I wrote an article last year about the hidden costs of offshoring.
This CIO magazine article shows the ramp up costs - few clients get positive payback in year 1. But more depressingly, if not vigilant , a dip in the red again in year 3 or 4. Not that this is much different than a US centric outsourcing arrangement, but with Indian rates in particular rising much quicker than US rates, the economics are going to be scrutinized lot closer. And better management even after "steady state".
Update: Sadagopan disagrees here. My response: I have been in 2 offshore deals which were cancelled because the
initial transition costs shocked the client - they wanted payback
starting month 3, not month 14. The new data the article presnted was
disturbing if in year 3 you get back in to red. The offshore community
needs to present data which shows earlier and longer black zone
payback...the deal sizes now are too big to not have good solid
Dennis Howlett says it is more about better relationship mnagement, not economics. My response: Clearly that is important. But outsourcers have to provide ROI on that effort. The article reinforced at least to me the costs of transition, turnover which vendors sometimes gloss over.