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Testing: The Case for Onshoring

Offshore Testing – Pros and Cons

The global slowdown has given companies a breather to reevaluate their strategy of offshoring software testing. CIOs should take this opportunity to undertake a systematic analysis of the true costs of sending important software projects to foreign places, specifically India. What they will uncover will challenge some commonly held assumptions about the best place and approach to testing mission-critical software. In general, outsourcing to India no longer makes financial or strategic sense for many projects or firms. Fortunately, they have some compelling local (i.e. onshore) testing alternatives.

For the past 15 years, many multinationals have viewed software offshoring to India as a key performance enabler: a low-cost, high-return strategy that lets them shift overseas high labour cost operations from information technology to manufacturing and call centres – with few apparent offsetting costs or disadvantages. The reality has turned out to be quite different.

Shrinking Cost Advantage

As time goes on, India’s cost advantage has shrunk considerably. For one thing, initial labour savings have proven to be short-lived. Indian wages are on the rise, by as much as 20% a year for some jobs. Over a five- to seven-year period, many jobs have seen their wage rates double or even triple. Yet, labour productivity remains woefully low. According to the OECD, India’s GDP per hour worked is only about 7% that of the US. And although it’s often underrated, employee turnover can be expensive. In some IT functions, as many as 80% of the workers have to be replaced each year because of poor performance or poaching by other firms. As a result, training has become anything but a negligible expense. Furthermore, this high turnover limits the ability of the offshore tester to master a client’s business, project and industry, thereby degrading project performance. Given its low literacy rates and educational failings, India has limited ability to significantly close this productivity gap in the near future.

Falling wage differentials is not the only factor that is making India pricier. Experience has shown that managing an Indian project is expensive. Physical, linguistic and cultural differences significantly increase management costs. Up to 20% of the total cost of a project could be eaten up by communication, travel and relationship management costs, many of which cannot be anticipated. Regardless of the number of Indians learning English, pervasive linguistic and cultural differences suggest that this gap will not narrow appreciably in either the short or long term.

Quality, Security and Continuity at Risk

Despite the claims of outsourcers, project quality and risk has always been suspect. Major differences in language and business norms significantly increase the likelihood of errors, conflict and misunderstandings within projects. Given India’s high levels of corruption and uneven regulatory compliance, North American firms rightfully remain cautious about the security of their IP and the privacy of sensitive data. Finally, India’s location in one of the world’s most dangerous neighbourhoods continues to instil concerns around business continuity.

Trends in Software Testing

Outsourcing software testing could remain a prudent strategy for some companies because of its slight advantages in cost, performance and scalability. But is there a better way to leverage its advantages without increasing business risk, total project cost and hassle? Organizations can best answer this question by looking at the latest trends in software testing and understanding the role of testing and cost within their firm.

Initially, savvy organizations will rethink how they perform the vital function of software testing. Many companies now look at testing more strategically, with an eye toward total value, and not as an afterthought within the software development cycle. As such, they are rejecting the knee-jerk approach of offshore testing and have begun to insist that certain projects are too important to be sent overseas. Increasingly, market-driven business needs like time to value and flexibility are becoming as important as cost in deciding where and how to test. For practical reasons, companies want to maintain some critical testing competencies in-house. As well, they are exploring whether local vendors can satisfy their demanding business and technical requirements and still provide a competitive alternative to India.

Offshoring: True Costs

Before determining whether onshoring makes sense, managers need a true picture of the total cost and business risk of offshoring. This assessment should include an analysis of all the direct and indirect costs, as described previously. As well, firms need to understand the financial and performance benefits of onshoring through improving a project’s time to market or value. Many of our clients across multiple industries have discovered that wage differentials between North America (and Canada in particular) and India have narrowed. This shrinking gap results not only from India’s wage inflation but also from improving local conditions. For example, the recent 20% slide of the Canadian dollar has made the case for onshoring in Canada at least 20% more favourable. Governments have upped wage and training incentives, and our educational system continues to churn out talented and motivated IT workers.

Internal or Remote?

For many companies, this analysis will lead to the conclusion that bringing testing back to North America is a viable, indeed compelling, alternative. So, how do they leverage these insights? One choice is for firms to rebuild their internal testing teams. However, the uncertain economic climate, increased headcount and execution time make this an unpalatable option. Furthermore, the dynamic nature of technology – mobile and cloud computing are but two examples – makes it difficult for firms to assemble the right skills, facilities and software tools to meet their current, let alone future, requirements.

Another relatively new option is for companies to leverage the power of crowds (i.e. remote, independent testers) to test software. In this scenario, clients rely on middleman firms to test software projects through crowdsourcing strategies and tools. While this approach has some appeal around scalability and low unit labour cost, it is challenged with minimizing total cost, maintaining quality, and managing performance. For example, how do you ensure consistent project quality and repeatable knowledge transfer from the client to the tester? What is the cost and process of managing an ever-changing and diverse group of testers? How do you guarantee your IP and valuable data remain private?

Centre of Testing Excellence

As North America’s largest software tester, QA Consultants has studied the math and talked with hundreds of clients and prospects about their likes and dislikes around offshore testing. Our analysis led to the development of a new, disruptive testing solution that addressed fundamental client needs while capitalizing on powerful macroeconomic trends and innovations. The result was the Test Factory: a disruptive, Toronto-based testing solution that delivers onshore quality and performance at low offshore prices. The Test Factory is more than a bunch of testers in a local office. It is a unique centre of testing excellence that combines an experienced roster of testers, advanced levels of automation, and proprietary testing methodologies.

The Test Factory™’s appeal is based on the intersection of three potent factors.

  1. QA Consultants’ deep understanding of the testing needs of hundreds of clients from dozens of industries
  2. The fruits of multi-million investments in innovative processes, methodologies and technology
  3. A project management system that allows clients superior project visibility and ROI measurement

The Onshore Advantage

The Test Factory is not a start-up looking for beta clients. This business unit successfully delivers more than 250 projects per year. For example, for a leading Canadian retailer in the midst of a large SAP rollout, the Test Factory helped reduce testing costs by 23% versus offshore providers. An innovative insurer has used the Test Factory on a number of high-profile projects to deliver ongoing testing cost reductions of 28% and a 50% improvement in project time to value.

Unlike rigid offshore testing approaches, QA Consultants’ innovative onshore business model allows for mixing and matching the best combination of services for each client and project. For example, repeatable testing processes can go through the Test Factory while more complex aspects of the project could be handled through QA Managed Services unit.

Given the market and economic developments, now is a good time to evaluate what is the best way to carry out software testing. You may be pleasantly surprised at the results of your internal analysis and the experiences of others. Thanks to proven onshore solutions like the Test Factory, companies no longer have to choose between expensive and risky offshoring to India and expending time and capital building internal departments.

By: Alex Rodov, Managing Partner