Offshore outsourcing (i.e. BPO, especially to India)
has a high failure rate and is leading to a new pheonmenon:
backsourcing/backshoring, and the "H-1B swindle."
June 12, 2005 revision: Adds BW article reference on Apple pulling out of
India (see item #14)
June 6, 2006 revision: Adds one question (#4) about economic conditions in
India and references (in item #13, below).
May 5, 2006 revision: Companies hiring foreigners on H1b visas are
less interested in quality work and more interested in cheap labor (see
item #12 below).
FAQ:
QUESTION #1: How well is offshore outsourcing & BPO (especially to India)
really working?
ANSWER: Below are twelve different sources (1-11, 14) and many comments,
summaries, and quotes that report that the failure rates are very high
and satisfaction is not very high, either. Especially in reference # 10,
it is clear that you don't get increased "productivity." Instead, when
the cost goes down, so does the quality of what comes out.
QUESTION #2: Instead of offshoring jobs to, for example, India, US
companies import foreign labor to the USA through a visa such as the
H-1B which requires that the employee work only for the company that
sponsors that visa and they justify this on a shortage of IT expertise
in the USA. How true is this picture?
ANSWER: Reference #12, below, is a source of information that H-1B
employers are more interested in cheap labor than quality service or
products.
QUESTION #3: Are there any anti-offshoring internet resources?
ANSWER: See at the very end of this file, one website. If you know of any
more, please send email to me or post to the newsgroups.
QUESTION #4: What BPO economic changes are currently being reported for
India?
ANSWER: See item #13, below.
---------------------
14. Subject: More India BPO failure
(in Business Week, June 19, 2006 issue, page 48):
title: "India: Why Apple Walked Away"
subtitle: "Plans for an Indian tech support center have been scrapped. A
cautionary tale"
by Manjeet Kripalani and Peter Burrows.
Quotes:
"Just three months back, Apple ...[was talking about] hiring 3,000 workers
by 2007 [in Bangalore]...."
These plans are now cancelled and most of the 30 existing employees in
Bangalore have been dismissed. The factors mentioned as working against
the original plan include "Entry level pay at tech and outsourcing
companies climbed by as much as 13% annually from 2000 to 2004, while
salaries for midlevel managers jumped 30% a year during the same
period...." Also cited as a problem was high turnover. Thus the financial
advantage of sending work to India has just about vanished.
--------------
13. Quote from CFO magazine, June 2006, page 17 (may be on their website,
cfo.com, I did not check): "Passing on India? Rising wages in India are
eating into some of the cost advantages of sending work to the popular
outsourcing destination. Wages have increased roughly 11 percent in each
of the last three years with little sign of abating, says Michael
Spellacy, vice president at The Boston Consulting Group. In major cities
like Bombay and Bangalore, inflation has climbed as high as 14 percent,
with worker attrition rates now averaging 25%. A full time worker in
outsourced financial services in India earns between $22,000 and $27,000,
Spellacy says."
Also, in The Economist, June 3rd, 2006 issue is a special report on India
"A Survey of Business in India" with the title "Now for the hard part" and
on page 6 of the special report (center section of the issue) is a large
article ("If in doubt, farm it out") on the difficulty India is having
finding workers for this great expansion in BPO service to the outside world.
---------------------
12. The article "The H-1B Swindle" by Ephraim Schwartz, appearing in
Infoworld, October 31, 2005, page 12, has the subtitle "A new study
suggests that companies hire foreign workers for cheap labor, not skill."
The article goes on to say: "It appears there is hard evidence to prove
that employers are using the H-1B visa program to hire cheap labor; that
is, to pay substantially lower wages than the national average for
programming jobs (infoworld.com/3449)" The article goes into additional
detail and cites data sources such as BLS (infoworld.com/3450) and DOL's
H-1B website (infoworld.com/3451). Across the board, foreigners were being
paid less. As a general fact, companies have a financial incentive to
preferentially recruit foreigners because they know foreigners will accept
a job offer at a lower wage.
---------------------
11. A study show that outsourcing really does not save as claimed.
http://www.boston.com/business/technology/articles/2006/04/13/
outsourcing_saves_less_than_claimed/
(this reference was posted on a newsgroup in early 2006, and was not
checked)
--------------
10. Three more recent articles. First: the article "Don't Offload Big IT
Problems On Outsourcers" by Rob Preston (VP.Ed-in-cheif) as appeared in
Informationweek, April 10, 2006, page 88 (may be online at
informationweek.com). Second: the large article "How Do You Spell Relief?
O-U-T-S-O-U-R-C-I-N-G" by Bruce Boardman, appearing in Network Computing,
April 1, 2006, pages 30-36, and a third article in the same issue on pages
39-48.
So what do these three articles say? The first is a one page qualitative
review of several outsourcing failures and cites "Outsourcing Backlash"
(presumably at informationweek.com/650/50iuout.htm [I have not checked
it]) and explained that any problems people have at home become magnified
when they offshore/outsource (many references to India).
The second walks people through the "process" of outsourcing/offshoring
work, including a discussion of how to do this, but also has a sidebar on
page 36 which includes a summary of a Deloitte Consulting survey of 25
organizations (worth $1 trillion in market cap, and with 1 mil employees,
and spent $50 bil on operations outsourced) and the sidebar says things
like: one in four brought functions back in house after realizing they
could do the work better, cheaper themselves, 33% of outsourcing
relationships failed in one year while 50% didn't last five years, and 57%
paid extra for services they though were included in the original
contract.
The third article also helps the IT specialist by evaluating four data
center packages (from Savvis, EDS, Globix, and Infosys). There were a
number of tables with data. Bottom line results: Infosys was the cheapest,
EDS about three times more expensive, others midway; quality of results-
Savvis and EDS got A-, Globix got B+, and Infosys got a C. You get what
you pay for.
----------------
9. Courtesy of "indiabpoking" are the following reported negatives,
failures and shortcomings of BPO, quoting his quote from the source given:
From (e-mail address removed) Mon Apr 10 18:36:37 2006
Date: 10 Apr 2006 15:36:37 -0700
From: indiaBPOking <
[email protected]>
Newsgroups: alt.computer.consultants, alt.politics.economics,
alt.politics.bush, sci.research.careers, soc.culture.british
Subject: Outsourcing seen as source of innovation
http://news.zdnet.com/2100-9595_22-6059512.html
"An IDC and Capgemini survey of almost 300 executives attending IDC's
Outsourcing Forum East last week found that top reasons for deciding to
use Business Process Outsourcing in a corporate strategy include
reducing costs, driving innovation, and the ability to focus on core
competencies."
[but see below]
"Additional [negatives, failures, drawbacks] survey highlights include:"
"* More than one third (38.2 percent) of participants felt the biggest
downside to outsourcing is not getting the expected results, followed
by public/customer backlash (23.5 percent), and anxiety over loosing
control (20.6 percent)."
[note that 38.2 percent is much lower than other figures cited from
other sources farther down]
"* The three most important legal issues concerning BPO today according
to those surveyed were: governance procedures (33.8%), business
continuity (27.7 percent) and intellectual property rights (26.2
percent)."
--------------------------------
8. More complaints about India:
from the article "View from Asia-India won't fully benefit from the amazing
productivity of its companies unless it builds a better infrastructure for
business" by Tom Leander (Editor-in-Chief, CFO Asia). Appearing in "CFO"
magazine for April 2006, page 27 (may be at their website:
www.cfo.com/backissues).
Some quotes:
"... GE's CFO, Keith Sherin, told CFO Asia late last year that he finds India
frustrating. 'You get excited and nothing happens,' he says. Three years ago,
GE did about the same volume of business in both India and China. Today,
China is a $3 billion market for GE, triple that of India. So, it's no surprise
when Sherin sums up GE's Asian strategy by saying that 'China is number
one, two, and three for us'."
"His primary complaint is the lack of government support for infrastructure
improvements. Turn off any highway in India and you'll know what Sherin is
talking about."
"It may be unseemly to criticise a government that has to take care of so
many poor citizens for not building better roads to facilitate commerce, but
India's CFOs point out that infrastructure is a social-welfare issue. Sumant
Sinha, CFO of leading conglomerate Aditya Birla Group, says that he spends
more on capital expenditure every year than peer companies in other nations
might. How many of them, after all, must build their own power stations?"
"But its wishful thinking [despite all the positives of India] to conclude that
India's remarkable productivity will translate into a thriving internal market
any time soon. In the eyes of most U.S. finance chiefs, China remains
number one, two, and three."
---------------------------------------
7. Backshoring...the new buzzword
Feb 13, 2006 issue of Infoworld, pages 8 (Efraim Schwartz's column) and
page 4, (editor's);
Developer poaching and rapidly rising prices are causing US based
companies to start pulling jobs back to the USA. Read about it in the
periodical.
------------------------------------------------
6. Subject: Deloitte Report: outsource failure rates
From June, 2005, CFO magazine, page 19.
(it may be on their website,
www.cfo.com/BackIssues)
Deloitte Consulting was said (by the CFO article) to have said "'In the
real world, outsourcing frequently fails to deliver its promise.' wrote
researchers who surveyed 25 companies with average revenues of $50
billion. The study reveals that 70 percent of its respondents have had
significantly negative experiences and are outsourcing business processes
and IT with increasing caution."
"...there is growning evidence that large comapnies are rethinking massive
outsourcing contracts. Big name defectors that have unwound at least part
of their arrangements include Conseco, Dell, Capital One, and Lehman
Brothers."
"A sure sign that outsourcing isn't working is the amount of renegotiation
surrounding the vendor agreements, sayd Deloitte senior strategy principal
Ken Landis. 'There wasn't a single participant in the study wohe contract
went to term,' he says. 'All of them had renegotiated prior to the
contract expiration date'"
"Companies are souring on outsourcing, the survey asserts, for the same
reason it has been criticised for years: failure to live up to
cost-reduction promises, risks to intellectual property, and
confidentiatlity, and lack of transparency."
The article states that, so far, 25% of the companies have brought
services back (now called backsourcing).
------------------------------------------------------
5. From Information Week, page 8, in the Nov 21, 2005 issue.
Sidebar: "48% of all companies will spend more money on BPO this year than
in 2004"
"55% of current BPO service delivery is conductend inside the USA"
"41% of companies are satisfied with their BPO services"
So, that sounds like 100 - 41= 59% are dissatisified with their BPO
services. And, there's going to be more BPO?
Says the source is IW, Managing Offshore, and Equa Terra study of 200 BPO
customers.
-------------------------------------------------
4. "Offshoring isn't such a sure thing"
by Lora Kolodny,
Inc. magazine, September, 2005, pages 22-24
Quotes:
"Companies are finding that sending IT work overseas can
be more trouble than it's worth, according to a new survey
from DiamondCluster International, a Chicago-based
management consultancy. The number of executives
surveyed who said they were pleased with their outsourced
IT vendors fell by 17 pecentage points versus the previous
year, marking the first decline since 2002. Moreover, early
termination of relationships between buyers and offshore
service providers spiked to 51%, which is double the rate of
2004."
In other words, half of all relationships are terminated
before their first contract period is up.
In view of this, a spokesman for the consulting firm says
that "...tech buyers will think twice about sending critical
services abroad--at least for now."
--------------------------------------------------
3. From "CFO" magazine, FALL 2005, special issue, pages
40-44. (may be on
www.cfo.com/Backissues)
article: "Customer Disservice: Critics say the promised
savings from offshoring come at too steep a price, while
companies say very little at all"
by Norm Alster
some content and some quotes:
This article starts by saying that on a recent talk show
where people could call in with comments and questions, it
was discovered that virtually everyone in the USA does not
like foreign call center representatives.
"But the practice of outsourcing customer service to
offshore call centers is beginning to look like a classical
idea carried too far. Critics of the pracctice point to a
growing body of evidence that suggests faulty economics
and customer dissatisfaction are forcing a rethink of what
once seemed a no-brainer."
"'The economic benefits of outsourcing customer service
are grossly overstated' according to Niels Kjellerup, a senior
partner with Australian consulting firm Resource
International and editor of a Website devoted to call centers
(
www.callcenters.com.au). Customer resistance, along with
data-security concerns and the unexpectedly high costs of
managing offshore call centers, offset and dilute their
promised economic benefits, says Kjellerup."
"There is already evidence that these factors have
combined to slow the offshore migration. Several large
firms, including Dell, credit-card giant Capital One, and
insurer Conseco, have shifted at least some customer-
support operations back to the United States."
Gartner's analyst, Robert Brown, says that the initial large
growth in offshoring is expected to be, in the future, much
much smaller.
"Companies with monopolistic or overwhelmingly dominant
market positions are more apt to risk customer alienation
where near-term savings can be realized."
"Alexa Bona, a Gartner analyst based in London, predicts
that during the next three years, up to 60 percent of
companies outsourcing customer-facing service will
encounter customer defections and hidden costs that will
either cancel or outweigh any perceived savings in such
arrangements."
"He [Chris Selland, at Covington Associates in Boston]says
executives at firms that have employed offshore call centers
keep telling him that 'it's harder, it takes more management
attention, and you have to be meticulous about the way you
structure the agreement.' As a result of all this unexpected
overhead, the projected savings from offshoring can swiftly
evaporate."
The article says there is huge turnover at Indian call
centers; it can be up to 70% per year. And, with the big
expansion, there have been recruiting wars in India and
escalating pay scales.
"Martha Rogers, a consultant and author of several books
on customer relationships, contends that the metrics
generally used to measure call-center performance are
flawed."
"Many companies that outsource customer service, in fact,
don't like talking about it, and more than a dozen turned
down requests for interviews. 'Companies are looking to do
everything they can to hide the fact that they are using off
shore call centers' says Selland. 'From a political standpoint
and a customer-acceptance standpoint, it is something they
are trying to downplay.' At some Asian centers, agents are
actually trained to conceal their real names and adopt
phoney American monikers, a practice that fools few and
can further inflame an already angry caller."
"One in three respondents in a British survey said they
would stop doing business with a bank that relocates its call
centers offshore. Another study, conducted in 2004,
reported that just 5 pecent of the British are satisfied with
offshore call centers. The Irish arm of Sweden's Tele2AG, a
telecommunications firm, recently switched its call center
operation out of India and back to Ireland, citing consumer
preference."
"In an unpublished data-theft case now under investigation,
a large U.S.-based technology multinational contracted with
a call center in India without knowing that that company in
turn subcontracted a portion of the work to firms outside
India, where employees of the subcontractor apparently
managed to penetrate the American company's information
database."
"...growing outsourcing industries in Eastern Europe and
Latin America have been targeted by criminals seeking
access to customer data. "
"'For companies that regard customer service as a key part
of future revenue growth, bringing such operations back to
domestic shores is the way to go,' says Kjellerup."
---------------------------------------------------
2. From _Information Week_, page 60, Dec 19/26 issue, 2005
A short article by Paul McDougall reporting that: "...companies
operating in India, including local ones such as Infosys
Technologies, Tata Consultancy Services, and Wipro Technologies,
spend a lot of time and energy time stealing each other's
employees--and that's quickly driving up salaries" and "'There's a
lot of employee turnover [in India], and we weren't interested in that,'
says Martin Mellon, director of development at applications vendor ASG
Software Solutions. The company chose Northern Ireland over India
for its offshore development work."
--------------------------------------------------
1. Subject: "Satisfaction Wanes for Offshoring"
On page 2 of the print issue of Processor.com for June 17, 2005, volume
27, number 24:
"According to consulting firm DiamondCluster International, the number of
buyers satisfied with the providers of their offshore outsourcing has
fallen from 79% to 62%. The firm's annual survey of IT outsourcing also
revealed that 51% of buyers are terminating their outsourcing
relationships earlier than scheduled."
=============================
An anti-offshoring website (excerpted from a 2006 newsgroup posting):
Subject: US IT Out Web Site (Anti-Offshore-Outsourcing) (fwd)
From: Vladimir Veytsel <
[email protected]>
Newsgroups: alt.computer.consultants, alt.computer.consultants.ads
Link :
http://it.davar.net or
http://davar.net/IT
Name : US IT Out - USA Information Technology Outsourcing
Descr: Selection of anti-offshore-outsourcing quotes,
opinions, cartoons and links.
(On most part changes are uploaded at month end;
updated sections are marked by colored dates.)
About Short introduction that explains the purpose,
the origins, and the structure of the web site.
Advice Quotes that offer advice on what one can do
to oppose the offshore outsourcing.
Quotes Quotations selected mainly by the following criteria:
1. Random historic quotes (mostly by the US presidents).
2. All USA historic quotes (mostly by the US presidents).
3. Condensed viewpoints that are well taken.
4. Representative statements showing "who is who"
relative to the offshore outsourcing issue.
Opinions Opinions selected on most part from the
"alt.computer.consultants" news group. Just linking
to them would be clumsy and not quite reliable, and
could result in losing them if they were deleted from
the news group archives. A few opinions were selected
from the media, again for the sake of keeping them in
case they were deleted from the media site archives.
Books Short reviews of books that describe and analyze the
offshore outsourcing phenomenon, and related subjects.
Cartoons "One picture is worth thousand words" - especially if
it's a good cartoon. Treating a topic that is anything
but a fun with a smile (though a sad one) serves as a
healthy add-on to the mostly depressing content of this
web site.
IT Links Classified links to information about the offshore
outsourcing of information technology jobs by
USA-based companies.
USA Links Classified links to information about USA events
(some links here are related to offshore outsourcing).
World links Classified links to information about world events
(some links here are related to offshore outsourcing).
--
Best regards,
Vladimir Veytsel
http://davar.net
http://it.davar.net
