This is the third installment of a series on offshoring IT jobs. In my first post, I gave a general overview of what offshoring is. In my second post, I argued the case for IT offshoring by Canadian companies and listed some of the benefits. Today, I’m going to make the argument against offshoring by talking about its dangers.
There have been two cases in my life when I’ve paid someone a bribe.
Actually, not really. “Bribe” is the wrong word since it implies I actually chose to initiate those transactions.
In reality, it was extortion. Extortion by uniformed people with automatic weapons and the power to detain me until we closed our little deal.
Can you guess who had the upper hand in those negotiations?
Thankfully, these incidents didn’t happen in Canada, but rather in two different countries whose names I’ll just leave blank since I’m a big fan of both and don’t want to single them out unfairly.
In one country, I was waved to a stop by an angry soldier for speeding through ‘a slow down a lot but keep going checkpoint,’ a highway feature I’m not really used to. I was in for a huge fine, I was told, and the best thing to do would be to settle the problem “right here.”
I was in an irritable mood from driving in the middle of the night and didn’t feel like handing over any money, so I got on my high horse and insisted on doing things by the book, getting a ticket and paying the fine at city hall the next day. I also pretended to understand virtually nothing of the local language, hoping he’d get frustrated and just let me go. I really wanted to wait him out. But after about four hours (literally) sitting on a concrete curb and arguing with him, I finally gave in and gave him $25, negotiated down from $45.
‘See how easy that was?’
As soon as the deal was completed, the soldier looked almost relieved, as if I’d finally done the right thing. He smiled broadly and slapped me on the back. “See how easy that was? Everything’s fine now.”
I mention this one anecdote illustrate a broader point about the dangers of IT offshoring. First, the government and legal systems, not to mention the culture, can be extremely different in other countries. Canadian IT companies that don’t understand how a different society works can find themselves losing money in ways they didn’t anticipate.
More specifically, an IT project can get bogged down due to differences in language and culture, as well as unfamiliar methodology and coding standards used in other countries, explains Tim Collins, CEO of Stafflink. This can be partly resolved by hiring a local project manager, he adds, but it can also create new problems. First of all, it’s an additional cost to factor in, and secondly, there are often disputes between project managers and on-site developers. More time wasted, more money wasted.
IT offshoring and the law
In Canada, a written contract is sacrosanct. Canadian laws are very specific about commercial transactions, and the judicial system can be trusted to mediate business disputes, prosecute fraud and uphold the rights of enterprises.
In other countries similar laws may be on the books, but simply aren’t enforced as consistently as they are here. And when a lot of money is at stake, it’s critical to have of legal recourse if something goes wrong.
Collins says he’s had a client who found out the hard way that contracts in other countries can be a little, er, open to interpretation. In this particular case, the client found out the superstar developers listed on the proposal had actually outsourced their work to less qualified people. Essentially, quality control was thrown out the window on that one.
Add on top of this the volatile tax laws that can exist abroad. Collins says clients who have offshored work have had to cope with tax fluctuations of up to 30 per cent in a six-month period — in other words, a budgeting nightmare.
A reader weighs in
In my previous post arguing the case for offshoring, commenter Roy rejected the notion that offshoring lower-paying IT jobs will result in better-paying ones being created in Canada, saying that it contradicted his experience.
“[IT offshoring] too often does not result in ‘upskilling’ Canadian workers,” he wrote. “Instead, it just displace[s] them or lends to further brain drain. Organizations are too quick to cut [and] not willing to train up due to cost disparity overseas. End result is [a] widened economic gap: those that hold the stocks on quick profits.”
“It can only upskill a very few. For instance, I have watched personally while several hundred jobs went overseas. Out of 450 people, only about 10 remained to manage it.
“The 440 others did not get upskilled. They moved.”
To finish off my argument against IT offshoring, let me turn to something I’ve written about recently: legacy technology such as COBOL and mainframe administration. The IT skills gap in this area, as I wrote, is particularly acute.
If Canadians won’t care for these systems, someone else will have to. Not surprisingly, there’s now a growing demand for IT skills like remote mainframe maintenance. I can’t even begin to imagine what it would cost to get your baby-boomer mainframe people out of bed at 3 a.m., so I get the appeal of offshoring there.
But here’s something important to consider. One of the biggest reasons mainframes exist is to run mission-critical applications, in other words, the nervous system of your company. Would you trust someone 12,000 km away with the keys to your big iron?
Is it really worth it?
Well, no, it isn’t. I’m arguing against it, after all. The whole point of offshoring is to save money, after all. While the initial costs may be eye-catching, Collins says that as many of 70 per cent of Stafflink clients have realized these costs will double once the project gets underway. There are constantly problems with code that hasn’t been tested for bugs, or comes with little or no documentation and ultimately needs to be re-written, he says.
So, unless you really know what you’re doing, don’t offshore IT.
A Mari Usque Ad Mare
I’ve tried my best to present both sides of the argument separately in the past two posts. For the finale, I’m going to end on a positive note by looking at a third way: nearshoring. Canada is a big country, stretching “from sea to sea” as our national motto goes. There are plenty of unexplored opportunities between the Atlantic and Pacific that offer some of the benefits of offshoring without its risks. We’ll take a look at some of them next time.