Lack of global sourcing vendor strategy
The management of the outsourcing company must have a strategy established for handling IT projects.  For example, how will the process be managed?  What are the expectations for the offshore resource?  Too often, outsourcing companies do not properly prepare for how the projects will be administered.  Management should clearly define how global sourcing will be implemented and effectively communicate the strategy to the internal IT department as well as to the vendor.

Underestimated time involved
Outsourcing companies do not always calculate the amount of time it will take to get a project in operation with a global sourcing partner.  It takes time and effort to transfer technical and business knowledge to the vendor.  Once the transfer is made, hours will be spent maintaining the business relationship.

The outsourcing company and the global sourcing provider also have to coordinate between the teams involved to make sure that everyone understands the details of the project and to communicate the timelines and processes.  If an outsourcing company does not account for the extra time it will take for the project, the deadlines set may not be met.

Unrealistic cost-reduction expectation
A project can be unsuccessful if an accurate budget was not put in place.  Outsourcing companies sometimes have unrealistic expectations regarding the cost savings associated with global sourcing.  Even though labor costs may be lower, there are other hidden costs that can cause a project to go over budget.  As the years go by, the cost savings will go up because the global sourcing model will begin to operate efficiently.

Communication barriers
Communication doesn’t just refer to language.  Challenges arise when there are various time zones and locations involved.  While having an operation that runs virtually 24 hours a day, which is done with an offshore partner, is a major benefit of global sourcing, it can make it very difficult to communicate crucial information in a timely manner.  Consequently, this barrier to communication can negatively impact an IT project.  By creating a communication plan, including accepted modes of communication and points of contact, this barrier can be eliminated.

Chose an incompetent offshore vendor
When price is the main motivating factor in choosing a vendor, there is a risk of choosing the wrong one.  An outsourcing company will find that a low-cost vendor most likely will not provide high quality work.  Cost should not be the only criteria in choosing a global sourcing provider.  A potential global sourcing partner should also be evaluated on multiple areas, such as trained personnel, technology and processes.  A thorough analysis of a prospective vendor will allow the outsourcing company to have a good sense of what to expect.

Cultural differences
The variation in cultures is frequently overlooked when working with a global sourcing provider.  However, it can play a major role in the success or failure of an IT project.  Cultural differences include religion, mode of dress, social activities and work ethic.  Even the way a question is answered can differ depending on the culture.  To overcome cultural obstacles, it is important that the outsourcing company takes measures to clearly outline project specifications and encourage feedback from the project managers.

By understanding the common reasons global sourcing projects fail, an outsourcing company can take necessary steps to avoid potential problems.  A&E Consulting will work with you to ensure that your IT projects succeed.  We will assist you in choosing the right global sourcing provider and establishing the business relationship.  In addition, we will manage the first outsourced project to make the transition as smooth as possible.

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What are the top near shore locations for IT outsourcing?  Mexico, Canada, Brazil and the Caribbean region offer great outsourcing opportunities for U.S. based companies and some of these areas were even listed on Gartner’s list, Top 30 Countries for Offshore Services.

Canada
Since Canada borders the United States, travel to this country is similar to Mexico in its convenience.  The country covers four U.S. time zones, which allows for real time communication.  There is strong support of IT services within Canada and the government has been known to offer tax breaks and incentives.  This country also has stringent intellectual property protection and privacy laws.  The Canadian workforce is considered to be highly educated and skilled in IT-related fields.  Plus, the cost of labor is lower than the United States. The language and culture are very similar between Canada and the United States, which helps eliminate cultural and communication barriers.

Caribbean Region
The Caribbean region is a convenient location for help desk support, call centers, bookkeeping and tax data processing support.  English is commonly spoken in some Caribbean countries and many of the employees located in this area have attended colleges and universities within the United States and Canada.  Cost of labor is cheap in comparison to the salaries paid to U.S. employees. The close proximity to the United States and the similar time zone make it an attractive outsourcing option for U.S. buyers.  Just like some of the other near shore locations, there are many cultural similarities between some of the Caribbean countries and the United States.

Brazil
Brazil has one of the largest economies in the world, as it is ranked 11th based on 2007 GDP figures in the CIA World Factbook.  The population in Brazil is significantly large and continues to grow at an impressive rate each year.  Brazil has a well developed IT sector and is only one time zone away from the Eastern Standard time zone, aiding in the communication and coordination of projects.  The country also boasts cultural and demographic similarities to western countries.  The native language in Brazil is Portuguese, but there are a lot of IT professionals who are proficient in English.

Mexico
Mexico’s proximity to the United States makes it easy for quick and inexpensive trips to the IT supplier.  Most of Mexico is on the Central Standard Time zone, making it simple to coordinate meetings and project deadlines.  The Mexican government has taken steps to increase the size of the IT industry within Mexico.  There is a large labor pool of IT professionals and it is estimated that the country has hundreds of thousands of students studying IT related subjects in universities and technical schools.  Many of the workers speak fluent English and the Mexican culture is very compatible with that of the United States.  The cost of labor is lower than the United States.

There are many near shore locations to choose from when it comes to outsourcing.  A&E Consulting will help you determine if near shore outsourcing is right for you.  We will assist you in choosing an outsource service provider and establishing the business relationship.  In addition, we will manage the first outsourced project.

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Gartner recently released a list of the top 30 countries for global sourcing.  The countries were evaluated based on 10 key criteria, which included language, local government support, infrastructure, labor pool, education system, political and economic environment, cost, data security and privacy, cultural compatibility and global and legal maturity.  Gartner then organized the top 30 list by separating it into regions.  The highest scoring countries based on Gartner’s research were as follows:

Americas: Argentina, Brazil, Canada, Chile, Costa Rica, Mexico and Uruguay

Canada received the highest score in 7 of the 10 categories, among the countries in the Americas.  However, Latin American countries have become more attractive to U.S. companies because of the demand for Spanish speaking skills.  There is a major concern about intellectual property and data security and privacy within this region.

Asia/Pacific: Australia, China, India, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri Lanka and Vietnam

China, India and Singapore all showed strong government support of IT services for global sourcing.  Australia, New Zealand and Singapore are considered higher-cost locations, but these countries did receive high ratings in the categories of political and economic environment, cultural compatibility, global and legal maturity and data and intellectual property security and privacy.   Pakistan, the Philippines, Sri Lanka and Vietnam did poorly in the political and economic environment category as many outsourcing companies are concerned about this issue.

Europe, the Middle East and Africa: The Czech Republic, Hungary, Ireland, Israel, Northern Ireland, Poland, Romania, Russia, Slovakia, South Africa, Spain, Turkey and Ukraine

Ireland, Israel, Northern Ireland and South Africa did well in the language category as there are a large number of quality English-language speakers in these countries.  Some of the other countries in the region such as the Czech Republic, Slovakia, Hungary, Poland and Romania received additional recognition for alternative language skills, which is of benefit to European buyers. The biggest concern in this region is government support.  Also, according to Gartner, few countries within this region, except for Russia, offer an adequate selection of local service providers looking to sell their capabilities outside their own country.

As your company embarks on the journey of outsourcing part of your IT services to a global sourcing provider, there are many factors that need to be considered before choosing which location is most appropriate for your organization.  A&E Consulting can help you choose the right global sourcing partner and will assist you in establishing the business relationship.  In addition, we will manage the first outsourced project to make the transition as smooth as possible.

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Within the IT sector, knowledge commonly resides with the developers of the applications.  This knowledge often gives the company a proprietary and competitive advantage.  The IT industry is heavily reliant on innovation and new technologies.  If this knowledge is lost or if control is taken away from a process, it can be detrimental to the organization’s success.  There are ways to protect knowledge when using a global sourcing provider that should be considered by outsourcing companies.

Before a company begins global sourcing, the executives and managers need to determine what information is essential to the organization.  The first question to ask would be, if the work was outsourced, would the company lose part of the knowledge associated with that application?  If the knowledge was lost, would it negatively impact the company and outweigh the benefits of global sourcing, such as cost reduction?  These questions will help determine what processes and applications are essential to the company and which are not.  A core process or application should be kept in-house to avoid the risk of knowledge loss.

A company looking to outsource may consider creating a knowledge management team who will evaluate, through a thorough analysis, what knowledge is vital to the organization and what can be outsourced.  The team can also make sure that knowledge flows to more than one key employee, so that the knowledge will not be kept with just a single developer.

If it is determined that certain processes will contain vital knowledge among the developers, then an outsourcing company can minimize this risk by global sourcing only small functions to various service providers.  The outsourcer would only have to provide the supplier with information on that particular process, thus avoiding the potential loss of knowledge.

By taking measures to keep vital knowledge in-house, an outsourcing company can take advantage of global sourcing, while still protecting essential information.  A&E Consulting will be able to advise you on which processes and applications should be outsourced.  We will assist you in choosing the right global sourcing partner and establishing the business relationship.  In addition, we will manage the first outsourced project to make the transition as smooth as possible.

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Some of the major benefits of global sourcing are listed below.

Expanded hours of operation. Most businesses put a major emphasis on a project’s budget, which is important.  However, it is just as crucial to focus on the time it takes to get the project done.  When working with a global sourcing provider, you are able to have an IT department that runs 24 hours a day.  As the workday for your U.S. employees comes to an end, the vendor’s employees will just be starting their day.  For IT managers, this schedule is extremely productive.  They can review a project, make suggestions and send it to the global sourcing partner.  When the IT manager returns to work the next day, the revisions have been made and the development process is able to continue.

Access to qualified IT personnel. According to a Duke University study, businesses are looking for offshore employees because there has been a steady decline the number of engineering and science graduates in the United States.  It is estimated that countries such as India and China graduate 12 times more engineers than the United States.  Many of these graduates are fluent in English, which makes them attractive to U.S. employers.

Ability for rapid scaling of operations. A global sourcing provider can be used to grow or downsize an IT department very quickly.  Global sourcing also gives the outsourcing company the ability to easily add or subtract a new type of software.

Better reach in the global market. By mere geography alone, global sourcing helps companies looking to expand globally.  Global sourcing allows businesses to reach international customers and provide improved service and problem solving.  Having different locations gives the outsourcing company more flexibility in making sure that the business continues even in the case of a disaster.

Accelerate technical implementations. When your company is looking to create a new system or business process, it can be done fairly quickly with a global sourcing partner.  Many vendors already have the necessary hardware and software in place, which makes it easier to turn ideas into actual products.

Provide seasonal workforce flexibility. Workload can fluctuate depending on the amount of projects currently being handled by your IT department.  A global sourcing partner can be used on an “as needed basis,” meaning they complete projects during the busiest times for your company.  By using a seasonal workforce provided by a global sourcing partner, your company can avoid the hassle of hiring temporary IT employees.

Cost reduction. The salaries paid to employees in many other countries are considerably lower than the amount that U.S. employees are paid.  In some countries, the average amount that an IT employee earns is less than 30% of a U.S. employee’s salary.

Global sourcing greatly reduces the cost of production and operations, as it decreases the amount paid on overhead.   As costs go down, the financial position of the company strengthens, which in turn frees up more money that can be used for core business services and new development.

Global sourcing is a resource worth considering for most IT departments.  A&E Consulting can help you choose the right global sourcing partner and will assist you in establishing the business relationship.  In addition, we will manage the first outsourced project to make the transition as smooth as possible.

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Onshore outsourcing refers to sending a business process to a U.S. based supplier to complete.  Global sourcing is defined as exporting work to a supplier located in another country.  Both types of outsourcing have significant advantages as well as drawbacks.  The decision on which outsourcing model to choose is strongly dependent on the overall objectives of the outsourcing company.  However, the goals for outsourcing will be the same, such as reducing operating costs, increasing productivity and re-allocating financial resources to other areas.

One of the major draws to outsourcing to onshore suppliers is the geographic proximity.  The local presence gives a level of comfort to the outsourcing company and makes communication and travel easy.  Offshore suppliers on the other hand are generally located in vastly different time zones, making communication difficult.   Plus, the cultural differences can make it hard for the offshore resource to effectively work with the U.S. employees.

When considering outsourcing as part of IT services, executives cannot ignore the appeal of the cost savings associated with offshore resources.  Companies feel the immense pressure to increase profitability and ROI.  Global sourcing offers cost efficiency through a variety of means, including scalability of operations.  The savings in labor also significantly reduces expenses for the outsourcing company and enables the focus to be placed on core competencies and increasing productivity.

Onshore suppliers have difficulty competing with some of the cost savings that offshore firms offer, but there are hidden costs associated with global sourcing that have to be factored in.  For example, global sourcing will have ongoing costs for long distance communication, training and travel.  There are also initial expenses associated with the knowledge transfer of technical and business processes.  Nevertheless, even with the hidden costs, the savings are generally greater with global sourcing.

In the IT industry, the enforcement of intellectual property rights is vital and data theft can be of extreme detriment to the outsourcing company.  The protection of intellectual property is often a major consideration when choosing to outsource onshore versus offshore.  The United States has strict laws protecting intellectual property rights.  There are major concerns about security and intellectual property in various countries, including China and many Latin American countries.  Imposing intellectual property laws in these countries can be difficult.

Regardless of onshore versus offshore, the trend within the IT industry has been to outsource various processes.  A&E Consulting will help you evaluate global sourcing so that you can make an informed decision.  If you choose to move forward with global sourcing, we will assist you in choosing the right global sourcing partner and establishing the business relationship.  In addition, we will manage the first outsourced project to make the transition as smooth as possible.

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Turnover of key personnel. There is a high demand for IT professionals among global sourcing providers. Consequently, the employee turnover rate is incredibly high.  Vendors constantly try to attract talented engineers by luring them away from their current positions. This frequent turnover can impact your company because your projects may be delayed as new IT employees have to be trained and prepped on the current work.

Project specifications can be misunderstood. If a global sourcing provider is not given clear guidelines, there is a good chance that the system will not be developed correctly.  Before sending a project to a vendor, a detailed project specification should be created that will define what needs to be completed and how it should be handled.  Also, the global sourcing partner should have some type of quality assurance test that is used to ensure there are no errors in the programming.

Intellectual property theft. Intellectual property rights are among the most valuable assets a company can own.  If intellectual property is stolen and technologies are shared, the company can suffer a major financial loss.  When utilizing global sourcing, it is vital that certain measures be taken to protect the company’s intellectual property.  The least amount of proprietary information should be provided to the global sourcing partner.  The vendor should have policies in place to protect information that is given to them.

Loss of business knowledge. Generally, the developer of a process or system holds the business knowledge of that application.  As you more projects are sent to a global sourcing provider, the outsourcing company begins to lose business knowledge.  The outsourcing company becomes so tightly connected with the global sourcing partner that it makes it difficult to sever the relationship if need be.  To avoid such a situation, it is recommended that the IT department retain a large portion of business knowledge by determining what projects can be outsourced without compromising the outsourcing company’s position.

Cultural and communication barriers. There is no question that the culture in the United States is vastly different than other countries.  Outsourcing companies need to be aware that the global sourcing partners will have a work style that is unique from their own.  This awareness will help avoid misinterpretation of the vendor’s actions and mannerisms.

Communication can also be difficult with a global sourcing partner. For the vendor’s employees, English is not their native language and there is the potential for miscommunication.  Regular meetings should be conducted with project managers and summaries of the meetings should be distributed to all of the participants.  The summaries will ensure that everyone knows what is to be expected.

Vendor failure to deliver. Even with the best efforts, there is a chance that the global sourcing provider will not get the project completed.  Before outsourcing a project, this risk should be considered.  The outsourcing company should formulate a back up plan.  One alternative would be to outsource to multiple vendors to reduce the chance of failure.  If the outsourcing company can’t take the risk, then the project should be kept in house.

Global sourcing carries some risks that can’t be ignored, but it also has major advantages.  A&E Consulting can help you weigh the benefits of global sourcing.  We will assist you in choosing the right global sourcing partner and establishing the business relationship.  In addition, we will manage the first outsourced project to make the transition as smooth as possible.

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Most executives know that outsourcing is defined as delegating business functions to a supplier or external partner.  What many individuals do not realize is that there are different types of outsourcing, including IT outsourcing, (ITO) and Business Process Outsourcing, (BPO).  With ITO, some or all of the IT services are sent to another provider.  The outsourced function can be software development or IT infrastructure services.  BPO refers to the delegation of non-core IT intensive business processes, such as supply management, data entry and customer service.

There are many terms used to describe the geographical proximity of the outsourcing provider to the customer.  Onshore outsourcing means that a company is sending work to a provider located in the same country.  In the United States, that would basically mean a company contracts with a U.S. supplier for business services.  Near shore outsourcing refers to contracting with a company located in a nearby or bordering country.  Usually near shore means that the outsourcing provider is a short travel distance and may even be in the same time zone.  For the United States, Canada or Mexico would be considered a near shore location.  Global sourcing, also known as offshore outsourcing, offshoring, describes the process of delegating functions to a provider located in a distant location, several time zones away.   India, China and the Philippines are all considered to be offshore locations for U.S. based companies.

It is important to also be well-versed on the key players of the outsourcing relationship.  The company looking to outsource work is referred to as the buyer, outsourcer or customer.  The firm that accepts the outsourced work is called the supplier, service provider, outsource service provider, vendor or resource.

Companies looking to outsource should consider sending work to more than one service provider, which is known as multi-sourcing.  When the outsourcer utilizes the services of more than one provider in different geographical locations, this is known as an outsourcing portfolio.

A&E Consulting can bring you up to date on the newest terms in outsourcing.  We can assist you in choosing the right global sourcing provider and establishing the business relationship.  In addition, we will manage the first outsourced project to make the transition as smooth as possible.

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More companies will begin to send work to countries other than India. For the past several years, India has been the leading provider of global sourcing.  While this country is expected to remain in the lead, there are more challengers in the industry.  The IT market in India has been impacted by wage inflation, shrinking pool of talented professionals and infrastructure issues.  It is likely that global sourcing providers in Latin America, China, South Africa and Eastern Europe will attract more IT business.

Global sourcing providers will consolidate. Competition in the outsourcing market has become fierce. The leading IT service providers are expected to consolidate by purchasing smaller competitors in the industry.  There is speculation that the number of mergers and acquisitions will continue to go up and there will consequently be a smaller amount of suppliers for buyers to choose from.

Remote infrastructure management (RIM) outsourcing will grow. RIM refers to managing servers, applications, networks and databases.  This market is estimated to grow 60 to 70 percent in 2008.  RIM outsourcing is considered to be an asset-light deal and provides a lower cost infrastructure for the outsourcing company.  Traditional infrastructure outsourcing will start to decline as RIM outsourcing grows.

There will be a greater demand for high quality work and more services. The focus has been on cost reduction, but more outsourcing companies will be putting an emphasis on high quality work and additional services.  Outsourcing companies will be looking for better talent, expertise and flexibility from the global sourcing providers.  There will be a bigger demand for higher-value work including process improvement and application portfolio rationalization.

Green outsourcing will become more popular. Environmental concerns are growing and corporations are requiring that suppliers adopt green policies.  The Brown Wilson Group conducted an independent study of 20,000 outsourcing users. According to the survey results, 43 percent of outsourcing companies said that green factors would be important when choosing a supplier for the first time.  More than 94 percent of executives that were surveyed stated that they plan to add green clauses in their renegotiation processes.  This spotlight on environmental concerns could force global sourcing providers to develop eco-friendly processes and policies.

A&E Consulting will make global sourcing work for you.  We will assist you in choosing the right global sourcing partner and establishing the business relationship.  In addition, we will manage the first outsourced project to make the transition as smooth as possible.

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When only one supplier is used for IT services, the buyer and provider become so intertwined that it makes it very difficult to sever the relationship if needed.  There is some business knowledge that will reside within the developer of the application and the buyer can be at an extreme disadvantage if a suppler holds the majority of this information. Multi-sourcing makes outsourcing companies less dependent on one supplier for all their IT or business needs.

For companies wanting to outsource a variety of IT functions, the vendor may fail to meet expectations.  It is unrealistic to assume that one supplier has the knowledge and expertise to handle a wide range of tasks, such as networking, business processes and application development. Executives have started to outsource individual projects, services and functions to multiple providers.  By multi-sourcing, buyers have the ability to utilize the resources and expertise offered by each supplier.  The outsourcing company is also able to look for a provider with the best capabilities for performing a specific process or function.

In some incidences, the vendor may have failed to perform as agreed, despite all best efforts.  If the outsourcing company did not have a contingency plan in place, this failure to perform can have a negative impact on the organization.  Multi-sourcing allows the buyer to remove the failing vendor without significantly disrupting business.

Outsourcing contracts are typically for five to fifteen years.  For a buyer who is outsourcing for the first time, this long term contract can be intimidating and risky.  Basically, the outsourcing company is putting all of the faith on one vendor’s capabilities and locking into a lengthy agreement.  Many outsourcing companies are now signing short term contracts with various suppliers.

Multi-sourcing is a way to minimize the risks of outsourcing IT services.  A&E Consulting will help you evaluate the advantages of multi-sourcing versus outsourcing to one supplier.  We will assist you in choosing the right outsource service provider and establishing the business relationship.  In addition, we will manage the first outsourced project.

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