Offshoring Remains a Key Strategy for CFOs

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. technologycompanies not only endorse continued expansion overseas, they plan to continueoffshoring technical support and otherhigh-cost operations. 

Not only that, tech-company CFOs think shareholders should have moresay 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 asurvey released this week by tax and financial consulting firm BDO Seidman, LLP.

Despite some apprehension, 49% said they’ll continue to operate andexpand their support and manufacturing operations offshore ? a trend that, ifanything, trails the plans of non-technology companies, according to a surveypublished in the Marchissue 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 halfthat number ? 31% — said they’d continue to offshore manufacturing  operations and routine finance tasks such asaccounts receivable and accounts payable.

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

India is still theleader among offshore IT service suppliers. But the same move towardperformance-based evaluation of outsourcers’ performance and the uncertainty inglobal politics and currency markets, are major factors in the growth ofdomestic micro-oustourcing in the form of managed services and Software as aService, according to Siamak Farah, CEO of Infostreet, Inc., one of theearliest U.S.-based SaaS providers.

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

InfoStreet has been offering customizable email, productivityapplications, customer relationship management and other applications since1996. 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 thebenefits of targeted micro-outsourcing.

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

It also gives the people responsible for the business a more directsay in how important services should be delivered, and when the quality of aservice is good enough to satisfy a business requirement, not just IT metricssuch as availability or bandwidth, according to InfoStreet customer DanHebeisen, 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 70people overall in the U.S. and an IT staffof three, Oriental’s U.S. operation has torun lean and let the people to whom a function is most important takeresponsibility for it, Hebeisen said.

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

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

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