February 13, 2006 10:43 AM PST

Software vendors face rising offshore costs

The majority of software companies now do offshore software development, but rising prices and managing far-flung teams is posing new challenges, a study has found.

Consulting company Sand Hill Group last year surveyed executives from about 50 software companies and found that

With that reliance comes risk and even some disillusionment, Rangaswami said.

He said many software companies expected massively lower costs by hiring offshore developers. However, those companies found that prices were about 40 percent lower when all factors were included.

"Most people were satisified. It's just that they thought it'd be a nirvana," Rangaswami said.

Offshore companies are already reacting to higher prices and shortages in skills in well-established offshore centers like Bangalore, India, he said. To meet demand, less-developed centers in Indian cities, such as Hyderabad, Pune and Chennai, will establish new offshore development capacity and keep prices from rising rapidly, he predicted.

India maintains an advantage over other offshore locations such as China, in large part because Indians' proficiency with English, he said.

Overall, the movement toward offshoring is forcing software companies to improve their processes for managing distributed teams, Rangaswami said. Typically, Silicon Valley software companies had a single team clustered in a single location and have not been good at distributed programming.

Rangaswami said that because most software companies use offshore development, they will need to more closely integrate their distributed development groups to stand apart from competitors.

"You can't treat this as a cost issue, which is what most people did initially," he said. "It was us and them. Now you have to look at it as one team with one goal and one set of metrics."

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12 comments

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Good
I for one, am delighted that U.S. companies that have moved jobs offshore are facing higher costs. And there is every reason to think that their costs will continue to rise even more rapidly in the future.

Add that to the reports that some offshore employees are supplimenting their salaries with the sale of the confidential data they are processing, etc. and the cost of doing business beyond the reach of U.S. courts is even less of a bargain.

Looks like Gordon Gekko ("Greed is good") was wrong.
Posted by rcrusoe (1305 comments )
Reply Link Flag
Jurisdiction
Some companies have already discovered that India is out of the USA's jurisdiction. Proprietary software is NOT proprietary in India and their trade secrets are quickly spreading from shop to shop. Only major theft crimes that involve real dollars get prosecuted. Remember, over there they all work for India, Inc. and our CEOs are blinded by the mirage of saved dollars.
Posted by kquickkquick (21 comments )
Link Flag
Soon, It Will Get Worse
As soon as the Rupee rises against the dollar,
which won't take long, considering our big, fat
trade deficit, Indian programmers will actually
cost _more_ than Americans.

I hope the executives responsible get fired,
or at least transferred to Calcutta.
Posted by (139 comments )
Link Flag
Offshore Outsourcing and costs
Offshore Outsourcing, a.k.a, offshoring wasn't just about cost arbitrage, as studies like this are bound to prove. It is about efficient distributed development because of the globalization of skills, and barriers to emigration in western nations&Also, tools and Technologies that make distributed software development are beginning to mature.

It is not just about India and US or India and UK&..it is about linking developers in the US with those in India, and China, Russia and wherever else they reside.
- Mohan
Author: Offshoring IT Services (<a class="jive-link-external" href="http://www.offshoringmanagement.com/theBook.htm" target="_newWindow">http://www.offshoringmanagement.com/theBook.htm</a>)
Posted by b2bhandshake (83 comments )
Reply Link Flag
Stupid, Crazy, Both? You decide.
&gt;Offshore Outsourcing, a.k.a, offshoring wasn't
&gt;just about

"cost arbitrage" is a delightfully graceful
euphemism for "cheap slave labor", don't you think?

Anybody who thinks that offshoring was ever about
anything except saving money is a whack job.
Sorry, Mohan. Better luck in your next life.
Posted by (139 comments )
Link Flag
Stupid, Crazy, Both? You decide.
&gt;Offshore Outsourcing, a.k.a, offshoring wasn't
&gt;just about

"cost arbitrage" is a delightfully graceful
euphemism for "cheap slave labor", don't you think?

Anybody who thinks that offshoring was ever about
anything except saving money is a whack job.
Sorry, Mohan. Better luck in your next life.
Posted by (139 comments )
Link Flag
We'll see...
If this is the shared sentiment in countries such as India, I don't want to hear it when they experience 5 digit layoffs per quarter per company when some other country steals "their" work from them via price gouging and other hard tactics.

Mohan, with all due respect, this has nothing to emmigration barriers. You might as well bring up racism, sexism, etc. at this rate as they are equally relavent...not. The heart of the matter is that outsourcing incurrs different, perhaps hidden, costs that corporations and our government turn a blind eye to. This study is merely pointing out what's so obvious to those of us in the trenches. America is so hell bent on saving the world financially that we've forgotten about our own people who are getting put out on the streets. I've always been a firm believer of making sure our own citizens are taken care of before we distribute our resources elsewhere. You may call that a selfish attitude, I call it self-preservation. Just some food for thought.
Posted by NHWebGeek (16 comments )
Link Flag
Yes, We Shall See, and Sooner Than You Think
&gt;If this is the shared sentiment in countries
&gt;such as India, I don't want to hear it when
&gt;they experience 5 digit layoffs per quarter per
&gt;company when some other country steals "their"
&gt;work from them via price gouging and other hard
&gt;tactics.

If you read the Indian media, you will find out
that this is an extremely common attitude.
They are kind of torn between being over-proud of
the gains which have been made so far, and
desperately wanting to get a Green Card (or at
least an H1-B), so that they can get out of
the Third World [characterization deleted].

The first attitude leads to people making
arrogant, idiotic statements about how important
India and its cheap slave labor are to the global economy in general and to high tech in
particular. It also leads to making public
statements which alienate those few people left
in the US who regard India as a friendly country.

The second attitude is deeply, deeply pathetic.


By the way, people, here's some personal news:
After 25 years in high tech (real-time embedded,
c, and verilog), I have decided to try out for
another career. On April 8, I will be taking
the foreign service exam, in order to join up
with the State Department. You may ask, what's
the deal? Pretty simple:

1. If you go to Yale (even the EE majors), they
put something in the water which makes you want
to sign up with the government.

2. FSO is a job for which US citizenship is
required, so there is NO POSSIBILITY that any
cheap managers will replace me with an H1-B.

3. During my first year mandatory consular field
service, maybe they'll put me in Madras, or even
Bangalore. Wouldn't it be ironic is I was put in
charge of the H1-B department?

Everybody reading this, please wish me luck
on the Foreign Service Exam orals.

-dave
Posted by (139 comments )
Link Flag
Proficiency? NOT!
"India maintains an advantage over other offshore locations such as China, in large part because Indians' proficiency with English, he said."

I cannot disagree more with this statement. Others may have had a different experience, but every single project I have worked on with outsource developers from India ended up over budget and late. The major cause has been primarily due to horrible communications. It's one thing to say that both parties can "speak" English, but the reality is that thick accents on both sides hinders efficiency. How much time was wasted by asking the other developer to repeat themselves due to incoherent accents? Too much in my humble opinion. How much time was wasted by not *understanding* industry standard terms? Too much. I've seen too many good people lose their jobs to the latest COO/CEO "Buzzword" craze. Their move to "reduce costs" are for the most part costing more in productivity and man-hours.

In my opinion, the government should give tax breaks to those corporations keeping jobs here instead of giving tax breaks for overseas outsourcing. Failure to keep our own citizens employed will only cause our country to crumble.
Posted by NHWebGeek (16 comments )
Reply Link Flag
Funny your comments are
&gt;"India maintains an advantage over other
&gt;offshore locations such as China, in large part
&gt;because Indians' proficiency with English, he
&gt;said."

He be smoking bhang and Nepali to think so,
my good man. Indian English fractured with
regard to understanding is. Yoda talk to them
can, but not the native-language folk.

Tell me again the meaning of word: proficiency.
Something to do with good talking, I think it is.

Remember, outsourcing everything else is like:

You get what you pay for.
Posted by (139 comments )
Link Flag
Partially agree with the lack of proficiency
I wholeheartedly agree with you about their lack of proficiency with the *spoken* english language. It's almost impossible now to get someone I can understand on the phone whether it inside sales or support.

However, I had to acknowledge that the Bangalore folks' *written* english is usually proficient as I have found with e-mail and chat support.
Posted by ssalava (41 comments )
Link Flag
Open Source
Yeah. It is about turning your software into open source code.
Posted by kquickkquick (21 comments )
Reply Link Flag
 

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