Applied Sciences Group, Inc.

Ten years ago, outsourcing was all the rage.

A push was on at American workplaces to outsource everything from accounting and payroll to HR services and marketing. Fast forward to 2005, when outsourcing has become almost a dirty word, confused with offshoring and a synonym for dumping American jobs on foreign shores.

In fact, the majority of companies that do choose to outsource select U.S. companies, according to a survey released in November by Enterprise Systems. Among the 740-plus organizations that participated in the survey, one-third said they were currently outsourcing some or all applications, services or operations and 70 percent of that group are using domestic providers.

Information technology services remain the No. 1 service being outsourced, according to the Outsourcing Institute annual index. The Institute found IT accounted for 58 percent of all outsourced work in 2004, up from 52 percent in 2003.

Such figures keep outsourcing in front of all tech providers, including those in Western New York. A group of tech professionals talked about the ups and downs of outsourcing at a recent roundtable discussion sponsored by Business First.

Education first

To begin with, the group agreed the public needs a little education about the differences between outsourcing and offshoring. Many people know only what they've heard in the media - or in union halls - about how Americans are losing jobs to India and China. Some of that is true. Most is not.

"Everyone's been doing outsourcing forever," said R. Curtiss Montgomery, director of outsourcing services at CTG. "In the current political arena, now everyone knows and they think it's 'they're sending my buddy's job to India' which is dead wrong. One of the challenges I have as an outsourcing provider is to try to get the terminology right and have an intelligent conversation about what we're talking about."

Montgomery pointed out that most companies know that to be successful, they need to be doing three things: do the right work, do the work right and do it in the right place.

"If you're a bank with IT in the 45th floor of Manhattan, you could save a lot of money by sending that to Amherst," he said. Most people don't realize it, but if the work is being done outside the client company's office, whether it's in Amherst, San Francisco or India, that's outsourcing.

Though CTG does do some offshore outsourcing in places like Russia and India, most of its current outsourced work is done in North America.

"When we need specialized expertise, particularly in the oil industry, we've found some good engineering talent in Russia," he said. "In the financial services area, there are some highly competent companies in India. Most of our work is onshore and has historically been so."

Ignoring the expertise next door

Stephen Phillips, president of Paladin Manufacturing Corp. in Fairport, said most companies don't do a good enough job looking in their own backyard first, and assume if they send work overseas, they don't need the same amount of due diligence. Saving money isn't enough, he said.

"I've seen tons of companies jump in both feet first into offshore outsourcing and mess it up," he said. "They haven't gone through the process. If they had outsourced to the guy next door, it would have been better. I don't know why if you send work to China you do less work or less research than sending it next door."

That means looking at the type of work that needs to be done and determining where it makes sense to subcontract the work.

"Historically, outsourcing allows you to have a fluid workforce," said Larry Cobado, a construction manager at Verizon, who pointed out that outsourcing is used almost every day in the construction field, though instead of being called outsourcing, it's called subcontracting.

"You bring in the skillset and use it, then release it," he said. "Now we're talking about the intellectual data that flies across the Internet and the pervasiveness of that. When you talk about intellectual property, it's a whole different arena. Now it's a hot topic."

The location advantage

The way companies use intellectual property and the relationships that develop when working on such projects sometimes makes outsourcing impossible, said Paul Buckley, president of Applied Sciences Group Inc. in Buffalo.

"We try to keep it local for 95 percent of our business," he said. "That model will not apply for us to go to another city and convince them to be doing work with us. Is it cheaper to do it out of Buffalo than out of Manhattan, or is it cheaper to do it in India than Buffalo?"

But others point out some work can be bid out less expensively, including law. Although most clients prefer to meet face to face with their attorney, much of the research and paralegal work can be done almost anywhere. That's what's allowed Phillips Lytle LLP to work with high profile clients in Manhattan, while doing much of the work here in Western New York, said Michael Moravec, a partner in the firm.

"We have a good group of commercial lawyers and litigators and we say 'we can give you the personal interface down there and do the work at Buffalo rates," he said. "It's a big advantage."

Limiting overseas work

But it's not like offshoring to overseas firms isn't happening: Electronic Data Systems Corp. announced Feb. 22 it will close 21 call centers in the United States and Europe by the end of 2006 and shift some of the work to its three centers in India to cut costs.

Some companies, like Compsys Technologies Inc. with offices in Amherst, take care to send only certain jobs overseas.

Rob Reardon, sales and marketing manager, said Compsys doesn't even use the word outsourcing anymore, and instead stresses IT staffing.

"Outsource has a negative connotation," he said. "We have a lot of talent we pull from India but we want to bring them here and work here instead of giving the impression we're going to take a project you're going to give us and send it offshore."

Compsys does do some jobs at its India office, but mostly smaller projects. It does bring some employees over to the U.S. from India on specialized work visas, but only the best of the best.

"Basically, we do the skilled jobs here and send the lower end jobs there," he said.

Avoiding the "O" word

Buckley said that illustrates the fact that many people have the wrong impression about outsourcing.

"Outsourcing has gotten an ugly name in IT engineering, that programmers are being put out of work, at least that's the impression," he said.

The negativity comes in part from companies that don't understand the proper way to use outsourcing to their company's advantage, Phillips said.

"You're not supposed to send your whole company to India," he said. "Pick the areas, maybe somewhere that has low-cost labor, and if you get your costs down, then focus your remaining competitiveness on core competencies at home.

"I think a lot of manufacturing companies did it badly. They didn't take a strategic approach. They did it knee-jerk and sent jobs to China, then didn't get the results they wanted. Now they're caught between a rock and a hard place because they didn't get their costs down and the whole reason is they didn't take a strategic approach," Phillips said.

Tech companies need to get involved in explaining to the general public what outsourcing is all about to help dispel some of the myths, Montgomery said.

"We need to help mold the public discussion a bit around the use of the O word and differentiate it from offshoring. It can be good for Buffalo," he said.

Changing the American mindset

Peter Proulx, president of PremCom Group in Amherst, said his entire business is outsourcing, where he's providing services for companies that don't have the skillsets to do it on their own. Using companies here at home just makes sense, he said.

"A lot of the companies we deal with are major manufacturers who have done the outsourcing in India for support and horror stories are when one of your engineers gets on the line and can't even speak the language," he said. "Naturally, you are going to hear the bad situations that happen out there."

Proulx also was doubtful that the savings companies say they achieve through outsourcing offshore actually go back into the company to help keep jobs here.

"It's great to think companies are doing this because they're going to invest their dollars in companies and people here, but truth be told, it's a competitive industry and they have to find a margin," he said. "Let's be realistic, I know people in this industry that have sat on the sidelines trying to get a job."

On the other hand, the American public that is so sensitive to the concept of outsourcing offshore also must realize that if they were willing to pay a few more dollars for anything in this current economy, more companies would be content with their costs here in the U.S.

"Everyone wants to pay less for everything. That's where society is at," he said. "Eventually that has to change. We need to pay a few dollars more for that PC or that piece of technology if it employs people over here. At some point, the American public has got to wake up."

That's unlikely to happen anytime soon, Moravec said.

"Basically, we want goods cheaper. It's not a question of balance between having jobs here - especially for blue collar people or students equipped to go to college - of what are you willing to pay."

The answer instead might be taking the initiative and letting the world know what companies here can provide for them, being proactive instead of reactive, said Clark Crook, COO at Synergy (formerly WNY Computing Systems).

"In the IT industry, for the last 20 years we've waited for the phones to ring," he said. "For 200 years, we've been the innovators and we'll keep innovating. There'll be other third world countries where it will continue too."

Source: The outsourcing dilemma