June 24, 2005
Identifying Problems in Outsourcing Expectations
Most companies entering into offshore outsourcing contracts do so for one reason alone, cheap labor. A recent report by Gartner indicates however, that such a singleminded approach to offshore outsourcing is the primary culprit for those offshoring contracts which fail to yield dividends for the company. Companies often fail to account for hidden transaction costs, increased staff training and turnover costs, as well as worker inefficiencies when creating cost savings models. In fact, the Garter report indicates that start up costs are so high that real savings in outsourcing cannot be achieved until the contract reaches a maturity of one to two years. Many companies have ignored this fact and entered into short-term contracts, almost eliminating entirely the possibility of achieving major cost savings. ZDNet Reports:
"For the same reasons, short-term offshore deals lasting less than one year are unlikely to realize any cost savings," the report said.
The high turnover of offshore staff, particularly in countries such as India, also has a negative impact on productivity.
Read More: Outsourcing flops blamed on tunnel vision
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