering. So, perhaps a healthy and beneficial by product of our offshore success has been the ability to have greater capacity hence we can fit more work in, develop more and deeper client relationships, etc. So, even though price is the driver, it seems as if all of the other things mentioned by the others, coupled with my noted “by product”, are additional benefits that many are coming to enjoy due to off shoring.

   Have a great holiday!

   Ed

6. Andrew Jeavons Says:
   December 15th, 2006 at 4:07 pm

   Merrill:

   It a valid point of view in terms of quality, this is probably the case for CATI in North America and the UK. Overall outsourcing has become an inevitability because of price pressure. From the people I know and the experience I have had I would say that a 30% out sourcing level is about right. It requires management skills on your side and good quality companies doing the work. There are a lot of disaster stories, but I know just as many successes and the difference I would say is the quality of project management the company that outsources the work is able to bring to bear. Some work is drfting back to the USA, in particular as you hit the $25 per hour mark. I don’t think nor would I advocate a total foreign outsourcing model. But outsourcing, albeit to US companies, has been a practice for many many tears in the USA for fieldwork. The foreign outsourcing is simply an extension of this. I think it can be done without sacrificing quality, but it does take a different sort of management than MR staff are used to doing I think.

7. Merrill Dubrow Says:
   December 21st, 2006 at 10:22 am

   A big thanks to everyone for sharing their thoughts. Clearly this is a very important topic.

   I thought I would share an article from the Dallas Business Journal

   Offshoring fad: Coming to an end?

   Increasingly, companies that outsourced work overseas are rethinking their original decision

   Dallas Business Journal - December 8, 2006
   by Tom Chenault

   During 2006 we have encountered a trend we call “backshoring.” The term refers to the fact that we now think “offshoring” is “backfiring.”
   In March of 2004, we wrote a commentary for the Dallas Business Journal headlined, “Offshore fad will come to pass.” We explained why sending software development to foreign countries, regardless of the lower cost, could be shortsighted, and we predicted that such work eventually would come back to the United States.

   To manage a team of computer programmers in this country with the same culture and language, even in the same room, is like herding cats.
   Try doing it halfway around the world with a different culture and a much different form of English. Now we have a real problem.

   According to recent studies by leading technology consulting groups, just 10% of these projects are successful in terms of saving real money.
   So, why are companies that have lost millions of dollars now “backshoring” work home to the United States?

   In addition to project management, cultural and security questions, and the many other challenges in complicated programming, the actual long-term savings are not as large as corporate financial analysts had originally thought.

   In the meantime, American employee morale is lost — an expense that will show up in later years. Decreased employee loyalty and respect for the organization means decreased productivity.
   Who really benefits, then? Many contract programmer brokers with roots in foreign countries are doing well by promoting an exaggerated lower cost by sending jobs back to their home countries.

   There are some good reasons for offshoring, to be sure. They include a “close-to-market” strategy. For example, an accounting software company may wish to develop a Chinese version of its product. Then it would make sense to develop the product using programmers in China and be close to the market. Another reason would be for specialized projects, where the only available talent is in one particular foreign country.

   A consulting group called Ventoro did a recent, 110-page study of offshoring. The group goes into issues such as international law (copyrights), communications, language, culture and other barriers. The group interviewed 5,200 executives in North America and Europe.

   Based on the survey, savings on offshoring were an average of less than 10%. Actually, 28% of the executives said they lost money, and another 25% broke even. The remaining 47% saved an average of 19%, but only 10% saved 30% or more. Thirty percent or more savings is considered the threshold for financial success.

   Instant gratification

   Ventoro president Phillip J. Hatch compares offshoring to the instant gratification of the 1849 California gold rush, where “companies naively launch offshore outsourcing strategies without the understanding of what it will take to be a success. And, once they find out, millions have been spent, key employees are gone, and the executive is left trying to figure out how to salvage the initiative.”

   Michael Bean, Forio Business Simulations, stated in an article called, “The Pitfalls of Outsourcing Programmers” that “Ultimately, the offshoring fad is bad for companies not because of the short-term programmer layoffs, but because technology companies will lose their capacity to innovate. Tech companies that outsource their programming talent will ultimately be replaced by competition, and then everyone will be losing their jobs.”
   Another group, Diamond Cluster International, determined that while things seemed normal in 2003, 25% of the buyers prematurely terminated offshore relationships in 2004, and 51% did so in 2005.

   Do we detect a trend? As we said in our 2004 DBJ article: “Hopefully, long-term thinking and a sense of history will someday return to American business.”

   Chenault is president of Chenault Systems Inc., a 14-year-old Carrollton-based software development firm.

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