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A friend of mine related their experience with outsourcing to India. This may not be the way it happens everywhere, but I found it most interesting, since it shows that the promise of outsourcing does not necessarily match what it delivers. It's not necessarily the difference that you would expect.
The lure of outsourcing is great. Hiring cheaper yet still very well-educated hands sounds great. The time zone difference itself seems to hold a lot of promise. Daytime there is nighttime here, so they can develop products during their daytime, and in the in-between hours, they hand off their work to you, you look at it, and hand back what they are supposed to do the next round through.
There's even more to it if you're in the unusual position of actually selling things to India. There are, somewhat understandably, some rules about native representatives. You could kill off that bird with the same stone.
So what could go wrong?
One surprising thing is the difference in the work ethic. It's not about laziness or not (well, perhaps just a little), it's a little about dependence, communication and pride.
One thing that came out of the story I was being told is that these particular Indian contractors... if there was something they didn't quite understand, a roadblock perhaps, even if it was a mere two hours into the workday, they would stop, dead in the water, until the next day. You would resolve this issue, an issue that the typical North American programmer would have gotten past on their own, send it back, and the same thing would happen the next day.
Of course, even with stopping with such roadblocks, they would not take themselves off the clock. Later in the process start coming demands that since they are doing the same work as your company, they should be paid the same wages.
You may not get told about employee turnover, and it comes out in surprising ways. The company sent over training resources to India to train up an engineer. The engineer, perhaps realizing he has good skills now, leaves the contracting company. How do you find out about this?
You find out by having a demonstration by their representatives go horribly wrong, and have the reason be that "your software doesn't work". When you know it's a simple matter of configuration, something that you told their engineer that you have trained up, you find out, through the mention of unfamiliar names, that they've switched engineers, not had them trained, and neglected to mention this to you.
Perhaps outsourcing works for some people, but the story told of many of the practical problems. I'm sure this is not the best, or the worst, that could happen, but any naive proponents of outsourcing had best make sure they know what they're in for.
Personally, I was a bit surprised - one of the smartest folks I know immigrated from India and went on to become a neurology professor in the States.
I guess it's not just about education :)