The interest for offshore IT sourcing is now an irreversible trend and is regarded as a business necessity. Thousands of western firms are conducting IT-activities in countries such as India, Russia or China. Companies across the globe are capitalizing on offshoring to achieve business competiveness. In the last 3 years or so, offshore IT has assumed new forms to include offshoring of business processes. Offshoring of IT is intensifying and firms are strategically leveraging offshore capability and the structural cost savings, while also focusing on deriving operational innovation. Robust models and quality and project management processes are employed to unleash the benefits of offshore IT. The same complexities and challenges still exist, some even growing in their scale and assuming new dimensions. Although many refined and proven managerial and organizational practises and technological tools and infrastructures, are now available, the challenges and constraints involved in managing offshore IT are far from gone. The art of managing offshore IT work is still evolving
While there exist tangible and high visibility benefits of offshoring IT operations, they come along with certain riders. We will look at certain hidden costs that have the potential to either reduce savings considerably. Companies that want to succeed in offshoring, shall avoid the below statements.
Pursuing the Low-Cost Worker: Offshoring is not only about sending processes to places that will execute at low labour cost. That, today, is no longer the primary reason offshoring is adopted. Quality is of equal or, sometimes, more importance. Businesses, instead, are proceeding with caution and only select offshoring as a strategic option after having completed a detailed cost-benefit analysis and have a reliable projection of ROI. They also need to be satisfied with the quality and standards of the product they will receive.
Choice of Service Providers: Not all service providers guarantee cost savings. And not all service providers are willing to provide an exclusively client customized solution. Businesses not cautious in their approach to offshoring their IT services often end up in the wrong hands considering that IT solution providers are springing up by the thousands. It is absolutely essential that clients perform an extensive in-house cost-benefit analysis and identify processes that can still be retained cost-effectively if offshoring can be avoided. Solution/Service provider selection can for the most part account to three percent of the total contract value. The choice of service providers is an issue that needs to be followed more closely.
Initial Costs: Moving the IT process from one shore to the other entails the establishment of a robust communication infrastructure that is reliable and secure on both ends. This tab is usually picked up by the client else is included as a service execute by the provider in the Service Level Agreement (SLA). These initial costs not just involve physical infrastructure costs but also cost of training service provider personnel in client business methodology, and home personnel redundancy while the process is in a migratory phase.
Productivity: The product of a solution provider or developers’ productivity and the hourly pay scale account for the bulk of an offshore software development process. Once again it is a direct impact of choices made by the client. An inexperienced service provider establishment may sound good in publicity documents but if it is not able to back up its claims with a high productivity to cost ratio, it is the client who stands to lose in terms of revenue, investment and competitive edge in the market.
Communication: 100% uptime is not only desired but needed. In a world where data is processed into information within nanoseconds, any breakdown of communication is fatal for the information technology industry. This holds good not only for outsourced processes but also those processes that are in-house but at offshore locations. With simultaneous churn of code, data and information at different locations, the need to manage inflow and outflow is very critical and the maintenance of connectivity and communication is of paramount importance.
The very recent breakdown of two major underwater internet and communications cables, the SME4 owned by a global consortium and Flag owned by Reliance Communications in the Mediterranean Sea has caused a major disruption of Internet-based services in the Middle Eastern regions of Saudi Arabia, UAE and the Indian Subcontinent. Reports suggest that this breakdown while being immediately attended to could take about 15 days to restore normality and was loss of billions of dollars. The IT industry in these regions, which accounts for nearly 85 to 90% of IT providers worldwide, has taken a major hit with communications and connectivity degraded by 50%. The major ISPs of India, along with their Egyptian counterpart are assessing the damage and continuing to provide degraded services through the Pacific underwater communication cables. It remains to be seen what temporary and permanent impact this has on the IT industry in the region and world over.
Data Security: With information being so readily available for a price, its security is something giving nightmares to clients and service providers alike. Importing services has a higher risk than in-house development and data operations because of external personnel not under direct control of the client business. It sometimes becomes a matter of trust with such issues and most top-level service providers have established an industry-wide goodwill that prompts more business to come their way. It is difficult these days, where clients are spoilt for choices, for start-up IT providers to establish quickly and draw in big revenues. It is vital that clients steadfastly ensure data security clauses are incorporated in the service level agreements (SLAs). These clauses are also known as Non-Disclosure Agreements (NDAs). Also, clients must be convinced that adequate physical and virtual data and information security measures are put in place by the provider. Highly sensitive information like weapons system technology, government financial and national security data, banking industry information, proprietary software development information and even personal information like medical and social security data need to be protected from malicious or unintentional attacks and damage.
Intellectual Property & Legal Issues: The onus of protecting intellectual property in the form of project designs, details, code and other innovation falls on the service provider, after extensive legalities are agreed upon with the client. It is an important aspect of offshoring IT operations because laws are not the same everywhere and tying up loop holes is not just beneficial for the client but also for the service provider in case it needs to defend itself against alleged plagiarizing and profiting from illegal sale of information or technology to a third party or client’s competitor.
Service Enhancement: This is one of the issues that need to be considered prior to adopting offshoring. The trend will be more towards not just providing reliable service but also the ability to innovate and enhance the existing process. This results in not just the client getting a better product; it establishes a lot of positives for the service provider in terms of technical advantage of innovation, industry goodwill, expansion of market presence and increased revenues from better services.
Project Management: Any process, offshored or not, needs to be tracked, managed and reported as a means of good development practices and establishing accountability. Operations spread across the globe offer a big challenge in terms of managing different projects spread across very diverse demographics, worked on by different talent pools, supervised by different managers and connected to each other with inherently unreliable technology e.g. a global network of fiber-optic cables that can either be broken by malicious or unintentional actions or by natural environmental causes. One important way to address this issue is to align provider development methodology and tools used with that of the client. This way, personnel in-house and offshore are at the same comfort level with using tools and development methodologies, resulting is compatible code churn, seamless porting of services and solution across borders, easier project management, greater accuracy and higher accountability.
Cultural Differences: In India there are over 1600 known and documented languages and dialects. This however does not include the languages of the four major Southern states which could otherwise contribute a thousand more, at the very least. Examples in diversity abound all over the world and while globalization brings a McDonalds or a Citibank into many countries, one should not mistake it as a growing alignment. Differences are an omnipresent constant; it is the degree of these differences that vary. While service providers of different countries put in their best efforts to minimize the differences between them and the client, it is not a reasonable expectation on the client’s behalf to have the service provider align with them on a one to one basis. It is part of international business strategy to exploit these differences to bring out the best and try to keep retarding differences to a minimum. Language, accent, culture, traditions, business and social ethics, work cultures, laws and a whole lot of other factors vary from region to region and country to country. While they cannot be ignored completely, efforts must be made by both ends to focus on keeping operational differences to a minimum. This is easier said than done considering other factors have a direct or indirect impact of the way operations are carried out. A possible solution is constant people to people contact among onshore and offshore teams. This will give team members the opportunity and time to acclimatize and get used to different cultures, enhancing mutual respect and a better understanding of the others methodology. A team of onshore and offshore personnel that is comfortable with each other results in greater and more effective communication, which leads to greater productivity and finally translates to a stronger products and increased revenues.
Summarizing all these issues, it is important to have customized long-duration contracts, establish very good and close communication with service provider and distributed teams. Make certain that adequate data and information security measures are in place and have a fail safe measure by distributing processes to more than one solutions provider if budget allows it and always have a backup plan.

References:
• Architectural and Transportation Barriers Compliance Board, Federal Register Vol. 65 No. 246-Part II (December 2000), “Electronic and Information Technology Accessibility Standards (Section 508)”.
• The Offshoring Times Whitepapers, “The Real Cost of Outsourcing: The Good and Bad of Outsourcing IT”.
• Kumar, Arun (February 2008), “Net Freezes, BPOs Hang-up After Cables Snap”,Hindustan Times.
• Erran Carmel and Paul Tjia (April 2007), “Offshoring Information Technology. Sourcing and Outsourcing to a Global Workforce”, Cambridge University Press
• http://www.wikipedia.org/