Offshore Outsourcing: New Spin Or Same Old Business

Introduction Outsourcing is the contracting of various systems functions, such as data entry, programming, facilities management, disaster recovery, and telecommunications management, to outside providers of services. The primary reason that organizations turn to Outsourcing is cost reduction, to leverage themselves ahead of their competitors, and as a means to increase their adaptability to changes in the market place. Outsourcing also provides the ability to benefit from the advances in information technology, while focusing on core business activities of the organization. Not only does Outsourcing information technology functions enable increased concentrated efforts toward the organizational mission, but if skillfully planned and properly managed, contributes to a healthy growth in the company's fiscal bottom line also. How did Offshore Outsourcing Start? The Offshore development concept has been around since the 1970's and it gained momentum as the Year 2000 approached the users realized the magnitude of the Y2K problem. The shortage of trained IT professionals in U.S. and the promise of faster, less expensive fix to the year 2000 software problems forced American companies to turn to Offshore Outsource services during the late Nineties. Not finding enough trained people and retaining them worsened the IT labor shortage situation at home and accelerated the dependence of these services. Offshore Outsourcing was not only used to reduce the cost of labor intensive Y2K software solutions, but also to accelerate their implementation (Duggal, 2004). According to Mishra (1997), Offshore Outsourcing is a good way for U. S. firms to share the pain of 2000 projects. That way, onshore sites can perform functions such as impact analysis, prechange analysis, and test and implementation, and leave the labor-intensive compliance phase of projects to offshore factories. Initially, the possible candidates for Offshore Outsourcing were application development and maintenance, bug fixes, call centers, data entry, mainframe work especially year 2000 conversion, and system maintenance (Steen, 1998). According to Steen (1998), as technology improves and success stories emerge about foreign Outsourcing, the practice is growing, according to those who study it and those who participate. She further states that as project management methodologies and infrastructure improve, more types of work can be done Offshore. Impressed by the speed with which the year 2000 projects were finished, the quality of the finished product, and the work ethic; companies started using Offshore Outsourcing for more business tasks as well as more critical application-development projects. The success stories about few of the Y2K projects claimed by different authors and noted by (Duggal, 2004) are (1) Florida Power & Light awarded project to Mastech (Mishra, 1997); (2) OrionAuto, a subsidiary of Orion Capital Corp.-hired Cognizant Technology Solutions Corp (Mateyaschuk, 1999); (3) Tufts Health Plan--hired Wipro (Mateyaschuk, 1999); and (4) Aetna U.S. Healthcare, a subsidiary of Aetna Inc.--contracted 50 of the Bangalore, India, Outsourcer's IT (Greenemeier, 2000). Encouraged by the success of their Y2K projects, US organizations expanded Offshore Outsourcing operations to Canada, Europe, Singapore, Japan, India, Australia, and the Middle East for functions such as call centers, accounting and finance, transaction processing, e-mail support and processing of health care claims. Reasons for the Continuation of Offshore Outsourcing after Y2K The reasons for continuing Offshore Outsourcing after Y2K projects given by different authors and summarized by (Duggal, 2004) are (1) Cost: -Enabled US organizations to stretch their project budgets by 50% or more (Mishra, 1997), (2) Availability:- With at least 30,000 highly trained software engineers in India and such a shortage in the States (Robb, 2000), (3) Quality: Why spend months searching for a second-rate U. …