Amidst the discussion of President Obama’s speech, the anxiety of a recovering economy and the need for a new global sourcing agenda; American Onshoring is gaining firmer ground
Ashwin Razdan

President Obama recently emphasized that outsourcing to foreign countries was one of the reasons for unemployment in the U.S., he also added, “…it is time to finally slash the tax breaks for companies that ship our jobs overseas and give those tax breaks to companies that create jobs right here in U.S.A.” This is undoubtedly in the interest of the people of America, but has initiated a lot of discussion amongst service providers in other leading destinations. Most outsourcing pundits are already weighing its repercussions. It could also be a major threat to the world’s leading IT and BPO services provider- India- half of whose offshored business comes from the United States.

As for the buyers, it is time (specially in the United States) to re-consider and re-evaluate the pros and cons of offshoring. This will also give most organizations an opportunity to consider other avenues and ways to reduce cost. American onshoring will not go unnoticed this time. After all, the recent survey conducted by research firm Valuenotes Database among 237 publishers, consultants and service providers, largely from the U.S. and UK, notes that though India remains a favoured publishing sourcing destination with 66 per cent of the respondents rooting for it; it is followed by the U.S. with 30 per cent.

Outsourcing to the rural (or non-metropolitan) areas started almost five years ago in selected Tier 2 and Tier 3 cities. Since then, a few organizations have emerged as the front-runners of the American Onshoring business; one of them being Rural America Onshore Sourcing Inc. Christopher Hytry Derrington, CEO,  Rural America Onshore Sourcing Inc., says, “The availability of rural American talent which can be acquired at a cost 40% lesser than in the urban areas, now makes rural America an excellent outsourcing venue. This has been made possible by the spread of broadband Internet services. To further encourage the growing trend, the government has allocated $7 Billion to implement broadband in rural areas. Over the next few years, you will see millions of rural-based low-cost Americans entering the virtual workforce.”

In addition to the rise in opportunities of working in a virtual environment, there are initiatives taken by start-up technology companies like California-based, Systems In Motion, that plans to hire 1,085 workers (for IT services) within five years (in Michigan), according to the Michigan Economic Development Corporation. Debashish Sinha, CMO, Systems In Motion, told annarbor.com, “(on competition from offshore vendors)…The service factory model that we’re building will make it such that we are at least cost comparable. We might not be directly competitive but we will definitely be comparable.”

American Onshore Highlights

Cost of American Onshoring is 40% cheaper than that in Urban areas. It could however, be 15-20% more costly than offshoring (for selected low-end services only).

The Government’s $7 Billion fund to implement broadband in rural areas will facilitate millions of Americans joining the virtual rural workforce and earning a living.

Charges for PHP and .Net -based work costs approx. $50 an hour (significantly cheaper than the urban areas).

Customers are allowed to directly interact with developers, and not only with the sales/ account managers.

Same time-zone advantage.

With use of a virtual business model, scaling up is no more a concern in emerging rural onshore outsourcing destinations.

How does it work?
Christopher believes that in order to be competitive and give customers an irresistible combination of price and quality, one must adopt a new business model; one that is not built on brick and mortar but a virtual (online) environment. This is where the broadband plays a very important role. Very often has Christopher rejected talented professionals who were willing to work but had a dial-up connection at home. This kind of business model runs on the effective use of VoIP and Sharepoint services with online applications that track the progress of the project. He adds, “It doesn’t matter whether the members of the development team (assigned to a project) are based in Wisconsin, North Carolina or Texas. They all sit and work on a common task list and a project schedule.”

Such a model is helping the company scale-up in record time (when the need arises) and utilize the rural talent pool in over 12 states. Their goal being to aggregate low-cost rural American talent on a national level to develop application (or software) for small, medium and large companies.

Types of Projects Outsourced

Type

Client

Software Testing and Performance analysis of an Anti-virus software

A leading developer of Anti-virus software for mobiles, in the U.K.

Java API integration with UPS Java API , J2EE applications on Websphere

A web-based solution provider in the U.S.

.Net, iphone app, eCatalog for a product search engine

An application/ software development company in the U.S.

CakePHP, Java and MySQL (for web based packaging software application)

A packaging engineering support solutions provider in the U.S.

PHP, My SQL, web graphics and interactive media for an eCommerce platform

A high-end B2C retailer in the U.S.

Source: Rural America Onshore Sourcing Inc.

Advice
Each type of outsourcing has its strengths and weaknesses. Depending on what has to be outsourced, seek more information on American onshoring. For example; in case the job does not have much value added services to it, or it has to do with processing calls (or telemarketing); its best they are offshored. For projects that require higher degree of expertise and market knowledge in IT, marketing or support functions; American onshore service providers may offer a better deal. Christopher believes that higher the complexity of the project, higher will be the advantages of rural onshoring, specially for the U.S. market.

Offshoring is here to stay for longer because of the advantages it offers; but with globalization there is another alternative that companies must consider when taking outsourcing decision. That is, onshoring to rural parts of America. Though this sector is still evolving and will take a few years to gain larger market share, it is already helping thousands of Americans make a living and believe in  the power of ‘Yes, we can’.

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April 28, 2009CIO — One would think cash-strapped companies would find a heavenly match on foreign soils with plentiful, cheap labor. But that would be the romantic notion and not necessarily the reality. “Companies often ‘plan for the wedding, but not for the marriage,”’ says Dalip Raheja, chief executive officer and president of the Mpower Group. Now that offshore outsourcing is roughly a decade old, it’s time to evaluate lessons learned and tally the real costs before renewing any vows.

The Honeymoon Is Over

“After a period of explosive growth in offshore outsourcing many companies are moving past the learning curve when it comes to the tangible costs of moving services and production offshore,” explains Raheja. “Experience has built more certainty around what was once considered previously ‘hidden costs,’ or costs related to transition, development, selection, etc., which could easily cancel out any financial benefit of doing business offshore.”

Now that time has told its tale, flaws are revealed and divorce becomes an option. One example, Delta’s CEO, Richard Anderson, announced this month that the airline canceled its outsourcing to India because its customers were very vocal against foreign customer service agents. The struggling airline desperately needs happy customers so it responded to the complaints.

Often it is not simply the loss of disgruntled customers, a loss bad enough in a down economy, but loss in efficiencies and productivity as well that leads to the severing of offshore outsourcing relationships.

“We often find that outsourced agents are not trained as deeply as agents who work internally for an organization, and often lack the tools to do a thorough job for customers,” says Dr. Miriam Nelson, senior vice president of Aon Consulting, a global HR/human capital firm. “We hear them rushing through calls, merely repeating the same troubleshooting steps, since they do not have that deeper understanding necessary to explain issues in a different way for the customer.”

When call center work is outsourced to an offshore firm, service drops even further according to Nelson. “Offshore call centers are not only challenged by being in an outsourced position, but they also have to overcome language barriers and cultural disconnects,” she explains. “When we benchmark offshore service against onshore service, offshore scores much lower.”

The cost of poor service translates to hard currency losses for any corporation. One example: Aon recently observed an outsourcer in the Philippines and found the following, according to Nelson:

  1. 41 percent of all calls are placed on hold. The average total hold time is 331 seconds. Agents are typically looking up information or speaking with other departments during these holds. Reducing the average hold time by 30 percent alone would result in an estimated annual savings of $384,000.
  2. Agents are not speaking clearly on 56 percent of calls. The average talk time on these calls is 232 seconds longer than necessarily. This represents an estimated annual cost of $1,219,594 to the organization.

 

Read the rest of the story at  http://www.cio.com/article/490939/The_Real_Cost_of_Offshore_Outsourcing?source=artrel_top

 

Learn more about Onshoring which is outsourcing at home

onshoring

Industry experts state that labor arbitrage — the KEY cost-savings benefit of offshore outsourcing – will continue to drive sourcing decisions for the next 30 years. However, the soft costs of going overseas are starting to be more fully understood; and the hard cost savings are getting smaller.

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