There are good and bad reasons to offshore. Before you begin look at the whole picture. Cost is not the only reason and determining real cost can be deceptive.
Reasons to consider include
Human resources – is there a lack of skilled human resources locally? Should you train or should you offshore? Where can you get skilled people? If you need special skills that are not available in your area you have two options 1. bring them to you. 2. bring the company to them. A more detailed analysis is needed to determine which is better, but there are many secondary advantages to offshoring.
Time – Availability – is there a distinct advantage to 24/7 availability? If you need to have skilled people available 24/7 distributing the team globally so that everyone is working during their day hours and provide you with 24/7 coverage is a distinct advantage.
Time – Continuous processing – Consider if code is checked in at the end of the day and the testing starts the following day then it is not until the 3rd day that the developer can react to test results. If the tests are done overnight with results ready the following morning the developer can react more nimbly to any issues that arise.
Political advantage – I know of at least one large US company who specifically chose to have an engineering site in China to engender favor from the government. It was hoped that this would make it easier to get government contracts, create awareness and show that they can support their product from within China.
Cost – This is the trickiest factor to calculate. Are you getting the same ROI in terms of productivity? This is relatively easy to calculate on a low technology manufactured item i.e. a chair. Much harder to evaluate on software, service etc. example – you are saving money by outsourcing your call center but how many customers do you alienate because they cannot understand the heavily accented English of your support representatives or the idea of great customer service is measured differently in different cultures? Outsourcing can be a great way to reduce cost but you need to carefully calculate the real advantage. More you need to be aware of instability. I have lived in 30% inflation and it can suddenly make that new factory not cost effective within a few years.
Ramp up time/ learning curve – both you and your new staff will need some time to learn to work together and understand what is needed to succeed. It may even be necessary to spend a significant amount of time reaching an understanding and agree on what exactly is ’success’. Offshoring is not a quick fix, I have seen companies pull out just before they were about to start realizing ROI. Offshoring is a medium to long term term endeavor can realize great benefit to the corporation but it must be carefully analyzed and controlled to reap such benefit.
Secondary affects – Will your best staff leave because they don’t want to train their replacements? Will morale at your site go down ? Will your current staff impede the success of your new site? I can recall one instance where US engineer referred to a Chinese engineer as cheap labor. This had a very negative effect on the whole company. How will you mitigate this risk? or can you avoid it all together?
It is definitely possible to have a successful offshore operation if you have made the right choice and you planned, prepared and are able to deal with the issues that will certainly arise.
I will add articles on different aspects on how to be successful if you choose to offshore.