Microsoft Eyes Offshoring

As its U.S. channel partners take a financial beating from competitors abroad, Microsoft is developing an offshoring strategy for its partners, both local and global.

At its U.S. Partner Advisory Council meeting on Jan. 27, Microsoft Services will discuss the development of an engagement model and a refined joint-services delivery model with offshore partners such as Infosys Technologies and Wipro, sources say. The Redmond, Wash., giant also will detail plans to address the distributed development needs of global programming teams and will discuss improvements in Visual Studio to achieve better collaboration between U.S. partners and contractors abroad, sources said.

Microsoft also intends to offer up relief to U.S.-based channel partners, some of whom saw their revenues halved last year due to the tidal wave of .Net development projects and IT services work being sent to India, China and Russia.

Microsoft declined to comment for this story.

"It's an alarming trend," said Allan Fisher, president of New York-based solution provider ATF. "I see us losing a lot of work, and not just in development. Clients are outsourcing back-office processing, too."

ATF, for example, recently supervised a project for a large financial services customer using developers in Bangalore, India. ATF's take for handling project management was $400,000, "but we could have made over $1 million," Fisher said.

"[Offshoring] killed my New York development business entirely," added Ted Dinsmore, president of Conchango, a Microsoft Gold Certified Partner in New York.

According to IDC, the value of IT services provided to U.S. companies from offshore labor will hit $46 billion by 2007. Ultimately, offshore shops will capture about 25 percent of the U.S. opportunity, IDC predicts.

Small wonder, then, that many small and midsize solution providers are revising their business models, emphasizing their project management and server integration skills, and retraining developers to become solutions architects.

At least one observer suggested that smaller partners can grow their development businesses by expanding into the SMB space. "I'm sure India is taking away some of their work, but a lot of their customers are local," said Michael Cusumano, a professor at the MIT Sloane School of Management. "Medium-size companies are not going to India for their work."

What's more, some optimists forecast that the offshoring bubble will burst as the U.S. economy improves, foreign labor costs rise and customers realize that time-zone differences and language barriers cause many projects to come in late and below expectations.

"It is very painful right now, but it's going to counterbalance over the next two years," said Andrew Brust, president of Progressive Systems, New York, who noted that many U.S. providers have to polish offshore-written code to meet customer requirements, driving up costs. "Clients hire consultants to do the requirements gathering [and] documentation, and design a specification that generates the value they're paying for. ... A lot of clients are amenable to doing it in-house."

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