The big-name outsourcing vendors now getting into the offshore brokerage business?IBM Global Services and PricewaterhouseCoopers among them?have been dragged ("kicking and screaming" may apply) into the offshore marketplace. These companies, which typically have competed against the offshore vendors, now find their own customers demanding offshore options?and the lower pricing that comes with it. And if the big-names won’t provide them, the customers will go elsewhere. While offering offshore services?or brokering them?at offshore prices reduces the profit a company such as IBM typically makes, the vendor’s hope is that its customers will reinvest their cost savings in additional business with the vendor.
AT&T is one of the companies that drove IBM into the offshore marketplace. Two years ago, amid budget cuts, Bergonzi decided to send 38 percent of his application development work (the work of 75 to 100 people per month) offshore by the end of 2001. He considered going offshore directly, but backed off because he didn’t have any experience with the vendors. But he did have experience with IBM?AT&T is in the middle of what is reportedly a seven-year, $900 million outsourcing contract with Big Blue?and it didn’t take much pushing to get IBM to develop offshore resources for him. "When you’re a big enough customer, you are able to drive customer service," Bergonzi says. Today, in part he has attained his 38 percent goal, and he is realizing across-the-board cost savings of at least 30 percent owing to outsourcing.
"I Really Don’t See the Need"
Some industry experts share Overby’s optimism about the emergence of brokers in the offshore marketplace. Stephen Lane, research director of IT services at Boston-based Aberdeen Group, and Lisa Stone, vice president and research director at Gartner, both see the model benefiting small to midsize companies. "If you can get someone to take care of [legal and vendor-management] issues and still get cost savings, it works," Lane says. However, others denounce those intermediaries as more hindrance than help. "I don’t really see the need [for a broker]," says Howard Lackow, senior vice president and director of outsourcing services for The Outsourcing Institute, an outsourcing professional association in Jericho, N.Y. The competition among offshore vendors is hot enough that top-notch offshore services and rates are still available to all comers in direct engagements, he says, and he doesn’t see the added value of indirect vendor management. "I would not recommend to any of my clients that they have someone else manage their vendors," Lackow says.
