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Exclusive Principal's Report Survey: Is Offshore Outsourcing an Idea Whose Time has Come?
by Stephen A. Kliment, FAIA
October 26, 2004
Editor’s note: This article originally appeared in Principal's Report, August 2004, published by IOMA; reprinted here with permission.
Offshore outsourcing has created a buzz among A/E firm principals. Although the number of firms outsourcing work is still low, the stage is set for sizable growth in outsourcing by A/E firms. What’s fueling this trend? The need to boost profits by cutting costs and the growing sophistication of electronic design, drafting, and document transmission, among other trends.
Recent surveys of A/E firms reveal that only a tiny minority of U.S. firms currently outsource. In PR’s recent A/E Firm Overseas Outsourcing Survey, 6% of responding firms outsource tasks offshore. Of those that do not, 2.2% have done so in the past and 8.1% think that outsourcing some activities overseas is in the long-term interest of the firm.
A survey by Larsen Associates LLC finds 5% of respondents plan to outsource “soon”—one-quarter of them within six months, the rest in six months to a year.
Larsen’s survey further echoes PR’s findings—2% of their respondents currently outsource, 5% are exploring it, 7% used it in the past, 57% are not using it, and the balance “don’t know.” And about one in four attendees said they currently do or plan to outsource, according to a show of hands in a 75-person audience attending Thomas Larsen’s seminar, “Is Your Competition Down the Street or in Bangalore?” at the June 2004 American Institute of Architects Convention in Chicago.
Countries most frequently cited as outsourcing destinations are China, Canada, India, and Mexico. Only one firm responding to PR’s survey said it plans to add to its outsourced activities in the coming year, sending production drafting to its staff in Canada and then overseas.
Replies as to whether or not outsourcing is in the firm’s long-term interest reveal a mix of patriotism, practicality, and self-interest. One West Coast respondent said that overseas design fees are competitive, yield better quality control, and make sense in a global economy. Another view, from a firm in South Carolina, opposes outsourcing architectural services for “economic and professional” reasons.
Experience rated. When rating their outsourcing experience by quality, dollar savings, time savings, and attitude of overseas workers, respondents with an outsourcing track record give quality and attitude somewhat higher marks than dollar and time savings. For the most part, outsourcing firms scored those four attributes with a three or higher on a five-point scale, in which five is the top rating. One firm principal, however, said that workers in India are generally especially skilled at quickly creating or updating presentation-quality animated renderings. And the half-day time difference allows U.S. firms to e-mail a file to India in the evening, where it’s worked on overnight and e-mailed back by the next morning.
Often outsourcing is tied to specific projects. Ralph Jackson, of Flad & Associates, told PR that the firm outsources CAD drafting to the Philippines, Mexico, and Canada because they have projects in those countries. Jackson doesn’t believe the loss of control is worth the benefit of getting the project done overnight.
MulvannyG2 Architecture outsources CAD drafting and design to India, and gives high marks for quality and attitude, says partner Peng Teo. In the design area, the firm faxes sketches at the end of the workday and receives finished design drawings the following morning. When an entire project is outsourced, MulvannyG2 sets up an outsource team made up of MulvannyG2 and Indian workers.
Choosing the outsourced part of the team is critical, says Peng; the Indian team leader makes a presentation to the Bellevue partners, and most first-time outsource suppliers are hired on a three-month trial basis. On an outsourced project, he says, some 80% of construction documents are typically outsourced.
“In the long term (beyond 10 years from now), we do not believe it makes sense to use U.S.-trained architects to do routine production drafting,” commented Perkins Eastman Architects partner Bradford Perkins, FAIA. He believes U.S. architects should be sketching, editing, redlining, and similar tasks calling for creative judgment, with routine drafting done by others.
The salary differential. Peng said entry-level Indian drafters receive $3 to $4 per hour, compared to $17 in the Seattle area. But Mulvanny offers Indian CAD drafters $10 to $12 to ensure top quality. “The quality we get is very high once they understand your program,” Peng maintained.
Larsen found that total hourly per-employee cost savings average about 45% through outsourcing—less in Canada, more in China.
Although one upbeat respondent to Larsen’s survey wrote that “[Offshore] production will become the normal conventional production practice within five to 10 years, similar to the transition that occurred 10 to 15 years ago,” others have concerns over:
-- Fear of how it will work out
-- Anxiety on how to start
-- Long-term economic impact on the firm
-- Quality control
-- Cost savings
-- Time savings
-- Communication costs
A survey by Forrester Research projected 32,000 jobs will be outsourced by 2005; 83,000 by 2010; and 184,000 by 2015.
Larsen’s respondents rated communication costs at the top of the list of reasons for not using outsourcing today, followed closely by lack of foreigners’ know-how on how we build in the U.S. The least-risk amount of risk was attributed to on-time delivery.
A quality test case cited by Larsen involved redrawing plans for a high-rise structure by an overseas drafting team. The team completed the job with five errors, all traceable to the original U.S.-drawn document.
Architect and writer James Russell, who commented on overseas outsourcing on his Web site, cites as a limitation the difficulty workers in remote nations have spotting and understanding situations that could generate lawsuits as they develop construction documents. “Can you,” he asks, “trust CAD jockeys in China and India to possibly understand the Byzantine complexities of today’s working drawings, however well-educated and hardworking they may be?” It’s all about dollars, not quality, he concludes.
Resistance to outsourcing is not all one-sided. Larsen cited a quote from the Indian Institute of Architects: “In architectural services, consultants from developed countries shall have easy inroads and more opportunities, thus jeopardizing national and professional interests.” But backlash in India is subsiding, according to a mid-July report in the New York Times.
Activities that are most likely to be outsourced offshore include those that do not call for direct client contact, such as CAD drafting, CAD design, manual design, construction documents, and renderings. This means that procedures such as proposal writing and other marketing tasks, design presentations, or material selection are not likely to be outsourced in the near future.
The future. Eventually, A/Es will probably want to take advantage of outsourcing’s perks, given the global economy, the salary cost differential, the declining cost of communication, and the clients’ demands for higher quality, faster service, and lower cost. (Larsen points out that a large part of Wal-Mart’s financial success is that everything the store sells is made overseas.) To maintain control, Larsen suggests that principals:
-- Start on a small scale.
-- Don’t invest in training non-employees.
-- Pay when you receive agreed-on product.
-- Don’t give the partner the whole project.
-- Make sure to tie future work to how workers perform on the current project.
How to get started. First, develop a matrix of likely outsource candidate nations, and rate each one for such attributes as size and quality of their technical labor force, their ability to talk, write, and understand English, the level of political stability, labor cost structure, location (Asian nations offer the advantage of the half-day time difference; Mexico and Canada offer a greater familiarity with U.S. procedures), and the level of IT savvy.
Next, Larsen suggests setting up well-defined procedures and standards for interoffice consistency. These should include drawing and documentation standards, quality control (QC) and quality assurance (QA) procedures, electronic communication standards and protocols (including beta testing), and provisions for delivery and payment.
The other view. Outsourcing has another side, which has not escaped many principals. Sending jobs overseas leads to fewer jobs in the U.S. and greater reliance on the technical and political ups and downs of remote nations. According to the May 20, 2004 electronic bulletin, Constructionmail, jobs are flying overseas faster than anyone had foreseen. By the end of 2005, some 830,000 jobs across all businesses will be outsourced to South Asia, up 40% from late 2002, John McCarthy of Forrester Research, Inc. told the bulletin. That translates into some $151 billion in domestic salaries being replaced by far lower labor costs overseas.
Many don’t look kindly on the trend. “Outsourcing is Becoming a Hard Sell in the U.S.,” proclaimed a New York Times headline earlier this year, citing politicians up for election, labor unions, “even some practitioners (of outsourcing)” speaking out against it.
India, the largest destination for outsourced labor, has been on the defensive, and business leaders, such as Azim Premji, head of Wipro, one of the largest outsource providers, have lectured in the U.S. at such places as MIT’s Sloan School of Management to justify or explain the trend (it has also become a popular dissertation topic). One English newspaper has called Premji “the man who wants to take away your jobs,” notes the Times story, and Democratic presidential candidate John Kerry has called executives who outsource work overseas “Benedict Arnolds.”
Employee resentment wasn’t a problem for Jackson, but it might become one if the firm stepped up the frequency. Flad had already established a pattern of domestic outsourcing among its five offices located in San Francisco, Raleigh, N.C., Stamford, CT, Gainesville, Fl, and Madison, WI.
Still, giant outsource providers such as India’s Wipro need to worry in case possible protectionist legislation in the U.S. ends up cutting off the supply overnight.
Management guru Tom Peters chimes in that outsourcing is a good thing, but mostly for India and Asia. He foresees U.S. job losses at the top of the productivity pay scale. These observations are from his online bulletin piece “Off-Shoring Manifesto/Rant: Eighteen Hard Truths about Inevitabilities, Pitfalls, and Matchless Opportunities”:
-- Offshoring will continue; it can’t be reversed.
-- The automation of business processes is as much a phenomenon in job shrinkage as is offshoring.
-- The wholesale, increasingly upscale entry of 2.5 billion people (China, India) into the global economy at an accelerating rate is virtually unfathomable.
-- Worker benefits (health care, retraining credits, pensions) should be portable, to induce rather than impede labor mobility.
Conclusion. A/E firm principals must ask whether offshore outsourcing costs more than it saves. There’s no easy answer: it depends on which activities you outsource; the caliber of the overseas workers; the quality and acceptance of delivery procedures and communication protocols; and the attitude of your own staff. With the right arrangement, outsourcing clearly saves in dollars and fast tracked delivery—two qualities that make for satisfied clients.
Stephen A. Kliment, FAIA, is the editor of Principal's Report, published by IOMA (Institute of Management and Administration), and a former Editor-in-Chief of Architectural Record. He is the author of Writing for Design Professionals, now in its 5th printing, and edits the Building Type Basics book series for John Wiley & Sons. He also is adjunct professor of architecture at The City College of New York.
Principal’s Report is a monthly newsletter specifically designed for the owners of professional design firms. Focusing on profitability and leadership, the monthly covers all the basics from partner compensation to leadership training, from construction forecasts to fee levels, from contract negotiation to retirement plans, and much more.
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