We will never try to develop a strategy that wins on price. There is nothing unique about pricing.
— Josh S. Weston, Chairman and CEO of Automatic Data Processing, Inc.
Outsourcing based purely on cost savings alone will never succeed for a buyer. For a seller,competing purely on price alone is a non-starter and is suicidal in the long run.
Yet, talk to buyers and sellers of such services and you will see that price is the sole factor on which many of these deals are done; may be not outsourcing within the country, but definitely offshoring. There is no better way of shooting yourself on the foot!
And there is no better and cheaper price than free! And right off the bat it does not work, unfortunately.
I was having an interesting conversation with a friend of mine who is the head of software development at a Silicon Valley Software company. Not very big, but not very small either. They have been doing some offshore software development on and off in the past with a company in one of the major cities in India.
They wanted to get something established in a big way and so initiated conversations with the same company they have dealt with on and off. The Indian company was very interested and so were a thousand other small outfits in India.
Now in a stroke of bold genius, this company saw the interest from so many other companies that they drove a hard bargain with the company that they had dealt with for so long. They negotiated a team of ten people for FREE for about six months with this Indian company!
Bad Move!
They could not get anything off the ground since the company in India had very high turnover rates and communicating what needed to be done was always a constant problem.
You got a team for free and you got exactly what you paid for!
In their zeal for saving their companies lots of money, many american companies drive a hard bargain and get exactly what they pay for!
Sometimes price is not the right metric, either for the buyer or the seller!
You will still be answerable to your internal customers for delivery and cheap resources get you exactly that! Meanwhile, you have wasted valuable time, energy and resources.
