As the economy continues to decline, companies are looking for ways to cut costs, while still maintaining quality in development.  Many organizations are turning to outsourcing as an avenue to accomplish this goal.  Outsourcing provides a way for IT companies to reduce expenditures and increase productivity. 

Once the decision has been made to outsource, the next question becomes – should the global sourcing partner be located near shore or offshore?  Recently, more companies are making the decision to outsource near shore.

When it comes to outsourcing, near shore refers to any location in close proximity to the IT company.  For example, Canada, Latin America and the Caribbean region are all considered near shore locations to the United States.

In previous years, the trend has been to outsource to offshore locations, such as India or China.  While these countries do boast many benefits to IT companies, coordinating work, dealing with time zone differences and establishing regular communication can be difficult.  Even though India has long been the main destination for outsourced projects, labor in this country is not as cheap as it once was.

Companies are now choosing to outsource to near shore IT providers for many reasons.  When it comes to IT outsourcing, costs are not just associated with the price charged by the vendor for the services rendered.  There are hidden costs in an outsourcing engagement, such as travel expenses, coordination efforts and communication costs.  Near shore IT outsourcing gives companies the ability to outsource to a vendor in close geographic proximity, which means travel and communication costs are less expensive.  Also, there are usually cultural similarities between the IT company and vendor, when the provider is located near shore.

Some of the near shore locations that have become increasingly popular for U.S. companies include Canada, the Caribbean region, Brazil and Mexico.  The article, Top Near Shore Locations for the United States, discusses the benefits these countries have to offer.

The bottom line is that near shore IT outsourcing offers companies more control over projects and helps reduce some of the hidden costs of outsourcing.  If your company is considering IT outsourcing, contact the global sourcing strategists at A&E Consulting at 661-200-3612.  We can help you choose the right outsourcing location and partner.

Social Bookmarks

To be competitive in today’s global market, companies have been turning to global sourcing as a solution.  As more and more companies look for ways to cut costs, while still remaining productive, the popularity of global sourcing has increased.

Global sourcing refers to the practice of sending certain aspects of business development to other countries, either near shore or offshore.  When it comes to IT, global sourcing gives companies the opportunity to send certain business operations or processes to third-party suppliers outside of the country.  Global sourcing generally provides lower labor costs, access to qualified IT personnel, lower overhead expenses, increased productivity and an operation that virtually runs 24 hours a day.  All of these benefits give the company looking to outsource a competitive edge over other IT companies.

According to TechsUnite.org, a website for a high-tech workers union, 528,478 U.S. jobs have been offshored since January 1, 2000 through August 2008.  With the Internet and continuous changes in technology, it is now easier for companies to manage projects sent to global sourcing providers.

Many foreign governments have begun offering companies incentives relating to global sourcing.  India, China and Malaysia boast highly skilled technical workers and graduate thousands of IT professionals every year from the colleges and universities.

Even though global sourcing can create a competitive advantage, companies looking to outsource should be cautious when choosing a vendor and location.

Benjamin Shao, associate professor of Information Systems at Arizona State University’s W.P. Carey School of Business, was quoted in an article as saying, “It (offshore outsourcing) is still a very popular business practice nowadays.  But I think U.S. companies now have learned from their own experience or from their competitors’ experiences over the last few years.  So now they also try to be a little bit more discreet and careful when it comes down to the idea of offshore outsourcing.”

Data and intellectual property protection are often major concerns for IT companies.  When choosing a global sourcing provider, it is crucial to find out what systems are in place to protect data.  This information should be available before a global sourcing contract is signed.

Other factors to consider when choosing a vendor are the country’s benefits and risks, the vendor’s expertise and qualifications and communication capabilities. 

Global sourcing is great tool to use to stay competitive in the global environment.  Companies need to be aware of what global sourcing has to offer, but should also be aware of the risks and how to minimize them.

Social Bookmarks

As President-elect Obama prepares to take office, many people are wondering what impact his administration will have on global sourcing, as well as the types of policies he will put into place.

Obama is stepping into power at a time when the American economy is struggling.  According to the article posted on CIO.com, What Effect Will President-elect Obama Have on Outsourcing, he will need to develop programs and policies to help stabilize and turn the economy around.  Obama will need to put governance systems and agencies in place to ensure another financial crisis will not happen again.  Once the economy begins to stabilize, there will also be more fiscal stability.

According to the article on CIO.com, Obama will be facing so many major issues that it is not likely that he will place outsourcing on his priority list. 

Indian suppliers have transformed from using their initial business models and are now providing more than just labor arbitrage.  These global sourcing providers are offering business models and services that focus on increase in productivity, faster turnaround time of products, improved quality, intellectual property protection and more.

Numerous global brands, such as GE, IBM, Microsoft and AOL, have large facilities and direct employee bases in India.  These Indian centers help the companies stay competitive, while increasing revenues.  Even if Obama’s proposed $3,000 tax credit to employers for each employee hired in the United States goes through, it should not affect the decision to hire offshore.  The reason has to do with the reduction in labor costs and overhead associated with offshore locations, such as India.

Another point addressed in the CIO.com article had to do with the diversity in Indian business models.  Business models among Indian suppliers are much more diverse than in the past and have the capability to withstand economic fluctuations better than before.  IT companies in the United States will continue to look for ways to cut costs and improve competitiveness, which should drive the global sourcing industry.

The bottom line is that most people feel that Obama will not have the time or resources to focus specifically on large-scale policies regarding outsourcing.  Therefore, his administration should not immediately impact the global sourcing market.

A&E Consulting is a leading global sourcing consulting firm that helps businesses with their global sourcing needs.  The consulting experts at A&E Consulting can help organizations choose the right global sourcing provider, as well as assist with overseeing the first outsourced project.

Social Bookmarks

With the New Year rapidly approaching, many experts have begun making their predictions for the IT industry in 2009.  According to recent research, the predictions for the future development of IT global sourcing is optimistic, despite the current economic crisis. 

ITWorld.om posted an article on its website, titled “IT Offshore Outsourcing: Early Predictions for 2009,” in November which examined the research conducted by TEAM International, Society for Information Management (SIM), Info-Tech Research and Robert Half Technology.  Below is a summary of the research findings that reflect the predictions for 2009.

Most IT Budgets Will Not Decrease
Most IT companies expect IT budgets to either increase from 2008 or stay the same in 2009.  According to a survey of CIOs and IT executives of 230 companies, which was commissioned by Society for Information Management, 44 percent plan to increase their IT budgets in 2009, 37 percent plan to keep the budgets the same as 2008 and only 19 percent reported that they plan to decrease their IT budgets.  Another survey conducted by Info-Tech Research that included 150 IT companies in the United States showed similar results to the SIM survey.  Based on the findings from Info-Tech Research’s survey, only 1 in 5 companies plan to reduce their IT budgets in 2009.

Growth in Global IT Sourcing
It is estimated that more projects will be sent to global sourcing providers in 2009.  The SIM survey found that the majority of companies are focusing on ramping up their offshore resources.  The Info-Tech Research survey confirmed this expected growth, with more than 60 percent of IT departments of the surveyed companies reporting that they plan to focus on reducing costs via global sourcing.  Another study by Robert Half Technology, a California-based search and staffing firm, also showed similar results.  Researchers surveyed 1,400 CIOs and the results showed that there was a general support of the optimistic predictions to the utilization of IT outsourcing in 2009.  Among the 111 CIOs who already were engaged in outsourcing, 43 percent stated that they plan to increase their offshore transactions in the coming year.

IT Industry Will Not be Adversely Impacted by Slow Economy
Some researchers believe that the IT industry will not be affected or only minimally impacted by the slow economy.  These researchers base their beliefs on the fact that information technology is centered on the desire to improve efficiency, increase productivity, cut costs and improve revenues. 

Based on these various surveys, it is realistic to assume a positive outlook in global IT sourcing in 2009.

A&E Consulting is a leading global sourcing consulting firm that helps businesses with their global sourcing needs.  The consulting experts at A&E Consulting not only help organizations choose the right global sourcing provider, they also assist with overseeing the first outsourced project.

Social Bookmarks

Global sourcing can deliver many benefits and a substantial return on investment (ROI).  However, many companies outsourcing for the first time often make the mistake of overestimating ROI, which leads to disappointment regarding the perceived value of the outsourcing engagement.  When IT managers are quantifying the business value of global IT sourcing, they must take into account such factors as realistic comparisons and hidden costs.

It is common for an organization to make a comparison between completing an IT project onshore versus offshore.  Cost is analyzed to determine if it would be profitable to send the work to a global sourcing provider.  Onshore costs are frequently inflated in this comparison.  For example, many IT managers assume that it would take the same amount of employees to develop a project in-house, as it would to send the project to a global sourcing provider.  However, for most companies, fewer employees are needed in-house due to the efficiency in areas like knowledge transfer, knowledge capture, environmental support and project coordination.

Many IT managers also make the assumption during the comparison that the work done onshore will be performed by newly hired internal staff.  This assumption inflates the cost of completing the work onshore, as most IT projects will be done by existing employees or contractors.

There are also hidden costs to consider when determining ROI in global IT sourcing.  It is easy to identify some costs associated with global outsourcing, such as labor costs, communication and IT infrastructure, but many of the other related expenses are not so apparent.  Some of these hidden costs include travel expenses associated with the onshore staff traveling to the global sourcing provider’s location, knowledge transfer, training and management of the outsourcing engagement.  Other hidden expenses that must be taken into account are the cost to retain work onshore and cost of the transitional team who will help in the transition of sending projects to the global sourcing provider.

A company looking to outsource to a global sourcing provider can calculate a realistic ROI by conducting an accurate comparison between having the work done in-house versus offshore and by incorporating the hidden costs.  A&E Consulting helps companies determine if outsourcing is the right strategic move.  The firm also assists with choosing the global sourcing provider and overcoming challenges related to outsourcing.

Social Bookmarks

Global sourcing is a great strategy used by many IT organizations.  It can help increase productivity, reduce costs and create a better focus on core business.  Whether a CIO decides to send work to India, China or another offshore location, it is important to understand the culture of that location.  One article posted on NetworkWorld.com regarding India even suggests that “North American companies could see better results with India-based outsourcing engagements if they take culture into consideration.”  The potential for conflict and misunderstanding is high when the two cultures clash. 

Understanding Cultural Differences
Many companies experience a cultural shock when working with vendors in other countries.  Often the work ethic between the buyer and vendor are quite different.   For example, in India, workers are focused on process and procedure, making sure they follow the appropriate steps.  American based companies on the other hand, expect independent thinking and initiative from employees.  Employees at U.S. companies also are used to working with set deadlines and can adapt how they approach the work, if they are concerned about not getting the task completed in time.  Indian employees many times will not stray from the established workflow and may consequently miss deadlines because the work to be completed is viewed as more important than time constraints.

In addition to work habits, IT managers should also be aware of other cultural differences.  For instance, in Asian countries, especially Japan, Korea and China, the people are very proud of their heritage.  They could be offended if someone brags about the American culture or puts down their own culture.  Many Asian workers do not understand slang that is commonly used in the United States and do not comprehend the majority of American jokes.  It is also considered rude to comment on how good an Asian businessman speaks English.  In the Asian culture, it is expected that an educated businessman will speak English well.

IT managers should be familiar with how relationships are viewed in the global sourcing provider’s country.  In India, relationships are commonly put before business and Indian managers might place a greater emphasis on intrapersonal relationships before discussing business.  In the United States, it is typical to do a quick introduction and then to immediately start talking about business matters, while keeping personal subjects for later.   

Addressing Cultural Differences
Problems stemming from cultural clashes can be avoided if managers address these differences immediately.  Employees from the IT organization should be trained and well-versed in the culture of the global sourcing provider to create a more efficient and profitable outsourcing engagement.  An expert quoted in the NetworkWorld.com article stated that “cross-cultural training would help American companies train onshore and offshore staff how to better collaborate and work toward common goals.”

A&E Consulting helps companies weigh the benefits of global sourcing and assists with choosing the right outsourcing partner.  The consulting firm will also oversee the first outsourced project to ensure a smooth transition.

Social Bookmarks

An outsourcing contract can be responsible for creating a strong relationship with the global sourcing provider, but can also cause a project’s failure.  Therefore, it is important to understand the contract terms and conditions, before signing any agreements with the global sourcing provider.

Outsourcing arrangements generally last for several years, which is why it is essential for buyers to recognize the terms and conditions in which they are agreeing to abide.  Global sourcing providers will want to make sure that their interests are being protected and they will create a contract that reflects this protection.  However, it is possible to have a contract that protects both parties, as long as the time is taken to review the terms and conditions to determine the relative position of the contract.

When evaluating the terms and conditions of a global sourcing contract, the buyer should know what key elements should be included.  The terms and conditions of most global sourcing contracts will include such components as scope of work, performance expectations, security procedures, responsibilities, pricing and termination conditions.  Other areas that are often addressed in the terms and conditions of global sourcing contracts include governance, rights of recourse and pricing. 

Some companies frequently include reward and penalty clauses in the contract, which include incentives or rewards for achieving certain goals and expectations and sanctions or penalties for non-performance and failure due to gross negligence.  The termination provision also becomes an important component in this area as the reasons for terminating the agreement should be clearly defined.  The termination clause may include termination for cause, termination for convenience, change of control and flexibility of termination. 

Global sourcing contracts should also incorporate remedies for dispute resolution and identify the jurisdiction in which the resolution should take place.  This jurisdiction should not be so slanted that it is unfair to the buyer and could cause the buyer to not be able to obtain a prompt, neutral and cost effective resolution to the dispute.

Before signing the contract, the buyer should carefully review the terms and conditions to identify any areas that may need to be negotiated.  An attorney or industry expert can help determine the level of protection for the buyer by thoroughly analyzing the contract.  Understanding the terms and conditions of the global sourcing contract can help the buyer find success with the outsourcing arrangement.

A&E Consulting provides assistance to companies looking to outsource, by helping develop an organizational global sourcing strategy, searching and evaluating global sourcing providers and establishing the outsourcing program.  In addition, A&E Consulting will oversee the first outsourced project to ensure a smooth transition.

Social Bookmarks

After choosing the appropriate outsourcing provider the negotiation begins.  One of the biggest and most common mistakes made by IT executives is focusing on price when it comes to negotiations.  The focus on price often leads to disappointment and frustration for both parties, which is why IT executives can greatly benefit from focusing on other essential aspects of the contract as well.  The negotiation process is crucial in establishing the outsourcing relationship, which can last for many years and it is important that buyers understand how to prepare to negotiate.

A global sourcing contract is what defines the relationship and the requirements of each party.  Both parties involved in the outsourcing arrangement must be comfortable with the terms and conditions that are agreed upon.  The contract should include such items as the scope of work, pricing model, expectations, deliverables, performance measures, deadlines and termination conditions.  All of these issues should be thoroughly discussed before a contract is signed.  There should not be any components of the contract that could be considered “gray” areas, as everything contained in the agreement should be clearly expressed.

It is to a buyer’s advantage to take the time to adequately prepare for the negotiation.  A company looking to outsource should understand objectives and needs for the outsourced projects, which will help maintain a better focus on the key issues when negotiating with the global sourcing provider.  IT executives should also define and prioritize these issues and their approach and strategy for obtaining their objectives.  

A strong global sourcing contract is one that balances the interest of both parties.  The contract should be as balanced as possible to protect the interests of both the buyer and global sourcing provider.  When the contract is clear and well-negotiated, it can maximize the effectiveness of the arrangement.

Before signing the contract, the document should be thoroughly reviewed, preferably by an attorney or industry expert.  All of the agreed upon terms and conditions should be specified in the contract to avoid future problems. 

The negotiation process for global sourcing agreements can be time consuming and it often takes longer than anticipated.  Global sourcing providers sometimes take a substantial amount of time to respond to buyers.  However, a buyer should never cut corners when negotiating with a vendor as a well-thought out negotiation is well worth the effort.

A&E Consulting helps companies looking to outsource by assisting with the development of an organizational global sourcing strategy, searching and evaluating global sourcing providers and establishing the outsourcing program.  In addition, A&E Consulting will oversee the first outsourced project to ensure a smooth transition.

Social Bookmarks

Despite the slow economy, some opportunities can be found in the information and communication technologies (ICT) sectors, according to a recent report by Frost & Sullivan.  The report states that some IT projects will be put on hold during the unstable market, but there will be many new opportunities within the industry. 

Four areas of expected ICT growth were identified, which include the following:

• Sustainable IT
• Outsourcing services, managed and hosted services
• Information management tools
• Services that support mergers and acquisitions

“In particular, ICT solutions that shift costs from a capital to variable component, focus on productivity increases and cost reduction, and support organizational restructuring and acquisitions are likely to see growing demand,” says Andrew Milroy, ICT director at Frost & Sullivan. 

The report predicts that investments will be made in sustainable technology within existing infrastructure, such as virtualization, videoconferencing, thin clients and power consumption modeling, as these capabilities are able to reduce costs while increasing green initiatives.   A greater focus on variable costs is estimated to lead to an increase in popularity of software-as-a-service (SaaS) and hosted service models.

Business travel will most likely decline, which will create a greater need for conferencing tools.  These conferencing tools will also allow more employees to work remotely, which will reduce travel costs and emissions.  As a result, there will be new opportunities for providers of secure remote access solutions.

One of the major areas of expected growth among the ICT sectors involves IT outsourcing.   Many organizations are looking for ways to cut back on costs and IT outsourcing provides a way to accomplish this goal.  Plus, outsourcing to a global sourcing provider allows companies to better focus on core competencies and increase productivity.  Global sourcing providers are expected to reap the greatest benefits to this anticipated growth.  Frost & Sullivan cautions in the report that contract terms can be expected to fall significantly.  Companies can use the advice of experienced IT outsourcing consultants to ensure that the contract terms are in their favor.

The authors of the Frost & Sullivan report believe that there will be new opportunities in both traditional and non-traditional areas of managed services, including managed handsets, network services and leasing services.  According to the report, there should be an increase in mergers and acquisitions as the economy continues to weaken.

Based on this Frost & Sullivan report, it is safe to assume that a slow economy will benefit some areas within the IT industry, while negatively impacting others.  Global IT sourcing is a great way to lower costs during this economic slowdown.  A&E Consulting helps organizations weigh the benefits of outsourcing and also assists in choosing the right outsourcing partner.  The consulting firm will even oversee the first outsourced project to ensure a smooth transition.

Social Bookmarks

China has made many recent changes that have impacted U.S. businesses outsourcing to the country.  Within the outsourcing industry, China has been well known for its low cost of labor, which attracted many companies wishing to outsource various functions.  However, with China’s new regulations and economic changes, outsourcing to this location has become increasingly expensive. 

Many environmentalists, economists and labor advocates are pleased with the changes that have been implemented by the Chinese government.  Some experts feel though, that China’s moves may put a financial strain on smaller U.S. businesses that have been outsourcing to this country.

An article posted on CNNMoney.com titled, In China, Outsourcing is No Longer Cheap, examined these recent movements.  Some of the key points of the article are summarized below.

New Labor Laws
A strict labor regulation went into effect on January 1, 2008 in China, which mandated employers to offer employment contracts, overtime pay and a social security program.  It is believed that this law was the direct result of internal political dynamics.  There had been a growing public outcry regarding low wages, insufficient labor rights and economic inequality.  Recent studies have shown that the wages in China are increasing by 10 to 15 percent each year.  That statistic, along with the tough labor law, has made many businesses nervous.

Auret van Heerden, President of the Fair Labor Association, was quoted in the article as saying, “There’s a feeling that this law might be too much, too soon.  HR is a recent discipline and the courts are starting to get overwhelmed.”

Environmental Reform
China has been making great efforts at environmental reforms.  In 2006, the Chinese government started a 5-year plan to increase the country’s energy efficiency by 20 percent between 2006 and 2010.  China anticipates that by 2020, renewable energy will account for 15 percent of its national consumption.  There has also been a greater enforcement of safety and cleanliness rules that had been in China’s plans for a while.

Last summer, China took emergency measures to address air pollution due to the Olympic Games.  As a result, many factories were forced to stop or slow production.  Some of the factories were later re-opened, but many were not. 

Eliminating Tax Rebates
China had been allowing tax rebates for exporters since 1985, but recently these rebates were cut.  Over the last few years, Beijing has drastically cut rebates on thousands of goods across a range of industries as a way to reduce China’s trade surplus.  China charges a 17 percent value-added tax (VAT), which is placed on added value of goods and services that is incurred in any exchange.  Exporters were usually given a full rebate on this tax, but that has changed.  China will now only offer VAT refunds ranging from 5 to 17 percent.  For goods that are considered to cause high pollution during the manufacturing process, the tax rebate has been cut all together.

Rising Chinese Yuan
The weakening U.S. dollar has also been compounding problems for many U.S. companies outsourcing to China.  In 2007, the Chinese Yuan rose more than 10 percent against the dollar.  Chinese vendors are typically paid in Yuan, which has placed a large financial strain on profits for many businesses in the United States.

Despite all of these changes, China still has a lot to offer a company looking to outsource.  A&E Consulting offers valuable insight into the outsourcing industry and helps businesses in choosing the right location and vendor.  The consulting firm will also oversee the first outsourced project to ensure a smooth transition.

Social Bookmarks