Issues facing outsourcing service providers

Recently I came across an article on the issues facing outsourcing service providers. Though I agree with the post’s conclusion, I thought it would be better if I could clarfiy a few things.

Well the issues discussed aren’t really the main issues faced by offshore service providers. Also before we discuss what issues are faced by offshore service providers, we need to be clear on what we mean by offshore service providers? There are different categories:

a. individuals / small firms – these firms usually do not have permanent contracts. Rather they work on project-to-project basis and mostly at very low rates. They need to build their portfolio and clientage so they work 15 hrs a day and make sure the client is satisfied. Also since these firms are mostly inexperienced, they do mistakes like taking up more work than they can handle, and mess up quite a few projects. This triggers a chain reaction in payment handling as well.

b. small to mid sized firms – these are the mid sized firms who work on both project-to-project basis as well as dedicated resource basis. These firms have processes to manage project pipeline and can manage the dedicated resources well as well. However, these firms don’t really have access to big outsourcing firms.

c. large firms – these are the large firms with big offices in the offshore markets .e.g, america, europe, australia. Mostly they have a big team at the source to handle a project and the development team handles the back end jobs. Examples of these firms include infosys, wipro etc.

Now all these firms have different issues to deal with. For instance, the category a firms don’t really have HR issues. They don’t have infrastructure costs either. However, they deal with the low-end customers so default rate of their customers may be high. Also since there are no processes, they usually had a tough time “closing” a project. That is, 99% of the project is complete and now the customer wants small changes in which the company is stuck. And usually this last 1% determines the entire experience. Also since they are dealing with low-end customers, the projects are of very low price and there are very little margins. The biggest concern for these firms is how to get out of the cycle of low-cost project.

The firm in category b have different sort of problems. Firstly they do have projects but they are growing fast and they need to maintain a pipeline. They usually prefer to have their customers hire dedicated resources so that they get dedicated payments. However, since they also dont deal with big cooperations they also have to manage their costings. Usually they take up a project at lesser rate and then increase the rate once the customer starts trusting them. These firms also have a big issue of retaining employees. Since they are growing and have processes they need qualified staff. Also these firms tend to differentiate themselves on quality and in the process end up competing with large cooperations on the “high-end” of human resources available. These human resources are expensive and difficult to retain.

I am not entirely sure what problems firms in c categories have. Probably because we aren’t there yet.

In a future article, I’ll be writing about how we dealt with our startup problems.