An Atlas of Offshore Outsourcing

Like it not, the use of overseas programmers isn't going to diminish. For entrepreneurs, here's a quick guide to which nations offer what

By David E. Gumpert

The outsourcing of America is shaping up as a seemingly inexorable trend, with various consultants estimating that the number of U.S. jobs shipped overseas will climb from the hundreds of thousands we have seen over the last few years to several million in 10 years. While many executives will continue to view sending American jobs overseas with distaste, smaller outfits keen to remain competitive will increasingly be joining major corporations in seeking cheaper foreign options for completing computer programming, call-center work, assembly, and a myriad other tasks.

How are executives of smaller businesses supposed to decide which country is best for their particular projects? Entrepreneurial outfits tend not to have the international staffs that major corporations have for roaming the world, engaging consultants, and scouting things out, sometimes for weeks at a time. It's a big world out there, and to the extent a smaller company can narrow its search, it will save time and money.

THE CHALLENGE.

  Not surprisingly, lots of people will tell you that this country or that is best -- and, invariably, it will be the country they are from or do lots of business with. Having written three previous columns on various aspects of outsourcing, I have been bombarded by e-mails from consultants (and others) giving me the nationalistic pitch. You should check out Russia, they say, or Romania, or the Philippines, or Panama, even Africa (see BW Online, 1/12/04, "A New Tide in Offshore Outsourcing"; 12/22/03, "Offshore Outsourcing: Time to Get Creative"; and 12/2/04, "U.S. Programmers at Overseas Salaries".)

So I decided to call the bluff of some of the consultants. Tell me, I challenged four of them, about both the strengths and weaknesses of your favored country or countries as they might affect a small business that is considering outsourcing. What follows is a country-by-country synopsis of the responses:

INDIA

Strengths: The two biggest ones may be that Indians have the best command of English and possibly the most established, broadly based, knowledge of mainframes of any of the outsourcing countries. "They know COBOL/CICS or RPG and can do it tomorrow," says Larry Miner, president and CEO of TRIA Group, a firm that arranges for outsourcing of software and financial services. "Because they've been doing it for so long," he adds, "they understand [Americans] better." Moreover, says Steven DeLaCastro, a partner of Tatum Partners, a provider of information and technology services, because India produces more than 300,000 computer engineering graduates annually, "support of leading new technologies is easily found."

Weaknesses: The biggest are ongoing power outages and a cultural gulf that can lead to communication problems. "It can be days before the power comes back on," says Miner, leading to project delays. And then there is what Miner describes as the Indian tendency to "say 'yes' while they mean 'maybe.'" An emerging problem, say some, is rising costs and turnover among Indian programmers, a la the U.S. during the Internet boom of the late 1990s.

PHILIPPINES

Strengths: The Philippines is trying to bill itself as a credible alternative to India, with strong technical skills and a mature infrastructure, which means its workers are especially eager to please, says Chuck Rudisill, director of sales of Software Ventures International, a firm that manages offshore technical projects. Moreover, it has "a close cultural affinity to U.S. businesses, process, and language -- English is taught and spoken." he notes.

Weaknesses: It lacks the overall "software prowess of India," and still has the same time-zone difference to the U.S., says Rudisill. There are also ongoing concerns about terrorism, though the problem seems isolated to its southern islands. RUSSIA

Strengths: It has "very strong computer science and math" capabilities, says Rudisill of Software Ventures International. And its once-pervasive military has created a legacy of "strong process and delivery methodology."

Weaknesses: English isn't nearly as widely spoken as in India or the Philippines, making certain projects, like call centers, impractical, says Rudisill. Then there's the little problem of political instability, illustrated grimly when the head of the country's largest oil company was thrown into jail recently after expressing a desire to challenge the existing political establishment.

CHINA

Strengths: "The Chinese work ethic, on an individual basis, is great," says Miner of TRIA Group. Moreover, "If the Indian workforce can be considered experts on the older systems and the U.S. processes, the Chinese can be considered the experts on the new systems and the new way of doing things in the world."

Weaknesses: Difficulty communicating, since the Chinese often don't speak English well. But Miner believes this can be overcome "by using e-mail and instant messaging." DeLaCastro of Tatum Partners is more pessimistic, noting that government support for Chinese outsourcing is just beginning and, while China is "an excellent resource base for assisting Taiwan and Vietnam…I do not recommend outsourcing to China for (U.S.) small businesses."

PANAMA

Strengths: This Central American country is another up-and-comer that bills itself as having a young, technically skilled, English-speaking labor pool, as well as being culturally close to the U.S. In addition, Panama has an excellent infrastructure, is more easily accessible to the U.S. than Asia, and is cheaper than India or Singapore, says Harnan Singh, an individual consultant based in Panama City.

Weaknesses: The biggest problem is that employees may "lack certain motivation…therefore it may be possible that some workers lack in certain areas such as customer service."

The countries mentioned above aren't alone. The world is full entrepreneurs and nations trying to get into the outsourcing game. These include Romania, Colombia, Ireland, Israel, Hungary, South Africa, and Egypt, among others. Each has strengths and weaknesses that small businesses should explore with care before making any final decisions. For example, Hungary is known for its pharmaceutical and related research capabilities as well as software development, though costs may be higher than what businesses have come to expect in Asia, as fellow BW Small Business columnist Gabor Garai recently noted (see BW Online, 2/2/04, "VCs Turn Their Gaze Offshore") Colombia has "probably the best (technical) talent in South America," says DeLaCastro of Tatum Partners. But there are "real risks for Americans traveling to Colombia."

Settling on a country for outsourcing isn't, of course, the end of the challenge. There are selection, management, and communication issues to be dealt with. But it can be an important first step as smaller companies explore the overseas options for getting work done.

David E. Gumpert is the author of Burn Your Business Plan: What Investors Really Want from Entrepreneurs and How to Really Start Your Own Business. Readers can e-mail him at david@davidgumpert.com

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