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Offshoring increasingly for small U.S. businesses, too

By Ellen McCarthy
The Washington Post

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Kothari's Washington company, String Information Services, helps small businesses that can't do work overseas on their own. As recently as a year ago, Kothari spent much of his time explaining the basics of the practice: what offshoring is, how it works and why companies would want to do it. Potential customers often wanted to know if people in India can speak English, he recalled, but now they come in with a basic understanding of the process.

"The comfort level has definitely increased," Kothari said. "The media attention is raising their awareness about outsourcing to India. It's raising it on their radar."

Democrats and organized labor have tried to make offshoring a major campaign issue. Economists and labor experts are debating the overall impact on the economy of outsourcing jobs overseas.

In the past few years, a group of entrepreneurs has emerged to try to capitalize on offshoring. Most of their companies have a few employees here and either own operations overseas or act as brokers, matching U.S. companies with development centers abroad.

So far the industry is relatively small, but those in the business say demand — and competition — is growing. Two years ago, consultants like Kothari created less than 10 percent of India's information technology revenue, according to an October 2002 report by Merrill Lynch. But the role of such companies in outsourcing was expected to rise significantly, the report said.

String's business has more than doubled in the past year, said Kothari. It now has a dozen clients. With an Indian partner, String owns a 150-person development center in Chennai, India, and focuses on helping small companies create digital content and build portals and databases on the Web.

"If you're looking for 2,000 people on a regular basis, it makes sense to do it yourself," Kothari said. "But if you're one of these smaller outfits and you only need 30 or 50 people for a few months of the year... I just don't think the cost is justified."

Todd Bramblett uses a similar pitch. In September, he founded LeverPoint Inc., a Fairfax, Va., company that sets up American companies with teams of software developers in India. Bramblett had used offshore developers to do work for a software start-up he previously led. The start-up failed, but the experience sparked a new business idea.

"We looked around and said, 'You know what, this is really helpful. Why don't we go see if we can help other companies do the same thing?' " Bramblett said.

LeverPoint has 270 employees in New Delhi doing technical work and 30 in the United States managing projects. When LeverPoint wins a new customer, it flies in a project manager from India, who is an employee of LeverPoint, to meet with executives from the U.S. company. The group lays out a plan for the venture, including a timeline and product specifications.
 
Atlantic Management Center Inc., a Falls Church, Va., company that sells technology products and services to the government, is one of LeverPoint's eight customers. Gloria Phillips, AMCI's chief executive, said she considered offshore outsourcing two years ago, but never went through with it because she "couldn't find a comfort level" and felt it was too risky to lose management control of the company's work. But Phillips, who launched an offshore project with LeverPoint in November, changed her mind as she learned more about the process and its potential financial benefits. She estimated that the company was able to build software that manages environmental sensors for 35 to 40 percent less than it would have cost to do the job with U.S. employees.

One of the biggest advantages, Phillips said, is that the company didn't have to hire new full-time employees for the project. She added AMCI didn't lay anyone off when it contracted with LeverPoint.

"It gives us a choice," Phillips said. "It's another capability in our toolbox." She said she will use offshore developers again under the right circumstances. "I don't know that it will be our entire business model. I think you've got to look at things on a case-by-case basis."

Suresh Balabisegan cites the dot-com crash as the biggest impetus for the growth of companies like DigiBlitz Technologies, a Falls Church, Va., outsourcing firm he founded in 2001. As small businesses struggled to survive, more and more turned to outsourcing as a way to save money, he said.

DigiBlitz has a 100-person operation in Chennai, India, that provides call center and technical support services for clients. The company also acts as a liaison, setting up U.S. companies with other Indian development centers and managing the work for customers.