The advantages and disadvantages of outsourcing software development projects to India; an insider's view.
Advantages in Outsourcing
The primary advantage is cost. The cost of resources is up to 30% of an IT resource in the United States or Europe, and probably better qualified. The salary of a developer is a mere $9000 USD per year. The resources that you are using are likely to incur lower expenses and promise to be more flexible. There are no employment issues. Most Indian employees will be happy to fly economy class and do not demand business hotels. Resourcing is not a problem with 70,000 IT professionals graduating in 2001.
Disadvantages in Outsourcing
Many outsourcing business cases are drawn up on the understanding that the development will be done off-site, maximising cost savings. However, those that have done it in practice have ended up onsite. This is due to business understanding; it becomes important to be in the same room as your users. This is particularly the case with web development projects, where some western businesses have found the Indian view of colour co-ordination somewhat lurid.
There are also significant cultural differences that have to be appreciated. In Indian culture, there is a great deal of respect shown to your manager and their word is rarely questioned, certainly not in public. Communication is much more formal, people call each other by their surnames and call their managers "sir". Many managers have also witnessed an unwillingness to admit mistakes or a lack of understanding amongst Indian workers. All managers interviewed have also found out the hard way that Indians will follow written instructions to the letter rather than seeking clarification or by using common sense. An example where a specification asked for too many buttons to fit on one screen - rather than reduce the size of the buttons, the developers created a second menu screen with a solitary button on it.
Risks in Outsourcing
1. Unproven on a Large Scale
It is apparent that the industry is still young and largely unproven. There are, however, many success stories which are fuelling the fire. It is important for business managers to realise that there will not be any perceivable benefit for at least two years. Overall costs will increase during this time as you simultaneously retain local staff while the Indian resources get up-to-speed.
2. Work Permits
Part of the outsourcing arrangements are to have some of the team come and work in the customer's premises for a few months, most arrangements stipulate that there are resources stationed onsite liaising with colleagues abroad. It will be difficult for outsourcing companies to offer onsite resources and retain savings. This could severely disrupt the outsourcing arrangements. Check your contracts!
3. Stability of the Offshore Countries
Many of my work colleagues are predicting the worsening of relationships between India and Pakistan. Fearing the worst, a nuclear war would have a severe impact on any economic activity in India, in spite of the centres being far away from the disputed Kashmir region. While it is hoped that conflicts such as this will never arise, India is still relatively unstable. The riots in Chennai two years ago caused many lost days of development time and forced several firms to up and move from the region.
Companies must ensure that the outsourcing companies have disaster recovery and business continuity plans in place, or in the worst case should prepare for the eventuality of non-availability of their outsourcing partners.
The lessons to be learned from outsourcing to India are:
- Carefully consider whether IT is simply a support operation or whether it is part of what gives you competitive advantage. If it gives you competitive advantage, best to keep it in house. Farm out development work, but do not throw out the baby with the bath water.
- Understand the cultural differences that you are going to experience in order to get the work done.
- Be clear about who you have on-site and their legal status for work permits.
- Use lawyers to check the baffling contracts that accompany this work.
- Make contingency plans for the unexpected.
- Make sure that enough knowledge stays in house, in case you need to change suppliers, and so that you are not held to ransom.
The author of this article prefers to remain anonymous.