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Offshoring In Small and Mid-Sized Businesses

What are the key challenges facing today's IT directors in small and medium businesses? Fierce competition, demanding customers and rising costs. A strategic IT offshoring strategy can address some of these challenges, while increasing flexibility - the key competitive advantage of smaller enterprises.

Offshore suppliers today rival the capacity and capability of traditional IT outsourcers. Indeed, the IBM's and HP's of the world are rapidly growing their offshore delivery centers in India and other offshore locations in a scramble to remain competitive. Our own client discussions have found that the reasons many smaller businesses eschew offshoring IT services have changed little over the years:
- Communication problems
- Finding 'reputable' and stable suppliers that can provide a truly satisfactory service
- Fear of losing control of their operation.

It is traditionally accepted that a small company will be better of with single (or prime) IT outsourcing relationship with a local provider. Moving beyond this paradigm, however, may ultimately provide a big competitive advantage over other small and medium sized businesses.

How can a mid-size business really reap the benefits of offshoring?

Sourcing globally gives companies a chance to become bigger then their local market. Not only can they tap into an enormous supply of skills or services that may be scarce locally, they can leverage offshore providers to establish a presence in other countries. While cost reduction is a primary benefit of sourcing abroad, engaging suppliers can be the first step towards entering a new market. Most importantly, the benefits are not constrained by a company's scale.

On the contrary, outsourcing can deliver a far greater impact to smaller businesses. It can benefit the go-to-market strategy for new products by having teams working 24 hrs around the clock. The important thing is to have a clear understanding of your core and support processes, customers' expectations and your development needs.

Gone are the days where outsourcing is considered as a mere cost-reduction tool - it's not just customer service and technical support. Today's SME's should be looking for partners that can help them innovate and find efficiencies as well.

A recent survey of 300 global executives by the Economist Intelligence Unit of the Economist, found that 65% of their organizations performed at least some of their R&D offshore. They predict that this will increase to 84% by 2010. Another study conducted by the US-based R&D Magazine, gives an overview of the outsourced processed. It provides some insight around how and why mid-sized businesses are electing to (and in some cases not to) outsource. While cost and resource availability ranked very high, the number one reason for outsourcing R&D work was access to expertise not available in-house.

A similar survey, Next Generation Offshoring - the Globalization of Innovation, by The Fuqua School of Business at Duke University, N.C., and management consulting firm Booz Allen Hamilton Inc. N.Y., found that companies across all industries are increasingly moving sophisticated, mission-critical functions such as product design and R&D to China, India and other offshore locations. The reason cited for these moves are primarily that these countries can provide highly-skilled scientific and engineering workers. In the R&D survey, 52% of the nearly 400 respondents indicated that the expertise of the outsourcing organization was their most important reason for outsourcing their R&D.

The current market clearly turns around the former perceptions that outsourcing is a big black bin in which to send voluminous supportive processes, and that it only benefits the "big players". Outsourcing, and in particular offshoring, has become a significantly more strategic engagement for companies of all sizes, and it is becoming integral to the company's performance. The small- and medium-size firms are increasingly gaining confidence and abilities to use this practice to deliver benefits.

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