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Columnist in Business Week Talks About the Hidden Costs of Offshore Programming

BusinessWeek recently published a column written by Christopher Kenton called The Changing Face of Offshore Programming. This is a particularly interesting column because it clearly explains some of the most difficult issues associated with outsourcing development work to other countries. Among the problems Kenton cites:

  • Project management: Kenton says, "I've spent a lot more time than I expected in project management, quality assurance, contract issues, and communication. These issues have added significantly to the bottom-line costs of outsourcing."

  • Intellectual property protection: Through research, Kenton determined that there are no real international standards for intellectual property protection. Although some extremely large companies try to break projects into discrete pieces so that no one overseas contractor has a comprehensive understanding of the project, that increases project management costs even more.

  • Quality control: Kenton has been satisfied overall with the quality of code delivered by overseas programmers. But, he has carefully selected the projects that he sent overseas, and employs state-side developers to help with quality assurance on these projects. Kenton felt almost compelled to do this because: "I don't think it's smart to deliver a code base with comments and variables written in a language you don't understand."

  • Cost convergence: On top of everything else, the fully-loaded cost of developers in low-wage countries and those in the United States are converging. This is probably due in part to the huge downward pressure created by all of the recent outsourcing. But, Kenton implies that the cost differential has to be fairly large before it makes sense for most U.S. companies to outsource even non-sensitive projects.

Another critical element that needs to be considered is what will happen to cost and availability of programming resources as demand increases through the economic recovery? There are still a lot of well qualified American software developers on the bench. Our guess is that a large number of them will go back to work at some point in the next 18 months, if they haven't taken a job outside the industry and want to keep writing software. Will developer salaries and billing rates continue to trend down from where they are, or do current market prices reflect an over-correction?

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