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.

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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.

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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.

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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.

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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.

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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.

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Global sourcing is a powerful strategic tool that when used at the appropriate time, can help businesses increase productivity, reduce costs and focus on core competencies.  It can make an organization more productive and profitable.  When deciding whether to outsource IT development, there are some important considerations to keep in mind.  For example:

• Would outsourcing a particular IT project cause the company to lose business knowledge? 
• Is the IT project something that is routine? 
• Are there enough internal IT employees to complete the project?
• Would it be cost effective to send the work to a global sourcing provider versus keeping the project in house? 
• By outsourcing, would resources be better allocated to strategic business matters? 

These are essential questions that should be addressed before making the decision to outsource to a vendor.  Once the decision is made to pursue outsourcing there are some ways to ensure that the right global sourcing provider is chosen. 

Before signing any contracts, research should be conducted.  Some of the key criteria in choosing a vendor include the vendor’s size, industry expertise, employee qualifications, communication capabilities and security measures.  The location of the vendor is also a significant issue and each country boasts its own advantages and disadvantages.  Language, government support and education are among the many factors that should be analyzed when deciding on a destination for the IT project.  Finding the right vendor is crucial in the success of an IT project and a vendor that fits well with one organization, may not align with another.

Companies looking to outsource should also have an established plan to handle the relationship with the global sourcing provider.  A manager should be assigned the task of overseeing the outsourced project to ensure its successful competition. 

A&E Consulting offers valuable insight regarding outsourcing decisions.  The consulting firm assists companies with assessing whether global sourcing makes sense and what processes should be outsourced.  A&E Consulting will also oversee the first outsourced project.

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The top six Indian global sourcing providers, which include Satyam, Wipro, Infosys, Tata Consultancy Services, Congizant and HCL Technologies, made up approximately 2.4 percent of the total global IT services market in 2007.  There was a 0.5 percent increase in market share from 2006 and there has been exponential growth over the last few years.  Many experts speculate that India’s market share will continue to grow.

India has become a top destination for global IT sourcing for many reasons.  The country boasts low labor costs, highly skilled professionals and strong government support.  Indian suppliers have continued to provide buyers with high quality work at reasonable prices.  A large majority of IT employees in India are fluent in the English language, which makes communication easier between the buyer and supplier.

India’s growth in market share has also been the result of the vendors’ strength in application development and maintenance.  Global IT sourcing providers have been able to obtain larger orders for application development and maintenance and it is estimated that they have about 40 percent of the market.

Some challenges exist for Indian service providers, such as growing staff expenses, staff attrition, the weakening dollar against the Indian rupee and the country’s dependence on the U.S. market, which makes up approximately 60 percent of their sales.  Also, large companies like IBM and Accenture have set up offices in India to benefit from the country’s lower labor costs.

Many of the Indian global IT sourcing providers are looking to buyers in other countries as possible sources of revenue.  These suppliers are trying to lessen the dependency on the United States.  Attempts to tap other markets have already been successful as the Indian service providers’ share of the total Western European IT services market has increased.   The top Indian global sourcing providers have also been adding services to boost revenue, such as remote infrastructure management.

While India is a great destination for global IT sourcing, there are many other countries that offer benefits to buyers.  A&E Consulting offers insight into choosing the right location for global outsourcing and will oversee the first outsourced project.

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When searching for a vendor, there are certain criteria that are considered when choosing a company.  One of the main factors that should be included in the decision process is the vendor’s data security policies.  There should be clear, enforceable policies in place and the access controls should be identified.  Many of the larger vendors will have certifications showing that information security practices are upheld.   Some firms will have obtained the ISO 27001 certification, which means the company documents and follows information security practices and controls.

It is important to find out how the vendor enforces access controls and how these controls are updated when employees change jobs or leave the company.  Some vendors will offer to provide development on a dedicated data server, which will include audit control access. Once a vendor is chosen, IT managers must make sure the company follows the outsourcer’s industry best practices and compliance guidelines of the home country.

Whatever policies and access controls that are discussed should be outlined in detail in the contract.  A signed non-disclosure agreement, non-compete agreement and no solicitation agreement can provide additional protection for the outsourcing company.  If a vendor refuses to include data protection information in the contract, it would be wise to consider a different global sourcing provider.  Even after the initial terms are agreed upon and the contracts are signed, an outsourcing company should perform regular audits to ensure that data privacy policies are being followed and enforced.

Only the information that is crucial to the project should be shared with the global sourcing provider.  The outsourcing company will have to carefully evaluate the propriety data and technology that are needed to successfully develop the outsourced projects.  In-house employees should be aware of what information is acceptable to share when talking with the global sourcing provider.

By being aware of the potential challenges associated with data protection and taking preventative steps, an outsourcing company can reduce the associated risks.  A&E Consulting can help you evaluate data protection issues when global sourcing and will oversee the first outsourced project. 

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One of the most important steps to take when managing an IT project is to create a plan.  Even if a project is simple or fairly small, the outsourcing company and the vendor can greatly benefit when all of the project details and deadlines are outlined.  The plan should include specific processes for completing the project and the expectations.  A plan is only good if those involved are aware of it and understand the requirements.   Therefore, after the plan is completed, all of the employees that are involved in the project development should receive a copy.  When a project is to be developed through global sourcing, then the plan should also be sent to the vendor’s project manager and employees.

Most IT projects need to be completed in a specified timeframe.  When a project is delayed, the outsourcing company stands to lose valuable time and money.  Before a project begins, deadlines and goals should be set and communicated to the global sourcing provider.  Tasks should be broken down into steps with assigned dates.  By setting deadlines and creating goals, the vendor becomes accountable and the outsourcing company can see the results more quickly.  The outsourcing company will then be able to address any problems that may arise.

Communication is crucial to the success of any IT project.  When utilizing global sourcing, poor communication can lead to a project’s failure.  Managers should set regular review meetings with the vendor to track the progress of the project.  Regular communication will help reiterate the outsourcing company’s expectations and will answer any questions regarding the project.

A common mistake made by IT managers is their lack of involvement with an outsourced project.  Many managers feel that since the project was sent to an outside vendor, they do not have to be as actively involved as they would be if the project was completed in house.  This thought process can be damaging to the project.  An IT manager must stay involved in overseeing a project, even when it is sent to a global sourcing provider. 

An IT manager must also understand the unique set of challenges that are associated with projects sent to global sourcing providers.  The difference in time zones, cultural barriers, geographical distance and security issues can all harm an IT project.  If an IT manager is aware and addresses these potential risks, the chance of a successful project significantly increases.

A&E Consulting can show you how to successfully manage an IT project sent to a global sourcing provider.  We will help you choose the right vendor and will oversee your first project.

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