The New World Order: Offshoring Today

With the evolution comes a more cautious attitude toward offshoring overall, says Michael Kirven, co-founder of Bluewolf, a provider of on-demand software (CRN Fast Growth 100 rank: 59). Solution providers, and their customers, want to expand their global reach, while employing sound fiscal strategies. Some companies have suffered the consequences of poor communication, time zone conflicts and bad project management. For them, that means keeping at least some work stateside that five years ago might have gone offshore.

"The way companies are viewing offshoring nowadays there is a tremendous backlash," Kirven says. "On paper, things seemed great: You got a 40 percent decrease in cost. However, the savings were significantly lower. Companies had to go through multiple iterations, often because of communication problems, that wouldn't have had to be done if the work was done here."

The United States potentially could see a drop in offshoring, according to Kirven, noting a trend toward companies wanting to hire onsite employees. "They want people they can see and touch. They are starting to become willing to spend a little more get their teams onshore," he says.

Some companies are moving away from traditionally high-tech centers such as Bangalore and moving to China, Latin America and more rural regions of India. TCS' Bagchi acknowledges that, on average, Indian wages have increased 15 percent in the past year, compared with 3 percent in the United States. But, he adds, in Latin America and Brazil, the workers are still 15 percent more expensive than in India. Obviously, that's still only a fraction of the cost of U.S. engineers. "Sure, there is significant turnover, and people do leave to go to jobs with better salaries," says Schmidt. "It is a fact that salaries are rising, but they are still 1/10th that of other locations."

For example, a senior software engineer in India earned an average of $11,400 (U.S.) last year, according to Payscale Inc., of Seattle, which collects salary information. Meanwhile, the median income of a U.S. software engineer is roughly $100,000, according to the latest IEEE-USA salary survey. However, the evidence that salary inflation has begun has led some to look toward China for cheaper labor, as well as for market share.

How much can they save? That varies based on how they carve up the work, and how sophisticated the required process is. But starting up in China will cost 20 percent of what companies spend in the United States, Stevens says, explaining that larger companies can save even more " sometimes seeing only a tenth of U.S. costs -- due to economies of scale.

And those economies are not lost on the shops already set up in India " which are now looking at expanding into China. For example, TCS, with partner Microsoft, earlier this year launched an IT outsourcing company in China. However, from Kirven 's perspective, solution providers should proceed with caution.

"We've been hired dozens of times to undo spaghetti code that comes back from IndiaYou get what you pay for," he says. "It's hard enough to do this job when everyone's in the same room. Companies are seeing the value in bringing people in full-time, giving them security and jobs, and getting it done the old fashioned way."

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