Sending IT Offshore

“Most everybody already does it,” says Srinivas Thirunagari, founder of CS Solutions, Inc., a Bloomington consulting firm that specializes in data integration and has its own development facility in Chennai, India. “Companies have to drive down costs because their competitors are doing it.”

Clients who might have avoided sending IT work offshore five years ago can no longer afford to hesitate, Thirunagari says. “Owners and executives are driven by profit and loss, and they are answerable to Wall Street or to private investors,” he says. “It’s the same as with outsourcing manufacturing to China. What choice do manufacturers have?”

Cost Savings and More

So strong is the global demand for IT services, consultants say, that even in India prices are rising and the labor market is getting tight. Akhtar Chaudhri, CEO of Virtelligence, Inc., an IT consulting company in Eden Prairie, has exclusive partnerships with IT firms in India, but he is finding it necessary to expand his network into Pakistan.

One factor stressing the Indian labor market, Chaudhri says, is that big American companies have established major operations there. IBM Global Services reportedly has more than 63,000 employees in India. Accenture has more than 37,000. “Companies like IBM and Accenture tend to skim the top half of the labor force,” he says. “The small fry are left with the bottom half.”

Sources agree that the cost of IT talent in India is roughly one-third the U.S. rate—about 30 cents on the dollar and rising. The cost in Eastern Europe is comparable, according to Dan Wisniewski, vice president of business development for Coherent Solutions, Inc., a consulting company in Minneapolis that sends client work to Minsk, Belarus. IT talent is cheaper still in Vietnam—about 20 cents on the U.S. dollar, according to Ambient Consulting president Molly Kridel.

Though businesses obviously tend to seek the least expensive labor they can find, price is not the only object in going offshore, IT consultants say. In addition to quicker ramp-up times for urgent projects, Chaudhri points out that the time difference     between the United States and India allows teams in the two countries to provide 24-hour support services during regular office hours by handing off work to each other at the end of their respective shifts.

Uttiya Dasgupta, president of Omnispan, LLC, in Eagan, which sends its clients’ software-development work to a network of vendors in India, notes that a U.S. company with offices or customers in Asia can service them more conveniently from there. Likewise, companies wishing to sell products or services to the growing Indian middle class find it logical to establish a presence there, either by opening their own operations or through partnerships with native IT firms, perhaps mediated by U.S.-based consultants.