Offshoring Remains a Key Strategy for CFOs

By Kevin Fogarty Print this article Print

Offshoring is still a real cost-savings to companies, and is not going to change anytime soon--though there is some trepidation from CFOs about global support.

Despite serious misgivings about changes in the value of the dollar, the risk to their intellectual property and uncertain political climates, CFOs at U.S. technology companies not only endorse continued expansion overseas, they plan to continue offshoring technical support and other high-cost operations. 

Not only that, tech-company CFOs think shareholders should have more say about the salaries of top executives and that increasing rigor in the U.S. financial regulations put U.S. companies at a disadvantage, according to a survey released this week by tax and financial consulting firm BDO Seidman, LLP.

Despite some apprehension, 49% said they'll continue to operate and expand their support and manufacturing operations offshore – a trend that, if anything, trails the plans of non-technology companies, according to a survey published in the March issue of CFO Magazine.

According to that survey, which didn't limit itself to tech companies, 57% said they would expand their outsourced IT operations overseas. About half that number – 31% -- said they'd continue to offshore manufacturing  operations and routine finance tasks such as accounts receivable and accounts payable.

Rather than comparatively rigid decade-long outsourcing contracts, however, CFOs are moving toward shorter, more flexible contracts that pin payment levels on qualitative measures of performance.

India is still the leader among offshore IT service suppliers. But the same move toward performance-based evaluation of outsourcers' performance and the uncertainty in global politics and currency markets, are major factors in the growth of domestic micro-oustourcing in the form of managed services and Software as a Service, according to Siamak Farah, CEO of Infostreet, Inc., one of the earliest U.S.-based SaaS providers.

"SaaS and outsourcing is all part of the commoditization of IT," Farah said. "Using SaaS or other outsourcing methods, you can take the 80% of your IT that is generic and let someone else worry about it and work on the 20% that's really important to your business, and work with the rest of your staff on things that have an impact."

InfoStreet has been offering customizable email, productivity applications, customer relationship management and other applications since 1996. Farah said it's only recently that he's been able to focus on selling, support and functional issues, rather than educating potential customers on the benefits of targeted micro-outsourcing.

"We can help keep [customers] from running into situations where a new function would take two hours to write, two weeks to document, two weeks to test, but you don't have that month available until 18 months from now," Farah said.

It also gives the people responsible for the business a more direct say in how important services should be delivered, and when the quality of a service is good enough to satisfy a business requirement, not just IT metrics such as availability or bandwidth, according to InfoStreet customer Dan Hebeisen, national distribution manager for motors-and-fixtures manufacturer Oriental Motors Co. in Torrance, Calif.

Oriental Motors generates about $440 million in revenue globally – about $56 million of which is generated in the U.S. With only 70 people overall in the U.S. and an IT staff of three, Oriental's U.S. operation has to run lean and let the people to whom a function is most important take responsibility for it, Hebeisen said.

So, rather than giving responsibility for the Web site, Web marketing and vendor-relationship management to an IT department, Fernando da Rosa, the company's U.S. Web and marketing project supervisor is responsible for the CRM and marketing functions the company pays InfoStreet to provide.

"Our IT group is actually bundling the customer information on a daily basis and is outputting it to the InfoStreet server," De Rosa said. "They primarily handle our internal IT stuff. Everything based on the Web comes in to the sales and promotions department, and we go to [IT] for help as needed."

IT services and programming, in fact, are the second-most-outsourced functions, at 51%, according to the BDO Seidman survey, following manufacturing at 74%, and barely edging research-and-development (49%), distribution (45%) and call-center support (35%).

This article was originally published on 2008-03-05
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