American Businesses, The Benefits of Onshore Outsourcing Are Off the
about outsourcing continues to be an on-again, off-again affair -
onshore and offshore, that is. Certainly, the basic value of
outsourcing has been well-documented. Depending on the industry,
the benefits can range from dramatic cost savings to reduction of
inventory, to the fact that it allows companies to focus on their
core competencies. When it comes to some specialized tasks, the
advantages of outsourcing are, frankly, not even open to question.
What is still up
for debate, however, is whether to adopt an onshore or offshore
approach. For purposes of this (or most any) discussion, “onshore”
outsourcing refers to the use of an outsourcer located on the same
continent as the customer company; “offshore,” logically, would be
anywhere else – including halfway around the world.
While each approach has distinct merits, it is instructive to
examine specific outsourcing scenarios to determine which line of
attack is optimal. For example, if you are a North American company
seeking to outsource development of a prototype for a new high-tech
offering, or software development for a major upgrade to your
company’s flagship product, the onshore strategy is a significantly
better method. Let’s examine the rationale:
speaking, if you stay onshore in the North American market, you can
identify talent that has extensive expertise in your domain. For
example, if you’re developing video games, the United States and
Canada can offer a wealth of experience in video-game programming
and testing which you can identify and effectively utilize. Or
consider the biotech area: the competency of the human capital in
this area is beyond reproach. In fact, the availability of
expertise in North America for virtually any high-tech sector you
can name – especially telecommunications and networking - is a fact
of outsourcing life.
But it’s more than just the knowledge base per se that
is so critical. What the North American market offers is a
virtually unlimited number of professionals who not only understand
technology, but who know how to commercialize that technology for a
specific target customer or marketplace. In other words, they can
be instrumental in actually developing products that your customers
want and need.
Our own company, MapleWorks, offers a wealth of engineering talent.
Our development center, situated in the Ottawa Tech Region, gives us
access to a deep pool of best-in-class engineering talent: Ottawa is
home to 82,000 experienced technology workers and the campuses for
RIM, Nortel Networks, Alcatel-Lucent, IBM, Mitel and more.
Intellectual Property Protection:
intellectual property (IP) is vital when bringing on an outsourcer
to work on a proprietary project. Many countries abroad – most
notably in the Far East – have gained a reputation for not fully
observing copyright laws and legislation relating to IP protection.
This is, of course, a concern when dealing with any proprietary
information; it is magnified when the IP revolves around a company’s
core competency or technology foundation.
While a breach
of these laws can occur anywhere in the world, it is less likely to
happen in the North American market, where the legislation is not
only stronger to begin with, but is enforced with far greater
Location, Location, Location:
One of the key
reasons why onshore is frequently a better outsourcing option is
proximity. When a North American company begins working with an
outsourcer only a few hundred or even a thousand miles away, hopping
on a plane for an in-person meeting, generally speaking, convenient
as well as affordable. Taking a trip to India, however, is neither
convenient nor economical, which discourages the face-to-face
interaction that, while not essential on a daily basis, can become
critical if and when a project begins to veer off-course.
question, distance issues can be mitigated somewhat through the use
of phones, e-mail, instant messaging, and even videoconferencing.
However, it’s not the same as getting into a room together and being
able to discuss a project in a real-time, personal manner.
Time is a close
relative of distance. Consider: The two points furthest apart from
each other – latitudinally – in North America are separated by just
four time zones. Thus, it would be relatively simple to set up a
conference call at a time that is well within business hours for
both sides. On the other hand, try putting a call between New York
and China. It is likely to mean that at least one of the parties
will be forced to get up too early or go to bed too late. Further,
when you’re thousands of miles and multiple time zones apart, it’s
difficult to have those all-important creative juices flowing on a
One of the most
obvious quandaries of an offshore set-up is the language issue. A
North American company dealing with a North American outsourcer can
rest assured that both parties will communicate in English; the same
cannot necessarily be guaranteed when dealing with a foreign outfit,
creating an obstacle whose effect cannot be overstated. What’s
more, even if the outsourcer’s key personnel do speak English, they
may not be completely versed in some of the quirky phrases and local
dialect that can make English much harder to comprehend.
It’s been said
of America and England that they are two countries separated by a
common language. If a North American company elects to use an
overseas outsourcer, both parties may be speaking English -
technically. But from a practical perspective, it may sound like a
modern-day Tower of Babel.
language, there is a difference in offshore design culture – the
actual product development approach - that can make offshore
outsourcing far less attractive.
In North America
(and Western Europe as well), there is typically a great deal of
communication between the outsourcer and the client company. For
example, the marketing person might say, “I think this product
should be this shape.” An experienced North American outsourcer
could counter with, “I know you want it this shape, but if it were a
different shape, it would actually go faster.” The back-and-forth
interaction that takes place can help bring about a trade-off, or a
balance, between what the customer wants and what the outsourcer
delivers – resulting, ideally, in the highest-quality and most
marketable product possible.
other development cultures, particularly in the Far East, the norm
is to do what they are told to do. Often, they just keep plodding
forward without offering any feedback on design improvements or
enhancements. Ultimately, they will deliver a product that is
exactly what the specifications called for, but which does not
perform as the customer expected it to. The positive pushback – the
counsel and advice that should accompany the design services – does
not occur, resulting in multiple iterations of the product which,
quite naturally, increases the total project cost, while potentially
delaying product delivery. Talk to people who have participated in
offshore development and they’ll likely tell you that they went
through three development cycles versus one by doing it onshore.
Plus, the later a mistake is identified, the more it is likely to
cost to rectify.
One other hidden
value of offshore outsourcing is the political stability in North
America. A quick glance at any major newspaper or media outlet will
highlight the nefarious actions taking place in many parts of the
world – a terrorist attack here, a coup d’etat there. What’s
more, many foreign countries are suffering through economic crises
that make the current problems in the
United States pale in comparison.
In a research report published by
Black Book Research
and Brown-Wilson Group,
Canada, which as noted earlier is home to MapleWorks’ development
center, ranks as one of the top 10 safest
countries in the world to do outsourcing—India ranked in the bottom
have ramifications that are far more worrisome than the effect they
might have in the outsourcing community. Still, these are elements
that must be considered before looking abroad for assistance in
bringing a product to market.
Total Project Cost:
From a dollar
perspective, the lure of offshore outsourcing can be particularly
potent. Without a doubt, the labor cost is significantly lower in
popular outsourcing destinations. The cost of labor in India, for
instance, may be only 40 percent to 50 percent of the going rate in
Canada; in China, it may be as low as 25 percent of that same cost.
From a pure unit labor standpoint, offshore outsourcing – in which
workers receive neither the same wages nor the same level of
benefits as their North American counterparts – is a tough
However, as this
article has illustrated, there are hidden and not-so-hidden costs
that must be taken into account. Language barriers, time zone
differences, even the design culture not only create obstacles to
timely, effective product development and delivery; they carry hard,
actual costs. Language issues can require interpreter services and
can result in product development miscues. Lack of proximity will
lead to huge travel expenses when a face-to-face meeting is
necessary. Projects that progress too far into the design process
before a problem is identified – due to lack of outsourcer input –
can translate to staggering fees due to extensive revisions.
The cost of
overall project management is another variable that must be
accounted for. Far less management is usually required on the part
of the customer who utilizes onshore resources. This naturally has
to do with time, distance, geography, design culture, and other
dynamics cited earlier. But it is even more closely correlated to
the experience factor than anything else. Because the offshore team
is often more inexperienced in the specific development or market
area that the customer is seeking, tighter
project management and oversight will be required, putting the
client company in the position of “hand holding” the offshore talent
to ensure that everything flows smoothly.
It should also be noted that in Canada, R&D tax credits cut up to 70
per cent of the cost of developing technology. This allows
companies like MapleWorks to counter the low labor costs that
offshore outsourcers use as one of their competitive advantages.
In the right situation, an offshore outsourcing strategy is a
perfectly sound tactic: high-volume manufacturing, product testing,
fixing a problem versus creating a product from scratch, or any
instance in which vigilant project oversight or insightful
outsourcer feedback is not required, all fit the bill in this
But if you’re a North American company designing a brand new
product, creating a prototype, or doing something that’s out of your
company’s primary areas of expertise, you should be looking at
onshore very seriously. With an experienced staff, close proximity,
negligible time difference, and real-time interaction, the
discussion of onshore vs. offshore should be an open and shut case.
is co-founder and Vice President of Business Development for
MapleWorks is an on-shore software outsourcing company focused on
network communications – from network management to telecom products
to voice, data and video convergence. MapleWorks’ clients, which
are located all across North America, develop telecommunications and
networking products for both the service provider and enterprise
markets. The company delivers software engineering services to
commercialize their products.
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