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Offshore Outsource Savings Can Be Elusive

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Sci/Tech

Enterprises that expect to reap hefty savings simply as a result of assumed lower employee costs provided by offshore IT outsourcing services will be sadly disappointed, according to a survey of more than 5,000 corporate executives around the globe.

The 2005 Offshore Outsourcing Research Report, produced by Ventoro LLC, an outsourcing consulting and market research company based in Portland, Ore., found that only 9 percent of any cost shavings from offshore outsourcing was the result of lower overseas labor costs.

Overall, the report, which was publicly released this week, found that the cost savings from offshore outsourcing was not the 35 percent to 40 percent or even higher that many corporations assumed they would gain went they decided to go overseas, said Phillip Hatch, Ventoro president.

Hatch, who prior to founding Ventoro two years ago, worked as a market researcher and executive with Luxsoft, a Russia-based outsourcing company, said that one of the key reasons why outsourcing programs fail is because customers have absurdly unrealistic expectations about cost savings.

It was not unheard of, Hatch said, for customers to go into an offshore outsource engagement expecting to received 80 percent cost savings.

Instead, the Ventoro survey found that savings averaged slightly less than 10 percent for all the offshore outsourcing projects that Ventoro reviewed, Hatch said.

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