Scyllogis has not utilised offshore developers to date. The reason is twofold: Firstly, we are not convinced that this delivers the imagined savings. The development daily rates are certainly lower but more ‘water tight’ specification is needed that increases the necessary effort from the more expensive analysts. More project management is needed (again from the more expensive resources) and the development tends to take longer thereby cancelling out the cheaper daily rate. Secondly, the remoteness of offshore does not lend itself to the agile approach, where constant interaction between users, analysts and developers is key.

We do not seem to be the only ones with messages of caution: There are a flurry of reports from Forrester and others that grapple with the current good news/bad news reality of offshoring to India: The maturation of the top Indian outsourcing companies comes with a price. As demand for their services outpaces supply, costs are rising, and some of the attributes that made these providers so attractive in the past -- personal attention and turning on a dime -- increasingly are in short supply for all but their most lucrative clients.

In order to keep pace with rapid growth, the major Indian providers have become more rigid about how they do business, Forrester contends. Providers that in the not-so-distant past were inclined to make employees work overtime to meet a customer deadline, increasingly are demanding that clients agree to pay overtime or decrease the scope of the project. Many providers have stopped allowing clients to interview staff or review staff CVs. Plus, as the demand for services outstrips employee supply, not only are wages going up but Indian providers are also finding it more difficult to add staff to a project on short notice, Forrester analyst Stephanie Moore wrote in a July 10 report.

"Unless they're spending a tremendous amount of money ($20 to $100 million per year), some clients do not have the influence they used to have with the top-tier providers," Moore wrote. "These providers are increasingly willing to walk away from business rather than make concessions or alterations that don't suit them."

Sometimes, even $20 million isn't enough. Moore related the experience of a prestigious financial services company that was spending approximately $22 million per year with a tier-one Indian provider. The financial services company, also a Forrester client, could not get phone calls returned to discuss terms as its contract was about to expire, in part because the original account manager had left.

"Clearly the providers are growing at such a rate that they can barely keep up with their most lucrative clients, never mind their second-tier clients," Moore concluded.

Finding an alternative to the Indian majors among the more than 500 smaller Indian providers out there requires serious due diligence, Forrester agreed. Indeed, a report in March by Forrester analyst Sudin Apte warned that the gulf between the performance of the largest providers -- Infosys, TCS and Wipro -- and the other outsourcing firms in India was widening, creating a "polarization" of the market. As the largest companies continue their phenomenal growth -- the top three will capture roughly 40% of the IT services revenue in 2007 -- many of the rest are "bleeding and vulnerable," Apte wrote.

The situation is expected to worsen, as talent migrates to the bigger firms. "The small and medium-size Indian providers are being marginalized and crushed as the war between the top Indian providers … heats up," the report stated. Therefore, clients must choose their providers carefully, Apte warned, and even "plan for the probability of their current offshore provider going out of business or being acquired."

All of this only serves to strengthen Scyllogis’ belief that time and quality critical developments are still better done onshore.