Outsourcing A Project Overseas

Basil TeslerBy Basil Tesler

You decided to outsource your project, you sent out Requests for Proposal, you evaluated the proposals that you received, and you finally found out that the outsource service provider (OSP) whose proposal best fits your requirements is an overseas company... Is it a disappointment to you?

Will you be scared of unknown and decide in favor of a domestic company which is only second best? My opinion is that you shouldn't get too comfortable with the idea that outsourcing overseas is nothing more than a foolish adventure. I can tell you a story about a really foolish adventure in the world of outsourcing. A friend of mine works for a big company whose premises are located across the bridge from a small town. He told me how a whole computer management division was fired after the company signed a contract with a small business in the town. Now, if something goes wrong with his computer, my friend has to wait for hours and sometimes for days until somebody comes and troubleshoots it. As you see, ill-advised outsourcing can lead to a disaster even when it's done across the bridge, not overseas. So why not consider outsourcing your project to an overseas OSP?
The Reasons to Outsource a Project Overseas

A crucial determinant influencing the decision whether to outsource a project overseas is a high return on investment. Some companies claim that their offshore costs are 20% to 30% of what they used to spend when they outsourced their projects to domestic vendors. Even if you count not only person hours required to implement the project but also the deployment and in-house personnel training costs, I believe that you'll be able to save about 50% of your expenses if you outsource your project overseas. The risk is comparatively high, too, but the return on investment that you can get justfies the risk.

Even if you count not only person hours required to implement the project but also the deployment and in-house personnel training costs, you'll be able to save about 50% of your expenses if you outsource your project overseas.
Another important factor is what kind of project you are going to outsource. In theory, it's possible to outsource any IT project, even database administration. In practice, businesses usually prefer to keep network and database administration in house and to outsource such projects that would allow them to concentrate on their core activities. This is true for outsourcing both to domestic and offshore OSPs. Ian Henderson, Head of Business Development at The Royal Bank of Scotland International, says, "Recently, we have seen clients opt for complete outsourcing solutions as they seek to focus on their core businesses. We have, for example, been asked to provide simple global custody services for one client, whilst for another private banking client we provide a full outsourced service generating, amongst other things, contract notes, income reporting, statements, valuations and performance reporting. We are also finding that some clients are choosing to transfer some services currently provided onshore to our offshore locations, as they feel they receive better service and feel more valued here than in the larger onshore markets."

However, it would be wrong to think that you can outsource only non-core projects. I read that Caterpillar Financial Services Corp. had a Web-based financial system developed by an offshore OSP; moreover, while the project was being implemented, the company trained its in-house staff so that they could take on the maintain system once it was deployed.

The Right Overseas OSP

You should make sure the vendor whose proposal completely fits your requirements is the right OSP, the one that you've been looking for, the one that won't let you down. I don't know a universal technique that would allow you to divide sheep from goats, but there are some ways tested by time. Basically, the usual methods utilized when choosing a vendor will work fine, so I'd like to mention just a few specific ones:
  • Looking for International Technical Certification such as SEI-CMM Level 3 or 4 and ISO-9001 is a step that a lot of companies begin with. Personally, I don't believe it necessarily guarantees excellent quality of work, but you at least can be sure you'll have no serious problems with the specification, plans, quality assurance, and with the process in general. On the downside, you'll have to pay more, so if your top priority is return on investment, you'd better look for a vendor that will offer you the same quality for a lower price.
  • Visiting an Overseas OSP can be a wise thing to do if you're going to outsource a long-term and expensive project, otherwise your travel expenses may look unjustified. If you're one of those people for whom personal contacts have decisive importance, you might look for an overseas OSP that has the head office in the country. Such businesses are a lot better to deal with from the point of view of liability, but their services usually cost more, too.
  • Making sure the OSP's key personnel knows English well enough to communicate is a must. Remember that a vendor could hire an outside specialist to translate the proposal into English, so e-mail, instant messaging, and telephone communication with your potential overseas vendor must help you understand if the employees that are going to be responsible for implementing the project are fluent in English. They don't have to know a second language perfectly well, but "Pidgin English" is absolutely unacceptable, either.
The Factors that May Influence Your Decision

The crucial factors influencing the choice of the businesses that outsource their projects are most often as follows:

1. the reliability of the vendor;

2. the vendor's rates; and

3. the term of implementation.

As the situation requires, these factors may trade places. There are also other things about the vendor that you might find important:
  • the ability to handle the proper kind of project;
  • the knowledge and skills available;
  • the company structure;
  • the in-house process;
  • the standards of communication;
  • the way the office is run;
  • the average employee profile (age, certificates, education);
  • the way the security issues are handled (intellectual property, non-competition, "code bombs," etc.);
  • the difference in time zones;
  • the country background and culture.
  • The Iterative Approach
The iterative approach typically has the form of a spiral and allows the project phases to overlap. You can divide a complex project into manageable components and achieve the expected results by working smart, not hard.
Unlike the traditional highly structured waterfall approach with a fixed plan-do-test sequence of project phases, the iterative approach typically has the form of a spiral and allows the project phases to overlap. You can divide a complex project into manageable components and achieve the expected results by working smart, not hard. Requirements changes are easier to take into account and adjust, risks are usually acknowledged in an earlier phase and thus mitigated, system components can be reused, and integration is facilitated.

"We use iterative development in two-week intervals. While one iteration is underway, we start on the next one," says Bob Hays, vice president and senior architect of ABN AMRO, a global bank with 110,000 employees in 60 countries. "If our offshore providers follow a waterfall approach, there is an impedance mismatch. Producing all that paperwork may be useful for creating a legally defensible audit trail, but it slows everything down."

Whether you apply the waterfall or iterative approach, you can have a project delivered and paid for in parts, and this is one of the best ways to minimize the risk for you and your vendor.

Legal Cobweb

In order not to get stuck in legal cobweb later on, have the contract prepared by a lawyer who has the proper experience. I can tell you just one thing: don't agree to settle any controversy and disagreement in court of the vendor's country. If the vendor and you don't find a better solution, this wording may be a good compromise: "Any controversy of claim arising out of or relating to this agreement, or breach of this agreement, shall be settled by arbitration in accordance with the American Arbitration Association, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction. There shall be three arbitrators, two to be chosen directly by each party at will, and the third arbitrator to be selected by the two arbitrators so chosen."

Also, you might want to include in the contract a clause that provides for the project to be undertaken and paid for in parts.

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About the Author:
Basil Tesler is an Editor-in-Chief for Web Space Station®, an Illinois based software company. Web Space Station provides total IT solutions covering your most demanding technical needs. Our innovative approach works for you to increase productivity, improve customer service and reduce costs. And, we are dedicated to continually serving your needs through our outstanding and ongoing commitment to quality and support. See more information at http://www.WebSpaceStation.com.

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