Monday, August 16, 2004

Argument for Repatriating Jobs

[Aside: ]I am suffering from allergies today--only G-d knows what is making me sneeze--and I don't have the patience to add a lot of commentary to this.

The CNN show "In the money" had an interesting interview with Dustin Crane concerning the costs (not the savings) of outsourcing jobs to India. Here are some interesting excerpts:
... we did a business case analysis of setting up our operations for software development offshore, we found that the labor rate is just one of many attributes that add cost -- or labor rates save money, but there are other attributes that add cost to doing business offshore. When we looked at the business case and realized that these additional costs really took away much of the savings, we found that the savings just were not as big as everyone expects. We have studied many U.S. companies, and actually did a survey and discovered that many of them expected 40 to 60 percent savings. But as it turns out, those savings turn out to be somewhere between minus 20 percent and 20 percent ...

... U.S. companies have bought into the concept of saving money by looking at the low labor rates, but if you look at knowledge transfer, the cost of communications, the cultural differences and trying to explain the needs of the solutions that were trying to be built over there, also the infrastructure difficulties. There are a number of factors that net-net add up small amounts of additional costs, maybe 10 percent there, 15 percent additional cost there.

Plus, you are dealing with a very remote location across the world, which means the meetings are held 10.5 hours out of sync, and these things all kind of add up and chip away at the cost savings. If you focus on one thing, and that is the labor rates.

And India has done a really good job at selling those labor rates and enticing U.S. companies [emphasis mine] to set up these software development companies.
The transcript to the entire show is here (the segment is about half-way down the page).

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