Failure to Recognize Time Zone Difference as a Challenge in Outsourcing

Every day people post articles about advantages or disadvantages of offshore software development. Companies seeking to outsource could go crazy sorting through the vast information, trying to figure out what is the best option for their business.

It seems even the biggest and best analysts fail to recognize some of the most important factors. A couple of days ago, one research piece called “The Shifting Geography of Offshoring” drew my attention, a study about the Top 50 countries worldwide as the best destinations for providing outsourcing activities, including IT services and support, contact centers, and back-office support.

This study ranked 1st India with 6.91 out of 10 followed by China, while Mexico was placed in the 11st position with 5.43 and Chile in the 8th place with 5.50. The 3 primary categories measured were: Financial Attractiveness, People skills and availability and business environment.


Yet, no where does the study mention the impact of time zone differences on outsourcing, particularly on productivity, which greatly affects total cost. India and China may be excellent outsourcing locations for large companies, but small and medium size companies should be working with teams in the same time zone.

Software development is difficult enough. Don’t make it more complicated by adding a new variable.

So how does India and China arrive 1st and 2nd respectively if time zone affects total cost, productivity and overall cost? When you outsource to an offshore location people needs to stay up late at night to complete the task, wake up early; or work double shifts, or additional management needs to be put in place on the client side, or additional visits are needed to the customer site or the vendor location; all these have a significant impact on productivity and cost.

Working behind schedule can trigger an unimaginable quantity of problems that in a short time may not be important and visible, but in the end will be a headache. When you are dealing with an overseas vendor, the time zone problem will surely arise - the difference between your Asian vendor and you may be twelve hours (and a half) or more. Just imagine that you arrive at the office at the same time when your vendor's employees are going to sleep.

Why are countries such as Chile or Mexico ranking under Asian countries if the nearshore model offers the same advantages as offshore, plus the alternative of having a developer of support team working in the same time zone. Time zone is a critical element in engagements where high collaboration is a must.

As Offshoring Gets Tougher, Nearshoring Alternatives Shine

U.S. Secretary of State, Hillary Clinton visited India this week. Among the topics addressed with the Indian Prime Minister, Manmohan Singh, was a promise to improve cooperation on high-tech trade between the two countries, even though, Clinton didn´t give specifics about how it will be accomplished.

Why weren’t greater details offered? Perhaps because last May, President Obama announced a series of steps aimed at overhauling the U.S. tax code to detect and pursue U.S. tax evaders and go after their offshore tax shelters.

It is clearly known that many companies in U.S. are offshoring information technology services to India, not only to seek out cheaper labor, but also to avoid the taxes that they are bound to pay in their Country.

In the other hand, the U.S. wants to implement a new law that would set a number of restrictions on overseas firms that need H-1B visas to deliver their services. India´s IT Industry is anxious of the solution that U.S. Congress will give.

Less well known are the benefits that a nearshore location, such as Canada or Mexico has to application development. The India-based providers, such as Tata and Infosys recognize the benefits of working in the same time zone. That´s the reason, that Indian companies are moving operations near to U.S. or even in the U.S.

Now, with new tax policies and visa restrictions it looks that India-based firms may have greater difficulty to deliver their IT services. Companies like Infosys Technologies Ltd. (which on March 31 employed 8,900 people in the U.S. with H-1B visas, and 1,400 with L-1 visas, according to U.S. Securities and Exchange Commission filings) has to face this complicated problem. It is estimated that other Indian companies will suffer a huge negative impact as well. It is recognized that some companies are paying less to people with H-B1 visas than what they would have paid to locally hired US employees. Now with the decrease of visas they would need to hire U.S. workers who earn more and require more benefits. The benefits of offshoring could disappear with this new model.

Companies will continue move services offshore, but with the new tax code announcement of U.S. President, it won´t be so easy. Even while the cost of manpower in India rises (find stats and link), the total cost of engagement including taxes will increase the cost of an application software or IT service.

In light of these new restrictions, outsourcing to Latin America, specifically Mexico, looks even more appealing. NAFTA (North American Free Trade Agreement) protect and ensures the safe treaties and relationships between U.S. and Mexico including protection to Intellectual Property and simplifies trade.