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  • Trip teaches lesson on jobs

    The Atlanta Journal-Constitution
    August 1, 2004 Sunday Home Edition

    Trip teaches lesson on jobs;
    CEO: Offshoring costly, arduous

    by TAMMY JOYNER

    Sometimes the answer is right in your own back yard.

    Dustin Crane traveled tens of thousands of miles from home to learn
    that business lesson.

    The Alpharetta executive had a decision to make: Set up shop overseas
    or team up with an overseas company. Either way, clients of his
    Alpharetta technology firm were pressuring him to cut costs by
    sending his company's work to overseas software developers and
    programmers.

    "This offshoring juggernaut wasn't going to let up," said Crane, 45,
    who founded Aelera Corp. 10 years ago. "We said we can't ignore it.
    The pressure's going to be so great, we better have a solution
    available."

    Crane traveled to three countries to get a firsthand look at the
    overseas production craze.

    He had every intention of setting up shop abroad, perhaps in India
    first, followed by expansion to China. Many businesses have touted
    offshoring as the cheapest way to go when faced with global
    competition. For some industries and in certain circumstances, it is
    a money-saver.

    What Crane found, though, was a lot of hidden costs and problems not
    typically associated with overseas outsourcing.

    "I was constantly going, 'My gosh, this is more costly [than I'd
    expected],' " Crane said.

    It wasn't just the unexpected extra financial costs. Sending work
    overseas can be culturally and linguistically challenging, and
    workers there face harsh living and working conditions.

    Crane says some U.S. tech companies have to deal with on-the-job
    communication mix-ups. It's not unusual for overseas information
    technology projects to arrive stateside and have to be recoded by
    American workers.

    "When we started adding up all of the risk factors associated with
    this offshoring," Crane said, it didn't pay off.

    So instead of sending work abroad, Aelera recently announced it will
    create 250 jobs in Savannah and Fitzgerald, where software
    developers, programmers and support staff will design systems that
    help Aelera clients' customers order goods and services online,
    schedule appointments and meet other technological needs.

    Aelera isn't alone in rethinking the merits of outsourcing. Last
    week, Delta Air Lines announced it had dropped one of three
    offshoring contracts that supply call-center services overseas.

    "We're not touting this as a political move or to save U.S. jobs,"
    said Crane. "This just makes business sense."

    A survey on outsourcing recently done by Aelera mirrored Crane's
    views. The survey of 216 top-level U.S. executives indicated that
    half of the respondents that had overseas projects were likely to
    bring the work back to the United States. The survey found the
    companies didn't realize the cost savings they had expected.

    Many had expected 30 percent to 40 percent in savings by going
    overseas, but the average savings were about 20 percent. One in 10
    didn't see any savings at all. One in five of the information
    technology projects sent overseas ultimately failed. The biggest
    culprits: poor transfer of knowledge, work quality and low morale
    among their U.S. work force, which led to poor productivity overall.

    The overseas outsourcing boom is working on two cyclinders. It's
    providing U.S. firms with low-cost workers and creating a level of
    prosperity for many overseas workers who, in turn, are taking
    advantage of their new way of life.

    The surge in technology outsourcing, for one, has created a middle
    class with middle-class appetites for better homes and cars and
    paychecks. These sought-after workers are demanding and getting
    better salaries. And that's creating increased labor costs for U.S.
    firms.

    "A lot of people outsource because they think it's cheaper," said
    Tony Greenberg, chief executive of RampRate Sourcing Advisors. "But
    it's not. They're not looking at the hard costs or soft costs."

    Nine-month odyssey

    Crane's story goes beyond surveys and data. It began almost two years
    ago and culminated with a nine-month journey through Armenia, China
    and India.

    He made the customary plant visits and met with officials. But he
    preferred to venture off the beaten path, taking trains and cabs and
    rental cars, as opposed to air-conditioned limos.

    He kept a diary of his journey and often traveled in cargo pants,
    tennis shoes and a Braves T-shirt. He ducked into shops and roadside
    stands. He talked to street vendors, visited libraries and
    universities, and talked to students. He took in the markets where
    locals bartered for goods, all to get a feel for how the average
    worker lives and works.

    "This wasn't a cursory blow-through as a CEO or executive," Crane
    said. "I wanted to go experience what these countries were. I didn't
    want to go as a CEO. I wanted to get my fingernails dirty."

    He found that outsourcing may work for companies with call centers
    abroad, but not for a $10 million-a-year information technology firm
    like Aelera. Not for programmers and developers who depend on
    teamwork, business nuances and a stress-free work environment to
    create software systems.

    "It's one thing to offshore call-center work where transactions last
    one to five minutes and repeat 20 times an hour," Crane said. "It's
    different to offshore a piece of work that takes two to three months
    to master and maintain that momentum and productivity."

    The company takes such pains to create a conducive work environment
    that once, when a database administrator was "getting bogged down" by
    his commute from Lawrenceville to Alpharetta, Aelera paid to move him
    and his family closer to work.

    "That improved his family life and productivity," Crane said. "That's
    what we're focused on."

    Creating that kind of atmosphere abroad would be nearly impossible,
    considering what Crane saw:

    * Pollution was so thick in one Chinese town that he had trouble
    breathing. High-rises seem to vanish behind towers of brown clouds.

    "I felt like I was slowly suffocating. I thought, 'This is horrible.
    People have to live in this environment.' "

    * Office space in India turned out to be more expensive in some cases
    than some parts of Atlanta, and "the facilities weren't nearly as
    good."

    * Traffic jams were so bad that during one cab ride in the Indian
    city of Mumbai (formerly Bombay), the driver got out, ate dinner and
    returned to the taxi, which was still in the same spot where he left
    it because traffic hadn't budged. Crane was still sitting waiting
    inside. To combat traffic, some companies have set up bus services to
    get employees to work.

    * Crane found out-of-reach costs among the so-called cost savings
    touted by Armenians. When Crane asked about installing a DSL line, he
    was told it would cost $5,000 a month for the service that is
    normally $50 in the States.

    * Workers were so jammed into cubicles that they had to tuck in their
    elbows to keep from bumping each other. During a demonstration at
    another firm, the presentation was interrupted by technical glitches.
    At one point, Crane saw a cockroach scamper across the keyboard.

    "I'm thinking to myself, 'There's more than one kind of bug here,' "
    Crane said.

    At times, the experience was unsettling, bringing Crane's Western
    ways face-to-face with worlds where prosperity often collided with
    poverty. That was the case when he landed at the airport in Mumbai.

    "It was fourth world, almost fifth world" in its appearance, he
    recalled.

    The shuttle waiting to take him to his hotel was an air-conditioned
    BMW 740i. A minute earlier, he said "three beggars [are] saying 'Give
    me a penny.' It's truly a country of contrast."

    On the ride to the hotel, Crane said he couldn't help but think:
    "This opulence of the moment could feed 20 or 30 people. It didn't
    make me feel comfortable."

    Journey's beginning

    Crane's nine-month process of elimination began in Yerevan, Armenia,
    a city of about 1.25 million people.



    Armenia is my first stop. I landed at midnight shocked at the dearth
    of city lights below. The pilot announced, 'If this is your first
    time in Yerevan, be aware that the landing will be rough due to the
    condition of the runway.' ... When the runway lights did not come on
    in time, he did an abrupt fly-around for a second try. This former
    republic of the Soviet Union still shows signs of its time behind the
    Iron Curtain. The drive to the hotel was punctuated with random
    police inspections. ... It is clear the city is in need of much more
    commerce. With a vibrant economy, it would be a lovely place, but
    right now it is very run-down.

    Crane found the city "wasn't as alive and dynamic as we are here."

    And there weren't enough resources, namely qualified students and/or
    qualified software developers, Crane said. Universities there turn
    out roughly 1,000 to 2,000 such workers a year, vs. 300,000 to
    400,000 in India, Crane said.

    "I liked Armenia and its people. [But] I didn't want to bet my
    business on it."

    Guangzhou, China. I tried to talk to as many [software] developers as
    I could to determine both their language and skill levels. These
    young people had worked hard at honing their English, but still
    lacked the ability to field questions and comprehend the directions
    the questions were heading ... I see potential issues with knowledge
    transfer, communications, business culture differences and living
    conditions.

    Heading by train into the Chinese seaport city of Guangzhou
    (pronounced GWAN-JOW and formerly called Canton), Crane rode straight
    into a huge brown cloud of pollution.

    Beyond the smog, Crane was struck by how few people had a real grasp
    of English, a key requirement for working with complex technology
    projects.

    "When you go offshore, it's all about communication when it comes to
    software. This is not paint by number," said Crane, who speaks some
    Cantonese. "You need to be able to define the problems so you can
    define the solutions. Although a few were exceptional, [overall] they
    were lacking in English."

    Crane's assessment of China?

    "China is going to be the place in the next 10 years. But they're not
    developed to the point of [being] ready for prime time now."



    Mumbai, Hyderabad and Bangalore, India. Suds will be my travel guide.
    We have been in and out of technology parks, observing and talking to
    developers. Seems like India is in the middle of their tech bubble.
    People are willing to switch jobs for an extra quarter an hour. The
    conditions appear to be unstable, maybe unsustainable.

    India, in some ways, is becoming a victim of its emerging success,
    Crane said.

    The most cosmopolitan of the three cities Crane visited was
    Bangalore, where workers were technologically skilled, he said.
    Business is conducted in English, and the culture is steeped in
    democracy. But it still had its own set of problems, starting with a
    10 1/2-hour time difference.

    The outsourcing and technology boom has created a middle class in
    places like Bangalore, but many of the towns haven't kept pace with
    the changes. Workers are making more money. In turn, they're
    demanding --- and getting --- the conveniences that go along with
    being middle class. There are traffic jams at 1 a.m.

    "One thing India touts [is] labor rates are low," Crane said. "What
    we discovered there was a lot of additional costs."

    An engineer from a top tech university in India commands about
    $10,000 a year in salary. An Indian software developer with a
    master's degree from a university in India would get about $50,000 a
    year.

    A U.S. engineer who has a bachelor's degree commands about $60,000 to
    $70,000 a year. An American software developer with a master's would
    get $70,000 to $80,000 a year on average. In Atlanta, the going rate
    is about $70,000 for an engineer with a bachelor's.

    "If you look at the [labor] rates you could be intoxicated by the
    savings," Crane admits. "But if you looked at the entire cost ...
    clearly there's a very good alternative. Many large companies say
    they have no choice. They have to go offshore. We want them to hear
    loud and clear that there is [an alternative]."

    Aelera's decision to stay in Georgia speaks to another trend.
    Spherion Corp., a staffing company that runs call centers across
    North America, said it's seeing companies looking to smaller U.S.
    markets to fulfill customer service needs instead of big cities or
    overseas.

    "Small American markets are ideal for companies to locate their call
    centers because they offer lower-cost labor, available real estate
    and attractive incentives from local and state governments," said
    Robert Morgan, president of employment solutions at Spherion Corp.
    "In exchange, the town gets a thriving new business that feeds the
    local economy and lowers unemployment."
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