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Story URL: http://www.silicon.com/research/specialreports/offshoring/0,3800003026,39121016,00.htm

Inside offshoring: Managing the risks
From false CVs to nuclear war...

By Andy McCue

Published: Wednesday 02 June 2004

Articles and commentary on IT offshoring and BPO in India and elsewhere will be appearing on silicon.com over the coming weeks. You can find them all here.

Offshore outsourcing can undoubtedly offer serious cost savings - anywhere from 20 to 60 per cent if the vendors are to be believed - but that's only one piece of the jigsaw. There are many hidden costs around security and cultural differences.

There's no shortage of scare stories and, while they need to be put into context, companies also need to be aware of the potential pitfalls.

One example is an unnamed company with an operation in India where email bomb threats were costing the firm millions of pounds. The company was forced to evacuate 10,000 people from its BPO facility every time the blackmailer emailed a hoax bomb threat. In the world of 24x7 offshore services, that downtime proved expensive.

It was at this point that Hill & Associates, a risk management consultancy with an office in Gurguaon, New Delhi, traced the email to an ex-employee of the blackmailed company. Ashish Sonal, country manager for Hill & Associates, said: "He had been fired for hacking into corporate systems but had ended up being re-hired by another part of the business."

Sonal is a colourful character with a background in the Indian Special Forces and was awarded the Vir Chakra Indian wartime medal for feats of gallantry. His firm has been in India for six years working with various multinationals and IT services companies.

Although people risk is the most serious issue, the perception most people have is that physical and geopolitical issues pose the most potential hazard for Indian offshoring. Sonal said that sentiment reached its peak a couple of years ago: "September 11 and then Indo-Pak tensions meant it looked likely there was going to be a fully fledged war. Companies were asking us, 'How do we delete our data in 30 minutes in case war breaks out?'"

With both India and Pakistan joining the nuclear powers, any conflict between the nations represents the risk of what is classed as 'catastrophic failure'. But Sonal said the subcontinent is still comparatively stable compared to the rest of the world.

"This continent is the most likely to have a nuclear war but the criticality is so high with the dependence on multinationals in India that it would ensure US intervention to make sure there was no war with Pakistan," he said.

One UK firm which went down the offshore route for software development and maintenance in the late 1990s is Thomas Cook. Neil Hammond, former head of IT strategy at Thomas Cook, told silicon.com the firm adopted an "onsite/offshore" structure to minimise risk.

"The advantage of that is that the bulk of work could be done offshore - so you get the wage arbitrage savings but keep the analysts and managers onshore," he said. "In terms of physical risk we kept all our systems physically in the UK even though support is done remotely."

Hammond made the decision to offshore when he realised a new project would take up his entire development team resources for a whole year. He was pleased with the results but warned that firms must maintain a regime of regular audits, checks and visits to the offshore team.

"The danger is in the misinterpretation of business requirements - not shoddy work. Send individuals or small teams out to do an audit and check code early. It shouldn't be skimped on because the Indians can deliver to time, to budget and quality," he said.

Cultural differences can be overcome but they can also trip firms up if overlooked. Alan Forder, operations director of outsourcing services at LogicaCMG in Bangalore, said one of the things companies need to address is the Indian culture of always saying yes when they don't necessarily mean yes, which can impact on project delivery.

"Saying yes sometimes just means they'll try and do it, not necessarily for when you want it. It is only after working with them a few months that my staff now know it is OK to say no."

Although the caste system is slowly breaking down in the urban areas of India, background and religion can also cause divisions in the workplace.

"It creates an undercurrent in companies if not careful," said Sonal, who added that the high number of females in the IT and BPO industry can also arouse resentment amongst some male workers, especially in the smaller up-and-coming high-tech cities such as Pune.