Near Home Outsourcing

« Go back

Near-Home outsourcing leverages the technical capabilities available in Greater Minnesota to provide a secure, easily accessible alternative to offshore and near-shore outsourcing.

Globalization is continually reshaping the competitive landscape for all businesses and individuals. Our current economic environment is also creating an urgent need to identify the most cost effective means of conducting business. Many businesses have turned to offshore outsourcing, and for valid reasons. However, it is not uncommon for many of the hoped for gains to remain just that, hoped for.

Blue Skies Unlimited has the experience necessary to establish and manage successful offshore or near shore teams and is also working with the MinnWest Technology Campus in Willmar, MN to establish a "near-home" outsourcing alternative. To understand the value proposition of near-home outsourcing it is necessary to examine "business hygiene" factors that come into play when outsourcing outside of the U.S. Below are some of these factors including some that are politically sensitive but must nevertheless be considered:

Time zone differences
Language barriers to effective communication
Cultural awareness
Ability to quickly and easily visit and audit facilities
Availability and reliability of infrastructure
Turnover of vendor staff
Intellectual property protection
Adherence to copyright laws (particularly with respect to software licensing)

Data privacy
Data ownership
Differing legal systems with varying degrees of integrity, responsiveness, & access to courts
Different accounting & audit standards
Threat levels from various sources
Political stability
Community perception of use of offshore resources
Overhead to manage and govern outsourcing relationships and to manage projects outsourced to distant locations

Take just one factor that is rarely accounted for and frequently erodes anticipated savings, overhead in managing offshore projects (not including governance). Here is an example - which is not unique. Let's take application testing (it could be DB development, app development, or anything else). Often, the objective of outsourcing is to free customer resources to focus on "more strategic" items. The client resource is to function as a subject matter expert and support the offshore resources as needed. The outsourced team to provide the work that the client resource used to do frequently consists of the following:

An onshore "manager" for the specialty (in this case testing). This is mostly pure overhead.
The onshore test lead. This person is a senior level person who understands the client needs and communicates/coordinates with the offshore team. Both the onshore manager and onshore test lead are more expensive than offshore staff.
The offshore test lead. This person gets direction from the onshore lead a heads a team of people who will perform the testing.
The offshore tester(s). These people do the work.

The result of this is that there are now about 4 people involved in doing what one person used to do significantly impacting anticipated saving of 20-30% of the cost of a U.S. based testing resource. Another factor that impacts productivity, quality, is knowledge transfer which takes time and is never 100% effective. Governance of the overall outsourcing relationship is also rarely (accurately) accounted for when calculating anticipated savings.

The Near-Home Advantage

Near-Home outsourcing leverages the technical capabilities available in Greater Minnesota to provide a secure, easily accessible alternative to offshore and near-shore outsourcing.

Many organizations may not have considered outsourcing due to intellectual property, data privacy, proximity, administrative and management overhead or other concerns. Near-home outsourcing offers peace of mind that comes from operating in the same legal systems, being able to easily visit the outsourcing facility, audit and control projects, and operating without language or time zone barriers.

An additional benefit of being "remote but close" is that it ideally lends itself to creating disaster recovery and business continuity capabilities.

Near-Home outsourcing benefits communities in Greater Minnesota by enhancing their ability to attract experienced, technical talent and providing high-skill opportunities for graduates of technical schools, colleges, and universities.

By locating just outside the economic umbrella of a major metro area it is possible to offer outsourcing services that are competitive with the fully allocated cost of offshore alternatives. Here is a comparison of the factors considered above.

Business Hygiene Factor	Offshore	Near Home
Time zone differences	Up to 12 hours	Worst case - 2 hours to Pacific time zone
Language barriers to effective communication	Potential for misunderstanding or misinterpretation Can require an onshore representative to communicate unambiguously with offshore resources	None
Cultural awareness	Not always an issue but it is desirable to invest in mutual understanding of culture & customs	Not an issue
Ability to quickly and easily visit and audit facilities	Round trip flight time from Minneapolis to Bangalore - 59 hours 15 minutes Four hour round trip drive from Minneapolis to Willmar	Round trip flight time to Minneapolis from: LA: 7 hours 30 minutes Seattle: 6 hours 45 minutes Four hour round trip drive from Minneapolis to Willmar
Availability and reliability of infrastructure	Public infrastructure not reliable. Vendors provide self contained power, tele/data communications, etc. Reliability of vendor systems can be difficult to assess.	Public infrastructure for power and tele/data communications is reliable. Backup generators and redundant tele/data communications paths easily increase reliability to very high levels. Easy to assess reliability.
Turnover of vendor staff	Typically very high	Very low
Intellectual property protection	Highly dependent on the integrity of the vendor. Difficult to enforce through legal systems.	According to U.S. law and business practices.
Adherence to copyright laws (particularly with respect to software licensing)	Use of unlicensed software is common. Difficult to audit.	High levels of compliance with severe penalties for violations. Easy to visit & audit.
Data privacy	Dependent on vendor integrity. Potential impacts due to staff turnover Recourse options limited Difficult to audit architecture and processes	According to U.S. law and business practices. Easy to visit and audit architecture and processes
Data ownership	Recourse options limited in event of a dispute Difficult to validate removal of all data at end of engagement	Dispute resolution according to U.S. law. Easy to visit to physically retrieve data and validate removal.
Differing legal systems with varying degrees of integrity, responsiveness, & access to courts	Investigative rigor and access to foreign courts for timely and unbiased dispute resolution can be problematic.	Known legal and court systems.
Different accounting & audit standards	Accounting standards vary from U.S. and auditing rigor is not consistent (Satyam). Can be difficult to assess financial position/stability of potential vendors.	Uniform accounting standards and audit rigor Uniform accounting standards for public and private companies. Uniform audit rigor for public companies. Uniform financial statements from public companies ease assessment of financial viability. Validation of private companies requires permission to examine books.
Threat levels from various sources	Offshore locations are exposed to multiple threat sources. Large cities are more likely to experience terrorist actions. Much of Asia is vulnerable to geological and weather events such as earthquakes and flooding in coastal areas.	Greatly lower overall risk of terrorist events within the U.S. Further mitigated by location away from metro areas. Central MN is safe from earthquakes. Greatest weather threat is tornados.
Political stability	Government stability varies. Many potential outsourcing countries have potential conflicts with neighbors: India & Pakistan, China and Taiwan, Russia and the E.U.	Vastly more stable than offshore locations.
Community perception of use of offshore resources	Increased focus on perception of shipping jobs overseas	Beneficial public perception for efforts to keep jobs at home and expand technical capabilities in non-metro areas.
Overhead to manage and govern outsourcing relationships and to manage projects outsourced to distant locations	Significant effort and overhead which is frequently not fully accounted for.	Due to absence of factors such as different legal systems, time zones, language, and proximity the additional overhead in managing near-home is minimal. Allows companies to achieve their goal of using internal staff to focus on high-value work core to the company’s success

The near-home alternative presents an exceptionally attractive mechanism for small and mid-size companies to now utilize outsourcing to reduce costs and focus on high-value activities. At the same time it presents a new outsourcing model for large companies looking for a cost effective and more easily managed alternative to existing outsourcing arrangements.

Other Links