Offshoring Projects Not All Peaches and Cream

December 7, 2005 ( - Companies that have existing global offshoring projects face a wide range of potential personnel problems both here and overseas, a new Conference Board survey found,

Those issues come at the same time as executives maintain their offshoring interest in order to pursue potentially significant wage and benefit cost cuts, according to a news release on the new survey, Aligning The Organization: Management and Human Resource Concerns.

“Does cheaper also mean riskier?” the new study asked. “As labor demand rises in offshoring markets, offshorers and potential offshorers would be right to wonder how long the arbitrage opportunity will last. Will labor supply continue to meet growing demand?”

Companies continue to be attracted to hiring employees abroad at wage and salary multiples sharply lower than at home. Payroll clerks in the US earn $15 an hour but only $2 in India. While call center employees in America have an average annual salary of $28,000, it is $2,000 in India. The average programmer in San Jose, California, earns $78,000, but the salary for the same job in India is $11,000. A financial researcher/analyst, a post that commands a salary of $33 to $55 an hour in the United States, can live a very comfortable lifestyle on $6 to $15 per hour in India.

Employers don’t have to worry about overtime pay in India because employees are paid a flat monthly wage. So stark are the wage disparities that offshoring critics in the US warn that the mere threat of moving administrative jobs overseas can depress wages and any potential increases in income at home, the study said.

Already, increases in demand for IT skills are driving up pay levels, especially in such centers as Bangalore and New Delhi in India, the announcement said. The study emphasizes that companies must look beyond wages to consider benefits, training and other costs before they outsource and also consider transportation, cultural and other expenses related to offshoring. At home, companies are learning they can quell some of the disruption springing from offshoring by designing plans to aid employees who lose their jobs to offshoring, overcoming resistance from disgruntled workers and maintaining both morale and a positive image among remaining employees.

Offshoring Due Diligence

Due diligence for offshoring companies should include a basic familiarity with local employment law, particularly the requirements and obligations surrounding termination, the study said. Companies should also know the standard contractual terms that apply, as well as the costs of hiring and firing and the procedures prospective vendors follow to screen potential employees, including background checks and references.

Offshoring executives should be good integrators, a skill that requires expertise in conflict management and inspiring group and individual cooperation, according to the news release.

The study points to a number of actions that companies can take to build cooperation and sustain trust, including:

  • Involve managers at all levels in important decisions
  • Foster openness and create a sense of fairness
  • Promote a culture in which people believe in their colleagues’ and leaders’ competence.
  • Promote cross-cultural health, awareness, and cooperation.

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