Risk and benefits of offshore IT outsourcing

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If you're considering offshore outsourcing, be sure to be aware of both the pitfalls and the advantages

Some say it’s a blessing, some say it’s a curse. Views on outsourcing seem to swing to extremes especially after the recession.

Outsourcing, an inevitable phenomena in the era of the globalization, is now under strict scrutiny in developed economies like the United States.

Despite all the criticism it’s facing, IT outsourcing is still in a growing phase.

Lucrative benefits

While outsourcing may not be for everyone, if properly executed you could find yourself spending less money and still getting high-quality work. Here are some other advantages:

Less stress: Efficiently managing an entire in-house development team can be exhausting, and it can be even more exhausting when you have to manage a team that is working on the other side of the world. Luckily, most offshore outsourcing firms provide project managers to guide the entire project, rather than relying on the company that hired them to take the reins. This reduces the amount of work for the customer, which in turn alleviates a tremendous amount of stress.

More time to focus on core functions: One fewer project to manage means more time to focus on other activities such as business development and marketing. Often, when you run an in-house development team, especially at a small firm, your time is geared towards managing rather than focusing on other business goals. Allowing someone to take this part over for you will open your schedule to pursuing other areas that may need some work.

Minimum liability: Offshore outsourcing equals no direct liability over the employees at the company you hire. If you aren’t satisfied with those who are working on your project, you can easily replace them with a better match without any consequences.

Little investment on infrastructure: If you decide to outsource your IT development, you don’t need to invest in infrastructure and technology that takes a chunk of the capital expenditure. Instead, that money to can be spent in developing other core areas of your business.

Shared risk: Outsource firms often specialize in analyzing risk mitigation factors. There are certain elements that you might not know that the firm can easily recognize and fix. Determining and preventing all possible risks is essential to achieving success.

Risks and limitations

Outsourcing is still in the experimental stage, where new methods are replacing old ones to create a strong and more failproof service. Here are some areas that still need work:

Risk of confidentiality: Before hiring an outsourcing firm, do your homework. Make sure their references check out and that they have no previous history of leaking information. This is always a concern when outsourcing. Take the proper precautionary legal measures to avoid any misuse of your sensitive data. Better safe than sorry!

Lack of quality: This often happens when you choose a vendor that doesn’t have a proper development process or enough experience. Those who experience this often go for the “cheaper” outsourcing firms, which in turn can end up hurting you and costing you more money. Look through the vendor's portfolio to see the type of work they do and how complex it is. This will give you a sense of their capabilities and experience.

Weak customer support: Service providers without good experience in managing outsourcing relationships may fail to deliver good customer care. If they are working for more companies than they can afford, you won’t get enough attention and the end result will be disappointing.

Hidden costs: Although outsourcing is known for cost-effectiveness, hidden costs may stem during the development period. These costs arise from unanticipated changes that demand some quick adjustments. Setting a clear outline of cost and potential extra charges upfront should be done before signing a contact.

Communication and cultural barriers: Lack of understanding the cultural differences between the company and outsourcing vendor may cause problems in communication. Set clear expectations for both parties in the beginning to decrease the chances of this happening.

If you're considering offshore outsourcing, be sure to be aware of both the pitfalls and the advantages. Choosing an efficient, trustworthy vendor with an impressive history is the most important factor determining the success of outsourcing.

Source: http://www.bizjournals.com/

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