But now, as India's labor costs rise, other countries are making inroads into the outsourcing business. And organizations are weighing the potential for "near-shoring"--sourcing work closer to home, in Canada, Mexico, and other Western hemisphere locations--for reasons besides costs. Near-shore locales offer tighter language, educational, commercial, and cultural alignment; time-zone coordination for work teams and managers; and relative stability of resources.
However, the distinctions between offshore and near shore are gradually blurring. Indian and Asian-based providers are expanding to near-shore locations, particularly Central and South America. As more options come online, CIOs making an outsourcing decision should consider these rules:
• Engage vendors in a competitive process. Leverage their best thinking, and challenge them to propose the optimal solution based on your requirements.
• Quantify costs of labor, infrastructure, travel, and telecommunications.
• Evaluate factors such as vendor attrition, cultural differences, and the impact of time-zone differences.• Analyze geographic, geopolitical, and geoeconomic data with appropriate discount factors.
• Visit potential offshore and near-shore sites. Too many CIOs make decisions worth hundreds of millions of dollars without setting foot in their vendor's facilities or interviewing their proposed project management team.
• Give stronger consideration to vendors with both offshore and near-shore capabilities.
• Consider a blended shoring approach as a hedge against unstable or unpredictable labor, security, financial, or political factors. Factor transition (offshore to near or vice versa) terms into your contract.
| Keep These Factors In Mind | ||
| Offshore | Near Shore | |
| Locations | India, China, Philippines, Eastern Europe and Asia | Canada, Mexico, and Central and South America |
| Labor rate | Least expensive | Less costly than U.S./U.K. rates, more expensive than India, Asia |
| Political risk | Varies by country | Generally low, with a few exceptions (Venezuela) |
| Resource pool | Hypercompetition for talent leads to higher attrition in India, instability in China, varies in Eastern Europe | Typically a more stable workforce, longer-term employees</td> |
| Infrastructure | Varies by country, susceptible to natural and infrastructure events; telecom costs high to/from U.S | Typically good but varies, susceptible to natural and infrastructure events (power availability) |
| Education | Large pool of highly qualified technical resources with emphasis on engineering, technology | Western-based education system, strong ties and understanding of U.S. commerce; behind India/China in technical resource pool |
| Time-zone difference | 8- to 12-hour difference | 3 hours or less |
| Business culture | Still lack of commercial knowledge, scant synergy with U.S. business culture | Dominated by large Western cultures, distinctly Hispanic, most companies are driven by Western holiday calendar |
| Data: Pace Harmon | ||
-- Steve Martin, partner, and Dan McMahon, senior associate, at consulting firm Pace Harmon
Photograph By Getty Images
Why We Picked China For IT Outsourcing
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