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The Hidden Costs of IT Outsourcing
While moving software development and tech support offshore is all the rage, many companies find the overall savings aren't that great.

Keith Franklin, president of Empowered Software Solutions in Burr Ridge, Ill., loves offshore outsourcing. It means more work for his 40-person company. Just last year, ESS, which specializes in developing applications for Microsoft's .Net platform for Web services, earned $500,000 in revenues from fixing buggy software written in India. It took ESS five months to repair a glitch-filled application for a Web portal. Most pages on the site weren't connected, turning updating into a nightmare. Some code was missing.

The shoddy work didn't come cheap, either: The Indian outsourcer went $1 million overbudget. Franklin says he could have done the project for less than $900,000 -- right here in the U.S....

...As Empowered Software has discovered, programs developed by offshore outsourcers are also often buggier than software programmed domestically -- usually 35% to 40% more so, estimates Mah. "If a company makes software for flying airplanes, I wouldn't want [it] to be created with the priority of the deadline coming first and quality coming second," he says....

...The outsourcing trend is unlikely to reverse any time soon, however. Pressured by lower-cost competitors, U.S. companies like the instant gratification of savings on wages. But as the real costs of IT outsourcing become apparent over time, many companies may come to realize that it's no panacea.