Offshore outsourcing comes with the great promise of cost savings. In fact, according to Gartner Group, more than 40 percent of U.S. companies will be developing or testing software, offering tech support, or providing storage overseas in 2004. However, before you buy into the offshore model, make sure you factor in its many hidden costs.

The Cost-Saving Myth

Offshore cost-saving numbers commonly printed in trade publications are in the range of 30 to 50 percent off in-house costs. Lower wages are cited as the key driver behind these savings. For example, the average IT professional in India makes US$26,000, compared to US$75,000 in the U.S., and US$96,000 in the U.K. (NASSCOM, September 2003).

But, these figures are misleading. META Group asserts that despite the labor savings, most companies are just breaking even with offshore outsourcing (via Insurance & Technology Online). Deloitte...