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Offshore Outsourcing

When Adrian Comstock first dreamed up DriveGear.com, international labor management was the last thing on his mind. His seemed like a typically all-American idea: an e-commerce site where auto enthusiasts could purchase performance parts online. Imagine his surprise when, several months later, he found himself working with a development team based in Russia.

Comstock never consciously sought out bids from overseas firms. For the initial launch phase of his site, he had contracted with a prominent U.S. development company; naturally, he expected his site to be built in the U.S. So when the American firm suggested that he outsource the actual development labor to an offshore team, he was hesitant at first. Once he agreed, however, the work he received exceeded his expectations.

"It worked out great," Comstock says. "They were very easy to deal with. They knew English very well. And to be honest, they delivered before the deadline, and they delivered a product that worked from the get-go. So I was totally pleased."

According to Clif Westin, national practice director for e-business at Ajilon Consulting, Comstock's story is typical of how many American companies arrive at offshore outsourcing. "It's very rare that they come and say, 'We want to do this offshore, in Moscow.' Typically, they have a business problem, and we see how everything plays out," he says.

But despite the benefits of the offshore model, Westin advises caution before leaping into any overseas development relationship. "I guess the tagline I could throw in is, 'Warning: Severe learning curve ahead,'" he says. "And that carries with any kind of offshore outsourcing." Adrian Comstock had to learn his lessons the hard way.

A Turn for the Worst

For the second phase of DriveGear.com, Comstock again worked with the same American development firm, and again they suggested outsourcing the back-end programming. But rather than working with the Russian team again, this time they recommended a team of developers based in Egypt.

Despite his earlier, positive experience, Comstock was concerned. "I did have doubts," he says, "and I requested the Russian team. But they said the Russian team was already on another project and unavailable." The American development house offered several other options, including a team based in India and one in Santa Monica, California. But in the end, they assigned the job to the Egyptians.

Comstock hoped for the best. If phase two worked out as well as the initial launch, he would have no complaints. Unfortunately, it wasn't to be. "I noticed problems immediately," he says. "Even our first, introductory phone call with them happened a couple days later than it was supposed to."

As the project progressed, Comstock's relationship with the Egyptian team went from bad to worse. Repeated appeals to his American development partner went unheeded. Ultimately, the results were disastrous. The work Comstock received wasn't merely unsatisfactory; as he explains, "They never finished it! They hadn't delivered anything for six weeks after it was finally due. At that point in time, my company had almost run out of money.

"Finally, I ended the engagement with them," he says. "We basically had an acrimonious break-off, because they didn't finish their work and I refused to pay them their final payment."

Keeping a Lid On Costs

Russia and Egypt aren't alone in their bids for a stake in the worldwide IT market. From India to Southeast Asia, Eastern Europe to South America, outsourcing opportunities are becoming almost universal.

"Without any doubt, it's a global phenomenon," says Gerald Massey, western region senior vice president for Covansys, an outsourcing provider based in Michigan. "India was early on in the process. In recent years, we've seen significantly increased presence in places like Eastern Europe. And now the hottest market that you hear about is China."

What vendors in all of these countries have in common is the ability to offer IT and development services at substantially lower rates than their U.S. counterparts. "If I had used an American development team, I would have paid a lot more money," says Comstock. "For sure. Honestly, I think I would have paid about twice as much as I did."

Though Comstock's guess may be slightly inflated, it's not far off the mark. Covansys's Massey says his company's clients can typically expect a minimum of 20 to 25 percent savings when working with an offshore vendor. Though the current economic slump in the American tech sector has driven fees downward, domestic firms still can't come close to the rates available overseas.

But according to Ajilon's Westin, the savings you can expect depend on the type of work you want done. "If you're looking at any of the cutting-edge technologies, the price differences aren't as great anymore," he explains. "It's just supply and demand at that point."

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