Hidden cost in offshore outsourcing

Tuesday, June 14, 2005

Shifting work to offshore software development center can be much more expensive then one can even think of and in his article, Stephanie over by explains many reasons for Why offshore outsourcing has many hidden costs. Shifting work from $100 per hour person to $20 per hour person looks very attractive and many companies are shifting their work but it has some hidden cost like

  • The Cost of Selecting a Vendor – expect 1 to 10% cost on vendor selection and traveling
  • The Cost of Transition – expect 2- 3% on transition cost.
  • The Cost of Layoffs – Expect to pay an extra 3 percent to 5 percent on layoffs and related costs.
  • The Cultural Cost – Expect to spend an extra 3 percent to 27 percent on productivity lags.
  • The Cost of Ramping Up – Expect to spend an extra 1 percent to 10 percent on improving software development processes.
  • The Cost of Managing an Offshore Contract – Expect to pay an additional 6 percent to 10 percent on managing your offshore contract.

Read the full article at CIO 80% CIOs are considering Offshore outsourcing and Offshore outsourcing is irreversible megatrend according to Gartner and by 2004, eight out of 10 CIOs will get direct marching orders to move offshore at least part of their technology services. Cost-saving of outsourcing can go as high as 40% but also, it is not just the only reason for outsourcing as it is now considered a tool to achieve longer-term strategic goals to increase IT staff flexibility and gain access to the base of world-class IT skills, so they can quickly respond to business opportunities. “I can’t think of a single meeting I’ve had with a client in the last year without offshore being a topic,” says Bob Pryor, who heads the global outsourcing practice at Cap Gemini Ernst & Young. Read the full article at http://www.computerworld.com/managementtopics/outsourcing/story/0,10801,84861,00.html

TatvaSoft – An offshore outsourcing company trusted by many clients