Small Businesses Struggle to Offshore

Being a CIO isn’t always as glamorous as it sounds, particularly when you’ve got the top tech spot at a small company. Just ask Bruce Lehrman, the CIO at RuffaloCODY, a Cedar Rapids, Iowa-based provider of fund-raising software and consulting services to nonprofit organizations. With just 300 full-time employees, his company does less than $40 million a year in business. So when RuffaloCODY was looking to offer its software on new operating systems, Lehrman decided it was time to offshore the development. But there was no one to whom he could delegate the task of finding the right vendor. So, in the end, Lehrman himself had to schlep overseas to research vendors. “The Ukraine was the most difficult,” he says. “I had to learn a lot about the culture, and the language was a big barrier. In the hotel, I wasn’t sure if I was going into the business office or the ladies room.”

Lehrman’s adventures in offshoring are not uncommon among small and medium-size businesses looking to reap the same cost benefits their billion-dollar brethren have been enjoying for decades. For the small business, farming IT work out overseas can be a daunting, and occasionally comical, task.

The hurdles facing executives of small companies when they offshore go well beyond finding the bathroom. To begin with, very few of these companies have any knowledge of the vendor community overseas, aside from the big names they see advertised in magazines. And finding a vendor of appropriate size is crucial for companies that don’t want to be swallowed up by the Tatas and Wipros of the world. In addition, small companies lack the resources to manage the relationship from start to finish. There are no procurement specialists. There is no vendor-management team. There is no in-house legal counsel.

“This market is underserved,” says Eugene Goland, founder of Offshore Outsourcing Best Practices (OOBP), an association of small and medium-size businesses chartered with educating the small-business community in the art of offshoring. “There are structural difficulties that prevent smaller companies from taking advantage of offshoring, and yet these are the companies that have the most to gain.”

And more and more scrappy little companies are looking to go global from the get-go. CIO Insight’s own research indicates that 27 percent of small companies—those with less than $100 million in revenue—are planning to offshore IT work in 2006, up from 20 percent the year before. (See Research, page 69.) And some venture capital firms go so far as to require an offshoring strategy as part of a prospect’s business plan.

So how are companies of limited means managing to navigate the international waters of global commerce? Very carefully. Using a combination of grass-roots vendor research, word-of-mouth, relationship building, and just plain luck, more and more small companies are taking the plunge. Some jump right in, others dip a toe in, and still others avoid it entirely. Andjust as the approaches to offshoring vary greatly among this group, so do the results.

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Small Business Struggle to Offshore