Outsourcing / Offshoring FAQ

Specifically, outsourcing is the transferring of activities and decision rights to another entity by contract with specific performance measures, related rewards and penalties and exit clauses.

A lot of businesses are looking into the option of outsourcing select administrative and technical tasks. Outsourcing essentially involves paying an outside firm to handle certain company activities like IT. Just like any other business decision, you need to first know about the pros and cons of outsourcing certain tasks to determine if this is a viable option for your business.

Despite the ever dwindling exchange rates and the ravages of all you hear in India, outsourcing of application development and other IT activities is still a very viable option for companies. In fact many years of outsourcing has resulted in the development of key competencies in nations such as China and India, which have been the hubs of most of the outsourcing activity in the past decade. These competencies ensure the smooth functioning of outsourcing relationships as well as handsome returns.

Outsourcing to an organization that has an offshore delivery center has proved to be a deciding factor for companies that offer a cost and quality edge in a competitive market. Outsourcing has proved to be a differentiating factor for companies, offering cost, time and quality advantages. Today, it is common practice to look to distant shores for:

• Lower Costs
• Expertise in latest technology
• Rapid deployment
• Availability of scare resources

The success of outsourcing relies on the word "Customer Satisfaction". AAXIS provides reliable, quality, and value added services that focus on your business needs and you are assured that a dedicated offshore outsourcing team is working with us, for you. AAXIS brings delight to our customers by nurturing deeper relationships, by building innovative solutions, and by staying committed to business value.

When you consider the advantages of outsourcing, you will realize there is a lot to gain by using it as an intrinsic part of your business strategy. By outsourcing, you can realize:

Cost Savings: The falling exchange rates and offshore wage escalation have had little effect. There are still substantial cost savings possible through outsourcing arrangements. In fact, over the years, the rapid increase in the number of vendors has made the industry highly competitive resulting in greater benefit for companies.

Abundant Resources: Countries like China with a huge population have very high levels of technical education and produce millions of quality technical professionals every year. These professionals prove to be an invaluable resource in providing the essential element of quality to the outsourcing business.

Operational Synergy: Over the past few years, the Asian countries have built upon their pools of competencies. As a result, they are now able to offer far better levels of operational synergies as compared to earlier times.

Improved Communication Infrastructure: An outsourcing arrangement is highly dependent upon the appropriate communication infrastructure. The rapid development of fiber optics and satellite based communication coupled with tariff declines has allowed for seamless operation of outsourcing activities.

Improved Infrastructure: Broad multilane highways; quality buildings; modern towns; leading edge Technology Parks; world class communications; electric and water sources and availability; dual power feeds; etc. China infrastructure is many percent advanced and improved over India.

Better Quality: Studies indicate that well managed outsourcing arrangements help organizations increase their product and service quality. The main reason for this being that once the routine processes such as application development are outsourced, organizations are in a better position to focus on core business activities.

Process Improvements: The continuous communication between the vendor and the outsourcing company provides a rich platform for skill enhancements and information transfer. The dynamic interchange of knowledge allow for unprecedented benefits in process improvements and building of mutual competencies.

Additional Benefits:Additional positives you can realize by outsourcing:

• Project enhancement
• Improved efficiency
• Access to specialized skills
• Establish long-term, strategic relationships with world-class service providers to gain a competitive edge
• Enhanced tactical and strategic advantages
• Provide value-added services
• Increased customer satisfaction
• Obtain needed project management and implementation consulting expertise, along with access to best practices and proven methodologies
• Reduce the risk of technological obsolescence and increase efficiency by consolidating and centralizing functions
• Keep pace and minimize the impact of rapid changes in applications and standards
• Share risks
• Free-up resources for other purposes
• Make capital funds available (when you outsource; you are using our [their] capital.
• Reduce and control operating costs

Outsourcing is not just a quick fix, but should be an integral part of a long-term strategy. An organization should analyze its core competencies and consider outsourcing other processes. With talent tough to come by, outsourcing may be the only, or at least the easiest, way to obtain talented, limited resources. When people are overworked and overqualified, outsourcing may be a great way to retain employees by not requiring them to perform work for which they are overqualified; an example of this would be to outsource routine application maintenance allowing your staff to work on new development projects. Outsourcing could be used to increase morale and thus productivity.

Outsourcing may make sense when customer requirements exceed ones ability to meet and exceed those requirements. It could reduce the hassle of providing a non-core service: Or when an organization wants to minimize risk while still achieving its growth goals. Outsourcing may make sense as protection against natural disasters or as a contingency strategy.

The message is clear. If you have yet not experienced the benefits of outsourcing your IT and application development work, the time is now!

Companies who decide to consider outsourcing their application development or ancillary IT functions should seek guidance on how to implement an outsourcing model. There must be a smooth knowledge transfer process, which requires specialized skills. And companies often require guidance with respect to risk management and control issues. AAXIS can help organizations take such crucial decisions by providing their knowledge and expertise. AAXIS can help organizations conduct a process model evaluation and risk-return analysis by which the viability of an outsourcing arrangement can be judged. Only when it is conclusively proved that the offshore outsourcing can provide work of similar quality at a low cost should the company go ahead. AAXIS can help companies understand the environment and overcome the obstacles by providing expert advice and guidance. AAXIS can also help you understand how to gain organizational buy-in.

AAXIS professionals who can provide this assistance have decades of experience in the offshore IT outsourcing space. These professionals play the role of effective knowledge transfer agents as they help in seamless transition of knowledge between the company and the onshore/offshore team. Through these professionals the company gains knowledge about local offshore business practices and regulations. These professionals will also help managers in dealing with control issues. Once a workable offshore outsourcing model has been established, the benefits of outsourcing begin to surface. Companies experience real improvements in productivity as the top management can concentrate on core functions like business development, trouble shooting and strategic planning. Before organizations decide to outsource IT, they need to think about:

• Will lower personnel costs be offset by longer times to resolve IT issues?
• How do we manage quality of software development hires?
• Will higher telecommunications costs offset personnel savings
• Will 24 hour cover be easier to maintain by outsourcing IT?
• Will quality of IT services be equal or better than current services?
• What are risks if this does not work out?
• What is cost of managing IT outsourcing?
• What do we do with staff and equipment that we used before outsourcing IT?
• What performance measures need to be written into our outsourcing offshore contract?
• What exit clauses should we put into the contract?
• Who will manage software testing systems before software is put into production?
• Who is responsible for software and data backups?
• Who is responsible for software security including access?
• Who is responsible for helpdesk for questions relating to software?

To actually enjoy the benefits of outsourcing, a proper management framework to organize the process is integral. Management of the outsourcing relationship is important because it ensures maximum value from the investments made and enables AAXIS to give world-class services to its customers. Successful management of the outsourcing relationship depends on the way the requirements are defined, the way the objectives are described, the way AAXIS is positioned, and the way a Service Level Agreement is written. Communication becomes the essence of a successful outsourcing relationship.

Whether you are going to build a development organization directly in a foreign country or offshore outsource through a vendor, you need to understand the answers to:

• Why are you looking offshore? Is cost the major driver? Are you looking for specialized talent? Do you need staff to get a project completed quickly? Do you want a longer term maintenance relationship?
• What is your readiness to deal with a foreign culture and organization?
• Are you prepared to put in the time and energy it will take to ensure success?

Whether you are going direct or through a vendor, you need to understand a lot about the location you will end up. You need to understand the population, demographics, legal conditions, talent availability and competitive environment, attrition, training, etc.

As we at AAXIS looked to decide where we would build our Offshore Development Center (ODC), we considered all these and many other factors. We understood that a basic requirement was the presence of talent and the competitive nature of getting to that talent at what cost. This quickly brought us to conclude that we need to be where there was a large, educated talent base and that focused us on India and China. But India is suffering a shortage of employable talent due to the competitive demand for it; and as a result it is increasingly expensive. Additionally, this demand has led to high attrition levels which prevent most Indian companies from delivering high quality results. Thus, we turned to China, which isn't as mature in the outsourcing market and as such has not had to face these issues yet.

We did a thorough tour of many areas in China, deciding to avoid the major areas such as Beijing and Shanghai. Instead we settled on Chengdu, capital of the Sichuan province and an identified hi-tech area by the Chinese government. Here, there is available educated talent at a reasonable cost and with low attrition rates.

The cultural and regulatory environments in China are tough. It is hard to understand all the regulatory hoops you need to jump through and how to work with the Chinese populace. Unless you are experienced in setting up offshore organizations, we suggest you get your feet wet via a vendor such as AAXIS. We have seasoned experts in setting up offshore organizations and we have spent considerable time and money in getting our Chinese ODC established. We have had many discussions and meetings to ensure we can meet expectations related to Chinese culture and tradition; and we have extensive training programs and procedures that allow us to address language issues. If you are determined to "build your own", perhaps you should talk to AAXIS about a BOT to address your needs.

With an operating ODC in a great city with a large population of educated people, in a city with great infrastructure (much much better than any city in India) and a good environment, with low attrition and solid training, we at AAXIS can deliver high quality results at a fraction of the cost of delivering onshore. We have access to highly trained specialty skill sets, and we have the low attrition and strong stability to take care of your maintenance needs.

Where you ask? Well China of course. But we are biased by the need to serve our customers with the highest quality deliverables on time and on budget. It's the kind of bias you are looking for! Contact us!

There are no limits to what you can outsource: we have seen an entire financial organization that consisted of less than one hundred people - everything except management, marketing and sales, and risk management/control were outsourced. The number of activities could start with a single manpower contract or a multi-activity contract. In our experience the more activities which are linked together in a single contract the higher the degree of commonality providing economies of scale and thus potential savings to the client. You can outsource application development of a project; an entire project including project management, a function such as DBA or QA or Project management; maintenance of an application suite, or an entire set of IT activities. We suggest growing into it, one step at a time, but there is no limit to what one can achieve.

You can focus on your core business. Every business has limited resources, and every manager has limited time and attention. Outsourcing can help your business shift its focus from peripheral activities toward work that serves the customer; and it can help managers set their priorities more clearly.

You will realize savings of time and operational costs. In the long run, it is more cost-effective for companies to outsource their non-core technical tasks such as maintenance.

The business will run more efficiently. With a high employee satisfaction rate and your manpower focusing more on tasks to improve the core business, the quality of the company as a whole will improve.

Start new projects quickly: AAXIS has the resources to start a project quickly. Handling the same project in-house might involve taking weeks or months to hire the right people, train them, and provide the support they need.

Level the playing field: Most small and mid-size firms simply can't afford to match the in-house support services that larger companies maintain. Outsourcing can help small firms act "big" by giving them access to the same economies of scale, efficiency, and expertise that large companies enjoy.

Reduce and share risk: Every business investment carries a certain amount of risk. Markets, competition, government regulations, financial conditions, and technologies all change very quickly. AAXIS assumes and manages this risk with you .

Other advantages of outsourcing to AAXIS include:

• Lower personnel costs
• Gain economies of scale
• Can focus on your core competencies
• Don't have to worry as much about keeping current in outsourced activities
• Increases speed of delivery for outsourced activities
• Increases quality of delivery for outsourced activities
• Frees up management time
• Reduces cash outflow

Benefits others have seen: 87% of companies mentioned they planned to keep their level of outsourcing the same or increase it. 42% of the organizations believe that their sourcing contract has definitely improved their financial performance, and 27% said that sourcing has definitely improved their competitiveness. Among benefits companies see are:

• A technical and functional edge on the competition, without capital investment
• Faster development and start up
• Lower cost
• Control headcount
• Enhanced performance
• Reliability
• Security
• Maximized uptime
• A more effective operating environment

Many organizations turn to outsourcing to cut costs. But not many businesses thoroughly understand the other benefits of outsourcing. It's a fact that outsourcing can save money, but that's not the only (or even the most important) reason to do it. Wise outsourcing can provide a number of long-term benefits:

Control cost: Cost-cutting may not be the only reason to outsource, but it's certainly a major factor. Outsourcing converts fixed costs into variable costs, hence releases capital for investment elsewhere in your business. Outsourcing can also make your firm more attractive to investors, since you're able to pump more capital directly into revenue-producing activities

Increase efficiency: Companies that do everything themselves have much higher research, development, marketing, and distribution expenses, all of which must be passed on to customers. An outside provider's cost structure and economy of scale can give your firm an important competitive advantage.

Reduce labor costs: Hiring and training staff for short-term or peripheral projects can be very expensive; and temporary employees don't always live up to your expectations. Outsourcing lets you focus your human resources where you need them most.

Security and confidentiality issues: You should be extremely careful when outsourcing certain IT tasks, especially those which are IP-related where confidentiality issues can come in. AAXIS has very stringent security procedures and controls to ensure your code and IP are protected; within and outside the organization.

Less management flexibility: Outsourcing will give you less control over the tasks assigned to the outside firm. This is where AAXIS' solid communication and relationship management processes ensure it is more of a partnership with shared values and objectives. People who have outsourced have complained of:

• Quality problems
• Slow resolution or response time
• Verbal communication issues
• Irritated employees, unions, people within community

At AAXIS we will work with you to ensure these are complaints that the other's experience. Let us help you make this a win-win relationship where our solutions delivery will exceed your expectations.

When evaluating a proposed solution for outsourcing all or part of an organization's IT functions, it's important to perform a risk management assessment throughout all stages of the outsourcing lifecycle. Managing outsourcing risk is a process of identifying potential failure points, determining the probability of occurrence, and then estimating the impact of each. With that information, a company can move to the next step of actively managing risks by deciding which risks are tolerable and which ones need mitigation.

Applying active risk management to an IT outsourcing project starts with the scope and complexity of the solution itself. As one understands the scope and complexity in detail, a well structured SLA can provide much risk mitigation. Be sure you understand the "customization" of the application you are outsourcing as customization raises risk and costs. Also, application stability can also increase risk and cost. Application complexity, architecture (or lack thereof), language, technology, structure, etc., etc. all can add to the risk profile.

Security is one of the foremost risks. You need to be sure work being produced offshore is secure and safe, and that your IP is protected. At AAXIS we have adopted some of the most stringent security practices and policies. Proximity badge readers control and record access as well as signed logs. Cameras record all movement 24 hours a day. LANs are partitioned into virtual LANs with access restrictions for each limited to those who need access. Firewalls protect our internal environment. Internet access is controlled and monitored and access to web based email etc is blocked. Email is monitored and any email to an external address with an attachment or with code or pictures is staged for review to ensure nothing is sent outside the center. Thumb drives are forbidden within the center. Write drives (e.g., CD and DVD) are disabled. Laptops are not allowed into the Engineering areas. Security guard(s) monitor the building. All in all, we offer one of the most secure work environments and can take you through our Security Audit Checklist which is applied regularly. Additionally, we at AAXIS will respond to any security checklist that you might have.

Let's take a pause here to advise on IP protection. This is one of the most talked about areas when IT people discuss China. In addition to AAXIS taking this seriously; let us quote from the Software Industry Development Report 2008 on this matter. The Government and Chengdu will "Strengthen the protective measures on software copyright, and purify the market environment. Strike the infringement and pirate behavior on software right severely, further standard the order of software market. Thoroughly carry out the propaganda and training on software intellectual property laws and regulations, enhance the consciousness on intellectual property protection of the public and software enterprise. Perfect the computer software copyright registration system, encourage the software enterprise to carry out the copyright registration on the software product have independent intellectual property, explore to establish the persistent effect mechanism on software copyright protection. Establish the credit system and credit model of software industry, improve and standardize the software industry environment in Chengdu."

But the most important factor in dealing with risk management is your relationship with the vendor. If you have a strong relationship with open and good communications channels and solid process, then together you can manage through and risk situation. At AAXIS, that's how we like to approach risk management: With our eyes wide open and a strong partner relationship with our Client.

Risk costs money and can lead to serious problems. The more risk that can be driven out of an IT outsourcing activity, the less chance there will be increased cost and related issues to work: and the greater the chance for a successful outsourcing initiative. AAXIS can help!

Our Philosophy. Unlike many offshore companies, AAXIS is not involved in mass placement of programmers; please see AVISIOTech if this is your need. Our emphasis is to provide quality resources and services to meet specific needs and our goal is to build long term and strong relationships with our partners who are interested in offshore development and other outsourcing services. We provide a dedicated staff and infrastructure in China, for clients based anywhere in the world. You contract and interact with the US Company, we take all the hassle out of offshore. However, at any time you have access to the offshore team and can feel comfortable in dealing directly with them. Essentially, we set up the outsourcing activity as a virtual extension of your own operating environment.

Offshore Service Perspective. When your software project teams need skilled resources, our software professionals can deliver quickly and very efficiently. We have a large, well qualified, experienced pool of technical developers, designers, and other resources who can map your needs and define their processes. Our services are complemented by our state-of-the-art China development center. Our technical resources help you ensure your project and business objectives are achieved on time, and within budget.

Availability. Every AAXIS staff member who interacts with a Client, has the office, mobile and home telephone numbers of the AAXIS CEO and COO. If a decision has to be made or advice sought, they can call anytime day or night for resolution. No need to go to a regional VP or Practice Head; the rapid resolution of issues is a key differentiating factor for AAXIS.

Versatility. AAXIS has highly skilled and experienced software consultants in the US and China. Based on geographical proximity and access, these consultants can be made available at a relatively short notice. Depending on the requirement we can provide experienced Project Managers, Team Leaders, Programmer Analysts, Sr Designers, Developers, Testers and Programmers that match your skill requirement needs.

Flexible Engagement Models. Through our hybrid consulting model and a advance management team approach, AAXIS supports your project, implements the solution, and ensures complete compliance with your processes and standards.

Using our Project Management capabilities we deliver a fully integrated solution. We provide our clients with the option of contracting for projects that can be performed on-site, off-site, offshore, or in combination.

We operate our company as a single entity. Our AAXIS development center in China only works for and with the AAXIS Group US operation. They have no other business and no other clients. They do not do China domestic work. There are no distractions and no possibilities that priorities will get mixed. When AAXIS Group takes on a client project/activity, it may look to China where capability and expertise exist to help provide services at a markedly lower cost. This cost savings is passed on to the client. We will advise the client of our intent and gain concurrence to utilize our China advantage. In this mode, the client only has to contract with and interact with AAXIS Group in the US. Of course at any time the client may have access to and interact with the AAXIS China team. This provides a simplified structure, streamlined process and communication, and a risk free method for ensuring project success.

Security. We have exceptional and stringent security policies and practices as defined in the previous risk management section.

Confidentiality. As part of our security policies, we have complete confidentiality and invention rights agreements with all our employees. These are available for review by our clients. Additionally, if a client has a specific confidentiality agreement they prefer, we will get any assigned employee to sign that agreement as a condition of their assignment. Your code, documentation and IP protection is a top priority for AAXIS.

Quality Control. AAXIS provides uncompromising quality on all aspects of our services. Using our vast experience in developing mission critical applications, we have established proprietary quality and testing methodologies that benefit the end clients and the entire project. We deliver exceptional quality solutions with minimal risk, thorough testing and quick on-time results

Customized pricing at exceptional quality. AAXIS has an excellent track record of completing projects on time and within a client's budget. In fact, to date we have not delivered late or off budget in the years we have been in business. This is a record we are extremely proud of and we would like to include your projects in this record! From a pricing perspective, we will work the way you want: we can price per hour, T&E, per day or month; we can fix price a project, we can price phases. We can offer hour bands (e.g., 4000 hours to be called upon and used as you wish at the time. We can blend pricing across skill sets and across a project; we can blend offshore pricing or onshore pricing or both. Net net, we will work the way you want to work.

Use of subcontractors. AAXIS recruits its staff for careers rather than just contracts. We provide annual appraisals and training plans to develop our personnel to enable them to grow with the Company. AAXIS only uses subcontractors where it is absolutely necessary and where the use of those subcontractors assists our objective in delivering quality services to our clients. We never use subcontractors at our offshore delivery center.

What should I do next? Contact AAXIS (please click here to go to Contact Us) and invite us to provide your organization with a presentation of our capabilities. We can send you a credentials deck via email or, and we would prefer, we can meet with you in your office to discuss our capabilities face to face. If you like what you hear then further meetings could establish potential areas for cooperation.