The offshore outsourcing for the development or improvement of the informational system is a widely popular practice. But in most cases, it’s about engaging the contractor based on “fixed price” model or “actual work”. But the forms of cooperation dedicated to offshore development are often missed by IT managers. Within the limits of creating a center like this, the outsourcer teams up with the IT crew based on the business’s needs and specifications. And this team is concentrated on executing the projects of that customer. Using a dedicated development team is much more useful and financially attractive than using other outsourcing schemes because of the rising effectiveness of those investments in a long-time perspective.
When is an offshore development center needed? Crossing the line between the need of the organization for a dedicated offshore development center and choosing another model of IT outsourcing is simple. If one company needs the realization of a one-time and small project, its IT landscape is clear, and the influence level of IT to the business is insignificant. So, the traditional outsourcing schemes are a better choice in this case. Another option is where several systems of development are used within the company, but the technology knowledge and its workflow are lost. The business-critical dependence is on reliability and quality of IT solutions: the lack of operative involvement becomes a critical brake for the development. So, recruiting the external specialists team on a long-term basis is the best choice.
With close and permanent cooperation between customer and provider within a dedicated offshore development center, the optimization of the next processes can be seen: analyzation, research, and development – this minimizes the number of errors and lowers the amount of forced “re-doings”. Using the model with a fixed cost may cause the price of such finalizations to exceed the starting expectations, which were pinned in a tender or in a first deal. The advantage of using the dedicated center is a factor of a total workflow. It guarantees the absence of communication and unpredictability, which may appear if a company is looking for a new provider every time.
Despite such attractive features of offshore outsourcing, there still are opponents of such an idea, proving it with arguments that using a business model like this takes away the working places for the people inside the country where the company belongs. However, hundreds of major corporations are shipping numerous jobs overseas with offshore outsourcing.
As an example, first, we look at IKEA. In 2013, IKEA groups announced a joint offshore outsourcing project with Wincor Nixdorf for setting the IT solutions to all the cash settlement units in all their branches. During 2014-2015, Wincor Nixdorf set 12 thousand POS-systems in 300 IKEA stores in 25 countries. A 6-year deal between them includes installation and exploitation of POS-systems. The deal includes the point of use and further improvement Wincor Nixdorf software – TP.net, which is in charge of all the transactions in cash units and collects the data from all over the commercial network. Having a single software provider offshore, IKEA not only lowered the work to run the stores, but it also has a significant cost reduction in implementation and exploitation.
The second outsourcing example represented here is General Electric. GE used to be a pioneer in many business branches, including offshore outsourcing. They were one of the first to transfer its operational department, data maintaining department, and call center into the country of low expenses – India, creating a special GECIS (General Electric International Service) department. GECIS provided services of finance and bookkeeping, customer verification, e-learning and business analytics, and an IT outsourcing and support of software development, securing thousands of business processes in 11 GE branches. By the end of 2004, over 12 thousand people were working in GECIS, and you can imagine how much General Electric saved on people’s salary, only because they were working in India, not in the US.
However, this is not the end of this story. GE decided GECIS can bring more income if they evolve from a subsidiary company to a standalone unit, and it will provide analogical services to other companies. Intended – done.
All these operations were maintained within a framework of unified policy, founded by General Electric CEO Jack Welch, and it’s called “70:70:70”. That number combination means 70% of their work in GE must be outsourced, 70% of that is given to dedicated offshore centers, and 70% will be in India.
Another example of successful offshore outsourcing is IBM with its Canadian subsidiary company that made a 10-year contract with National Bank of Canada for $700 million; accordingly, IBM Canada heads over the bank informational structure maintenance, including its websites and call centers. Besides, the partners will join for future development projects in the IT sphere.
But a much bigger contract with $4 billion was obtained by IBM on February 2002. Following a 7-year outsourcing contract, IBM alongside American Express will manage “americanexpress.com” website, administrate computer network AmEx, processing around 1 billion credit card operations daily, maintain the database, and keep the technical support to company employees. Most of the American Express IT staff (around 2000 specialists) formally are transferred to IBM. And American Express leaves new services, product development, and customer relationship to itself.
In its turn, other financial institutions follow these examples, outsourcing the development and implementation of new software, information processing, websites, and call centers. According to experts, this trend will only grow. Overall, the outsourcing evolution follows the tight cooperation between financial and informational technologies. They evolve from separate contracts to a wide, mutually beneficial partnership that enriches both sides.
You can find more examples of the successful IT outsourcing projects at our Case Studies section. Feel free to comment on this article, and share your thoughts about offshore outsourcing. Get in touch with us if you need free consultation on how to apply outsourcing to your specific business case and visit our Dedicated Development Team Service page to learn more.
Download “2017 Global Custom Software Development Rates” to get a comprehensive analysis of the pricing in three most popular onshore and offshore outsourcing locations. Hourly rates cards for these territories are included.