by Anthony Baldo

Start talking to Tandy Gold about offshore outsourcing, and you’re soon getting a lesson on the recent social and economic history of India.

“The reality is, at least 70% of offshore outsourcing today is based in India,” says Gold, who founded and still coordinates the Offshore Interest Group, an organization of executives from Fortune 100 companies that have met by phone monthly since early 2001. “India is the largest democracy in the world. It’s English–speaking. There’s a commonality with the U.S. that provides the basis for successful outsourcing there.”

Gold, 47, put together an offshore program for FleetBoston Financial before recently leaving to write a how-to book on undertaking such an endeavor that will be published by the Auerbach Press unit of Harcourt Brace in 2004.

The time for such a primer could be ripe. “Offshore is on the verge of becoming more mainstream,” Gold says. “There are pockets of industries where it’s further along than in others.”

Until recently, financial services firms, including Citigroup, were the most active offshore outsourcers. However, Gartner Inc. recently concluded that if a company hasn’t considered going offshore for its IT applications development by 2005, its ability to compete will be hampered.

In the past, offshore outsourcing generally meant using highly educated but much cheaper engineers outside the US to develop information technology (IT) applications for corporations. There are two offshore varieties. One involves outsourcing, in which a company will hire a consulting firm to do the development work outside the country. The other type entails cosourcing, in which the data and systems reside in the U.S. but the company hires engineers outside the country who can log in and do the development work.

Gold herself was an offshore novice when she arrived at Fleet. Despite years of moving up the technology ranks in the consulting practices of IBM, Coopers & Lybrand and PricewaterhouseCoopers (“My resume,” she jokes, “should now read IBM...IBM…and IBM” because the Armonk, N.Y., giant bought PwC, which had gobbled up Coopers), she hadn’t put together an offshore program, which is what Fleet wanted.

So she formed the Offshore Interest Group to create a clearinghouse for ideas and a forum for discussion on everything from vendor prices to IT applications to the competencies needed in other nations to develop them. The group now has 40 members, including Citigroup, Gartner, Marsh & McLennan, MetLife and Verizon.

The OIG is a kind of informal, strategy incubator for its members. It doesn’t have a Web site or stationery. But word about it is spreading. The group is mulling a formal face-to-face meeting soon. And it has raised Gold’s profile within the offshore community. “I’ve become, by accident, a central contact person for all the companies involved in offshore,” she says.

Recently, the group centered its monthly phone discussion on vendor selection, and what emerged was a so–called maturity model about how organizations involved in offshore develop their own processes for choosing vendors instead of following some textbook path. It is this maturity model that not only affects how a company is choosing its vendors, but also how it's selecting the applications to be developed offshore and determining the scope and breadth of those activities.

In putting together an offshore program, Gold faced formidable challenges. Financially, it requires a big upfront investment, since safeguarding network security is paramount. Firewalls have to be created. Applicants must be screened to root out potential sabotagers.

Then there are social issues, since offshore means IT development jobs created outside the U.S. “When I was at Fleet, I was vilified and hated,” Gold recalls. “We were in a major recession. Middle managers were out of work. The mantra became, ‘Hate offshore. Hate offshore.’”

In fact, she was about to choose an offshore outsourcing vendor when Sept. 11 happened. Instead of going with an Indian outsourcing firm, Fleet hired a U.S. one “and we paid much more,” she notes.

When it comes to naming the top offshore outsourcing firms, IBM, EDS and Accenture most often come to mind. However, Gold predicts they will eventually become boutique firms. Even the big five Indian outsourcing firms — TSC, Infosys, Wipro, Satyam and HCL Technologies— may be usurped by that nation’s second tier. The reason: Commodization.

Early on in the offshore process, companies seek out bigger firms for their know-how and the security they provide, Gold says. But as companies become more comfortable with offshore, they rely less on larger firms. Offshore services become more of a commodity, so smaller firms that charge less become more attractive, she explains.

That’s the Citigroup model that Gold thinks will dominate within seven years or so. Citigroup hires lesser known Indian firms to conduct its IT applications development work, and does so exceptionally cheaply. Others, such as New Jersey utility PSE&G, are starting to follow Citigroup’s lead, she adds.

What’s more, while Gold believes India’s dominance of offshore will continue, there are other nations trying to mount a challenge. Not an offshore conference goes by that doesn't include a discussion about other offshore locales, such as the Phillipines, China, Mexico, Russia, Canada, or a handful of other nations. Alas, Mexico and Canada, Gold says, have the advantage of being “near shore” — “you pay 50% of what you pay in the U.S. and you can hop a flight.”

Indeed, according to a 2001 Gartner analysis of different country-specific factors, Ireland scores high for government support and English proficiency but low on availability of skilled resources. China does poorly on telecom infrastructure, but well on cost. Russia draws high marks for its educational system, but ranks low in government support.

This said, Gold is still confident India is the place to go, even though some fear that the demand for the nation’s engineering resources could outstrip supply, boosting prices. “I think India will be secure in its leadership for a long time,” she says. “The reality is, these people are incredibly bright and motivated.” And still inexpensive to employ. An IT engineer in India can be hired for $14,000 a year, or one-tenth of what an Americanbased one would fetch.

Still, that doesn’t necessarily mean the creation of an offshore program has to lead to pain. At Fleet, Gold instituted a policy in which no one would be laid off because of the bank’s offshore program. “The challenge isn’t making it work with India, but having a strategic plan for managing your skills in technology,” she says. “The key to offshore is staffing management.“