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How To Eliminate the Five Hidden outsourcing has emerged as a viable

Costs of Offshore Outsourcing alternative. Initial reports are positive,


and many have begun to take a closer
By Sieena look at the nearshore phenomena with
the pains of offshoring still fresh in their
We are now in the third wave of offshore minds.
outsourcing.
This paper looks to address how
The first wave began in the 90’s and was nearshore outsourcing can mitigate and
personified by heady exuberance from eliminate five common hidden costs that
the supposed massive cost savings that offshore outsourcing typically incur,
firms could achieve by outsourcing part many of which were documented in a
or all of certain operations to offshore recent CIO magazine article. While
vendors. Towards the turn of the nearshore may imply Canada, our focus
century, success stories were abound of will be on Mexico primarily due to the
Fortune 100s who trimmed the bottom parity of the Canadian dollar versus the
line while building massive operational US dollar.
centers in countries led by India. Some
pointed to potential cost savings of up to The Cost of Selecting a Vendor
80 percent.
The main premise in “Selling the
The second wave began as a ripple of Invisible” by Harry Beckwith is that
discontent, not only from companies, service companies face a challenge
but by customers as well. Firms began to unique to them. Unlike companies that
find the actual cost of offshoring to be produce actual goods, it is difficult for
quite a bit higher once “hidden” costs prospects to evaluate the quality of a
were factored in. Customers began service firm due to the ephemeral nature
complaining of declining service of a service. Likewise, outsourcing
standards and quality issues. companies face a large hurdle to
Disenchantment led many to re-examine convince prospects that their
the gospel of offshoring. Those who had deliverables are of top quality and their
experienced offshoring shared stories service is impeccable. This is the main
ranging from midnight conference calls, reason why studies have shown that the
undecipherable customer service cost of selecting an offshore outsourcing
representatives, and repeatedly missed vendor can range anywhere from 1 to 10
milestones without warning. percent.

The third wave of outsourcing has The larger the project, the greater the
begun, spurred on by companies no time and money spent on vendor
longer willing to accept the pains of selection. But the key advantage for
traditional offshoring but still seeking nearshore outsourcing outfits is their
cost competitiveness versus their proximity to the United States. This
competitors. For many, “nearshore” alone significantly reduces travel costs
for teams of personnel sent to meet with
the nearshore firm face to face. In fact, location via transoceanic data lines,
key technological epicenters in Mexico which could take months and cost in the
such as Monterrey are a short distance six figures, not to mention monthly
from most major US cities, making day maintenance costs.
trips completely possible. Contrast that
to the 14 or 20 hour marathon flights The Cost of Layoffs
from the US to India, not to mention the
severe jet lag and time differences. One of the biggest mistakes a company
can make is looking to make wholesale
Beyond the hard savings of travel costs, replacements of existing employees with
there is something reassuring in working new outsourced people. This is typically
with a firm located on the same done when executives are blinded by the
continent. The barrier of a vast Pacific false promises of offshore outsourcing
Ocean creates a psychological wall that without fully understanding the total
makes the selection process of an Indian costs. Instead, look to outsourcing to
offshore outsourcer a more meticulous compliment existing project teams or for
one. Thus, the greater the time spent, participation in future initiatives.
the higher the costs climb. Finding a Blended teams, if managed correctly,
nearshore partner with strong and indeed add talented staff at a lower
references and examples of work can cost.
significantly reduce the time to select.
There are many costs associated with
The Cost of Transition laying off existing employees, both
financial and psychological; both should
With a vendor chosen, the real fun not be underestimated. Terminating
begins. Companies then need to begin a employees incurs severance payouts,
smooth transition process, not only in accrued vacation payouts, potential legal
staffing and training personnel, but action defense and lost productivity
infrastructure as well. during the transition. The psychological
impact on the morale of remaining
Most agree that the quickest way to workers can include fear of future layoffs
ensure that new employees or leading to an unwillingness to take risks,
contractors are brought up to speed is to pent up resentment towards
bring them Stateside for training. The management and ‘survivor’s guilt’.
more proprietary and complex the
project or application, the greater the The Cultural Cost
number and the longer the stay. Again,
close proximity of Mexico versus India Recent experience has shown the
keeps costs low during this phase. differences in culture between India and
the U.S. to a major sap on development
Going with a nearshore firm in Mexico efficiency, with some numbers reaching
also does away with the need to lay 20 percent according to a Meta Group
expensive infrastructure such as study.
networking a US location with an Indian
to minimize, mitigate and manage
Indian workers traditionally look to avoid project risk. Having such a process is a
what they see as conflict, and instead key element to ensure the successful
agree to everything even if a goal is not delivery of projects on schedule. The
achieveable. Thus, many a project team process should incorporate elements
has been puzzled as to why milestones such as discovery, planning,
are continually being missed even development, stabilization and
though the offshore team is reassuring deployment. Ask for examples of actual
that everything is fine. Nearshore projects where their process facilitated a
workers in Mexico are much closer to successful outcome.
their American neighbors in terms of
communication. Summary

Another sap on productivity is the high Careful planning, proper expectations


churn rate at offshore firms. Look for a and open communication can make
nearshore outfit that has a strong outsourcing a success. The risks involved
leadership team and a consistent core in outsourcing operations or application
membership with stable lengths of development to India can be largely, if
employment. not completely, migitated by choosing a
nearshore outsourcing partner such as in
Finally, communication issues have led Mexico. Look for more companies to
to frequent travelling for face to face turn to nearshore as their method of
interaction. With nearshore firms, trips choice in seeking to keep costs low.
can be planned in short order and
completed quickly and cost-effectively. About Sieena
Close proximity allows for greater in-
person collaboration between the U.S. Sieena was founded by Mauricio Duran
and Mexican nearshore team. and Fernando Gutierrez with the goal to
deliver high quality IT consulting services
The Cost of Ramping Up to US organizations. Since its inception
Sieena has established a culture of hard
There are two scenarios where ramping work and strong commitment to its
up outsourcing efforts can run into clients.
issues. The first is if your own company
does not have procedures and processes Sieena’s successful results allowed the
in place for writing application specs, company to grow rapidly and the strong
requirement docs and manage the relationship between Sieena and its
development process. The second is if clients provided the foundation to offer
the outsourcer does not have these a wider variety of services, including:
same processes and procedures. Content Management Systems,
Collaboration Portals, Systems
Look for a nearshore team that can Integration and Product Development.
clearly explain a proven software
development process and methodology Visit www.Sieena.com to learn more.