Offshore Outsourcers Claim Low-Cost ...

Computerworld - ... advantage is merely temporary. "It's not about competing on price," suggests Prime Joseph, chief operating officer of Allserve Systems Corp. Allserve is based in New Brunswick, N.J., but most of its 3,200 employees work in India. He says what attracts IT to his company is the quality of its workers, the number and kind of college degrees they hold and their years in the field. Bob Evans, the Palo Alto, Calif.-based CEO of Symphony Services Corp., which has global headquarters in Bangalore, India, is in full agreement. "If all we have is a cost-structure differential, the business is doomed," he says. Evans adds that "the meaningful wage gap" will continue only for another four or five years because of salary hikes in Bangalore and deflation of contractor prices in the U.S. Joseph adds that later this month, his company will open a call center in the U.S. because the business reasons for having one closer to customers now outweigh the narrowing wage difference. But Mark Hebert, executive vice president of marketing and alliances at Fremont, Calif.-based Sierra Atlantic Inc., which has 450 workers in India out of 525, still touts price as the key reason to offshore projects. Throwing a project over the wall to his Indian troops will enable clients to immediately cut costs by half, he says. And Hebert claims that by about the third project, when most of the project management wrinkles have been ironed out, IT development in India "will deliver a 3-to-1 cost advantage" over the U.S. Indeed, Julie Hanna Farris, CEO of Scalix Corp. in San Mateo, Calif., says this month her start-up will shift a significant amount of its software development to India because "within three years, we'll save seven figures." No small amount for a company getting off the ground. Hebert argues that companies such as Scalix would have outsourced the work anyway and probably wouldn't have hired any local employees. Add it up, he acknowledges, and "outsourcing reduces the number of consulting jobs in the U.S. and the billing rates."

• Symphony and Sierra Atlantic target IT vendors in Silicon Valley as well as corporate IT managers for work. Both Evans and Hebert emphasize the importance for start-up companies to push work overseas, suggesting that venture capitalists like to see offshore development as part of their business plans. "VCs will fund start-ups who have some amount of offshore work being done," Hebert says. Maybe in Silicon Valley VCs think that way, but in Washington, where Core Capital Partners is based, they have different ideas. "I'm not seeing any start-ups pressured to have development done overseas," says Pascal Luck, the high-tech VC's managing director. "Cost per man-hour is less, but you have to figure out the efficiency of having two operations," he advises. In addition, Luck worries about a start-up willing "to move its crown jewels overseas." He says he wants his investment "to keep control over its intellectual property." Sending it abroad just doesn't seem like the right control strategy to him.