Is the IT Outsourcing Industry Going Through a Paradigm Shift?

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Has IT outsourcing shifted to a new paradigm?

IT and software development has become one the most important industries of the world in the 21st century. Due to the high cost associated with IT development, developed countries have increasingly adopted a strategy of outsourcing, or offshoring, some of their software development projects to developing countries, such as India. But recently, this practice of Outsourcing has received criticism (for example, see the article by Zhenya Rozinskiy about Why India outsourcing is Doomed), and it has even been concluded that IT Outsourcing in this form is no longer feasible, and does not have a future in our world. This criticism is based on the following specific points:

1) Good software developers are increasingly difficult to find, due to more projects than qualified individuals.

2) The quality assessment of available developers is often inaccurate and misleading, with exaggerated claims of qualifications and experience, and there is a general lack of transparency about who will actually carry out a given project.

3) Due to large time differences, real-time communication between client and developer is often extremely difficult.

4) Due to cultural and language barriers, the communication between client and developer is further impaired.

5) The extremely low cost (sometimes as low as $10 per hour) is only feasible by compromising on the quality of developers. The higher-quality, more experienced developers earn more even in developing countries, or they move abroad.

 

Bridging the Best of Both Worlds

So, is IT outsourcing indeed a doomed industry, or is there a way to solve these issues in such a way that outsourcing once again becomes an attractive option? All of the problems listed above revolve around two main issues: different standards of quality between client and outsourcer, and the lack of transparency and real communication between them. Here we suggest that all of these problems can be successfully addressed by implementing one major structural change: putting in place a western management team in the outsourcing company. This proposal is based on our own experience of founding and running the IT outsourcing company Arcanys, located in Cebu City, Philippines. Arcanys is managed by a western team including individuals from Switzerland, Finland, France, Italy, and Germany, with a current ratio of 1 expat to 8 locals (10 expats for a total of 90 employees).

 

Western Management on Site to Manage Western Customers’ Expectations

By implementing a western management team in a company located in a developing country, it is possible to apply western quality standards to the hiring and continued training of developers, as well as providing western clients with completely accurate and transparent information about who will be working on their project. In addition, cultural training classes and foreign guests speakers can make a big difference in enriching the knowledge of the local workforce. With a high expat ratio, local employees get a lot more opportunities to learn about western culture (and in particular European culture in the case of Arcanys) due to the daily interactions between colleagues.

Find out more about the Arcanys Team.

 

Time Zones Matter

Furthermore, by only taking clients with a manageable time difference (in the case of the Philippines, this would be between 6 and 8 hours time difference with European clients, and 0 hours time difference with Australia), real-time communication between client and developer can be guaranteed. Also, the high quality of English spoken in the Philippines further enhances this communication, and should any difficulties arise nonetheless, the western management team is always present on-site and available to address the problem.

 

Quality of Manpower and Successful Projects Have a Price

An important factor contributing to the success of this system is that high-quality local developers are not only attracted and recruited by the management, but as their experience and abilities grow, they are motivated to stay. This ensures there is a consistently high level of quality, and a low turnover rate of developers on any given project.

IT outsourcing of this quality is only feasible at a somewhat increased cost: $25-$35 per hour. However, if one considers that this is still 50% less than the cost of IT outsourcing in Europe, while delivering 80-90% of the same quality, this is an extremely good value. Even more so when one considers the cost of managing the productivity loss due to a low quality outsourcing project.

All in all, this strategy allows the bridging of the gap in culture and quality standards, as well as eliminates the communication barrier that exists between western clients and developers in developing countries. It could serve as a new model to make IT outsourcing a much more attractive option once more.

About the author

Fred had been working on IT and operational projects in the finance and software industry in Switzerland for 10 years before co-founding Arcanys in 2010. He carefully negotiated with and managed outsourcing suppliers as a corporate buyer on the one hand, and led delivery teams as an internal provider to operational departments at an executive level of listed companies in Switzerland, on the other. With nearly 20 years of experience in the industry in Switzerland, Hong Kong, and the Philippines, Fred is now leading the worldwide sales and marketing efforts of Arcanys.

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