The Bitter Taste of Offshoring

Corporate America's appetite for highly educated Indian employees at a fraction of U.S. wages is causing some severe indigestion. After loading up on a diet rich with extra travel, training, telecommunications, infrastructure, and dual management, companies that have made the Transatlantic trek are still ending up with the bitter aftertaste of employee frustration. "A lot of U.S. managers in charge of a company's outsourcing operation are being vocal about their quality of life. It's being eroded because they have to manage people on the other side of the world," says Jarad Carleton, IT consulting analyst for Frost & Sullivan. Cultural difference can be problematic as well. "While India has a large group of talented people, it's the little things that get in the way," says Peter Ryan, CRM analyst, outsourcing and offshoring, at Datamonitor. "They don't use the same types of bank accounts, mobile phones, or even laundry detergent you would find in the West." Another problem Western outsourcing providers are finding is that India is a victim of its own success. With so many outsourcing operations already stationed there, American businesses are finding it difficult to hire new employees, get them to and from work in overcrowded metropolitan areas, and deal with a power grid and infrastructure that is overstrained. Some experts suggest taking heed from European companies. In September ABN Amro, a Dutch financial services company, signed a global services agreement with five IT service providers worth a total of 1.8 billion euros, which industry experts say is the largest outsourcing deal to date. That same month, Forrester identified that Germany and Great Britain closed more than 5 billion euros in outsourcing deals during Q2 2005. Though the number of European outsourcing deals has started to level off, the deal making was marked by seven straight quarters of substantial growth. European companies have compelling near-shore options, enabling them to manage the outsourcing operation easier than offshoring, according to Carleton. "By nearshoring, Europe is avoiding many of the cultural and communication barriers inherent to outsourcing to a place like India. [Neighboring countries are] only a few hours by plane. It's much easier to manage an outsourcing operation in person than it is over the phone," Carleton says. For example, by outsourcing services to the Baltics, Czech Republic, Hungary, and Poland, German businesses can take a hands-on approach to managing their outsourcing operations. "German businesses, because of their proximity, are going into these countries and untangling some of the cultural business problems that arise at the source," Carleton says. "They're tackling these problems so they can get their projects and business done on their time frame. You don't see American companies doing that in India." European businesses also are taking advantage of Central and Eastern Europe's low prices, diversified population (most of which can speak multiple languages), and technically trained college students. "That's why European companies are going to Eastern Europe, [plus] the cultural similarities. Some American companies take advantage by outsourcing to Canada, but perhaps more should," Ryan says. Already, Datamonitor predicts there will be a 7 percent drop year over year in U.S. companies outsourcing to Asia and India. "Part of this is due to Web self-service and new telephone technologies," Ryan says. "But the other big part of that is because there is a good amount of offshore labor out there other than India."