Hidden Costs of IT Outsourcing

This article from CIO magazine in 2003 rightly warns about the hidden costs of IT outsourcing seen at that time. That article states that "no one saves 80 percent by shipping IT work to India or any other country. Few can say they save even half that", and that "it takes years of effort and a huge up-front investment."

Hidden or less well known costs are:

• The Cost of Selecting a Vendor
• The Cost of Transition
• The Cost of Layoffs
• The Cultural Cost
• The Cost of Ramping Up
• The Cost of Managing an Offshore Contract

In the end it says the bottom line is this: Expect to pay an additional 6 percent to 10 percent on managing your offshore contract.

While this article mentions a new TCO -- the total cost of offshoring, we prefer to refer to the TCE or Total Cost of Engagement so that the benefits of nearshoring to Mexico can be seen as a different and sometimes better option.

Speed forward to 2010 and it is likely that companies outsourcing will mitigate some of these costs and risks and focus on TCE with nearby nearshore providers, rather than going to the far east to save an additional $5-10 hr.

There are plenty of success stories in IT outsourcing to Mexico, you just have to know where to look. Here is one for SaaS, and another for integration and maintenance.