Experts Advise a Go-Slow Approach to Outsourcing

Many companies burdened by the costs and complexity of the Sarbanes-Oxley Act requirements are turning to India for help.

Call it one of the unintended consequences of the corporate reform legislation. While the 2002 law was seen as a cure for sloppy financial reporting and the frauds it can cover up, it has also resulted in more work being sent overseas, the Wall Street Journal reported.

Some Indian outsourcing companies told the newspaper that their Sarbanes-Oxley-related business is rising at more than 50 percent a year. The costs in India in some cases are just one-third that of those charged by big accounting firms in the U.S.

Technology-research firm AMR Research estimates that U.S. companies will spend about $5.8 billion on SOX compliance this year. About 25 percent of the money will pay for new technology for testing and automation, and much of it can be acquired abroad, according to Sanjay Anand, chairman of Sarbanes-Oxley Group LLC, which trains and certifies auditors on SOX compliance.

"In 2004, we saw a lot of business being done on site, but now we are getting into year two and year three, and there will be more of the technology components of compliance offshored," he told the Journal.

Companies looking to cut costs are increasingly turning to outsourcing. Market analyst Gartner says that by 2007, global spending on outsourcing will top $50 billion per year.

Observers say, however, that some companies rush into outsourcing without fully analyzing the big picture. According to InfoWorld, Gartner says companies often fail to fully consider several factors: cost (total cost, not just the difference in labor costs), productivity (which will likely be lower than that of internal IT staff at first), clear communication, cultural differences and organizational readiness (making sure staff understand and support outsourcing).

Companies should start with a smaller IT project to develop a strong working relationship and work out any problems before moving on to bigger projects, said Nick Rossiter, a partner at Mithras Consulting Group, which advises clients on outsourcing-related issues.

Mason Kauffman, of The World Logistics Organization, says smaller companies can also take advantage of the efficiencies of outsourcing. He told USA Today that in 1994 when he started Accuship.com, an online discount shipping service, he analyzed all his day-to-day activities to see which ones were central to his core mission and which were not.

Eventually, Kauffman said he outsourced accounting, payroll, marketing, public relations, advertising, telemarketing and sales support, switchboard support, a range of IT services, procurement and legal expertise.He also turned to outsourcing consolidation sites, Guru.com and Elance.com among them, which provide access to experts in more than 100 fields.

Kauffman wrote, “To remain competitive in today's economy, I believe all entrepreneurial companies, both large and small, are well advised to review each current and new business process to determine if today's new outsourcing solutions can enhance their bottom line.”

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