Reversing outsourcing trend, many U.S. companies bring IT back home

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The wave of outsourcing that carried tech jobs overseas has ebbed as companies look for local talent

 

In the 1990s and early 2000s as the tech industry boomed, companies started outsourcing more and more of their IT needs instead of keeping those jobs in-house. To companies focused on profits and the bottom line, resources in India, China, Romania and other countries offered IT labor at a fraction of the cost of U.S. resources.

There were lessons learned, tales of nightmare projects that never got delivered and language barriers. Some companies gave up and brought IT jobs either back in-house or opted to only use onshore (U.S.-based) resources, while others muddled through the challenges and figured out what worked and what didn’t.

In a CIO Magazine article earlier this year, Stan Lepeak, global research director for KPMG Advisory, said that in 2014 “of the IT services historically outsourced, 20 to 30 percent will be brought back in-house.”

Today, the tech industry is booming once again. Outsourcing is still a huge business and many companies still use offshore (non-U.S.) resources. But many companies are forging relationships with local, specialty IT firms with local resources and leaving the IT work to experts they can call upon.

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To outsource or not outsource?

 

Many medium and large businesses simply don’t have the level of expertise required to tackle some projects, and often the company can’t justify the cost of bringing on a full-time person because it lacks the work volume to support the head count, said Andrew Kurtz, president and CEO of ProActive Technology, a Greenville-based custom software development firm. That’s where a firm such as his can play a useful role.

Kurtz has a staff of about 25 people in Greenville who provide project management, architecture, technical writing, business analysis, software development and testing expertise. He said the ups and downs in the industry have been more economic recently, but beyond that, outsourcing really hasn’t changed in the past 10 years.

“From the top down, a lot of companies want to focus on their core business,” he said.

“We’re finding customers have to be pretty large to do development in-house,” agreed Dan Rundle, CEO of Worthwhile, a Greenville Web and mobile application development firm. “Unless software is their core business, we’re finding customers are outsourcing their IT.” Rundle’s 16 employees focus on project management, development, design and testing.

“Some companies simply outsource their IT completely, even if they have the budget to hire, because they need specific skill sets,” Kurtz said. Specialized IT firms “can bring that expertise into the project as needed.”

Customers might have an employee on staff who is “a jack of all trades – someone who is good at all, but great at none,” Kurtz said. Custom software firms “bring great experience at all [trades], and companies can buy that at a fractional service level.”

Most companies are looking to outsource projects that simplify a problem or make employees’ jobs easier, Rundle said. Rundle’s firm also offers what he calls “software rescue,” where a client presents with a software system the company can’t or doesn’t know how to support anymore. The IT team goes into a “forensic-type” analysis and reverse-engineers the application.

Companies that outsource to a local IT firm gain the advantage of having that firm’s experts “start to learn the culture and processes” of the client company, Kurtz said. Unlike a staffing firm or temporary help, local IT retain the knowledge gained for the next project, whereas a staffing firm may not send the same people for the next project, he said.

The Wall Street Journal reported that in a March 2014 survey by accounting firm BDO USA LLP, only five out of 100 technology CFOs said they were planning to offshore services in the near future – a significant drop from the 16 percent who said yes in 2013 and 20 percent who said yes in 2012.

The WSJ story said after a series of economic disruptions and environmental disasters in the past few years, “CFOs are trying to look a little more holistically at outsourcing,” said Aftab Jamil, a partner at BDO who leads the technology and life sciences practice. “They are saying, ‘Do we really save enough money that it is worth that risk?’”

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The good, the bad and the ugly of offshoring

 

There are costs incurred in managing offshore development that may not be readily apparent, Kurtz said. Staff is needed to manage offshore resources and a higher level of documentation is required. “If companies do the complete analysis, they’ll find the cost is much closer than they may think,” he said.

Companies that do look at outsourcing are faced with a challenge: “Do we outsource to a U.S.-based company or an international company?” said Rundle. With offshore, it’s most likely cheaper in the short run, but the cons are language barriers and different time zones to work with, he said.

“Onshore development teams bring skills and a level of problem-solving and creativity to solving the problem that you don’t experience with most offshore development firms,” said Kurtz. Local firms can have someone on site within half an hour if something goes wrong with a project. In his experience, Kurtz said, even though there are companies out there that have gotten really good at managing IT offshore, most companies are “not actively looking at offshore resources.”

In fact, several customers have contract clauses that specify IT work cannot be given to any offshore resources. “It’s for a variety of reasons. Sometimes it’s because of experiences the company has had, other times it’s for security or privacy concerns,” Kurtz said.

 

Looking to the future and local talent

 

Rundle said his firm has definitely seen an uptick in business. “Everyone is spending more on technology now than they were last year and will be spending more next year,” he said.

As demand increases, both ProActive Technologies and Worthwhile occasionally augment their own staff locally by calling on trusted freelancers. Rundle said his company hasn’t had to do a lot of outsourcing in recent years but when it does, he works with domestic freelancers who can support his staff in “a specific role or expertise.”

Kurtz said the talent pool in Greenville is good but is becoming “more of a challenge.” Good IT people have many options and jobs are “fairly plentiful.”

“The talent pool in Greenville is solid,” Rundle agreed. “It’s better even than some of the surrounding larger cities. However, everyone is spoken for – they have a job already. It’s very competitive.”

Kurtz said that “Greenville and the Upstate is starting to get a reputation that it’s a good place to live,” so it’s less of a challenge to find people from outside the area who may want to move here.

 

 

 

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