Let me try and see if I can explain the offshore cost structure.

1 - THE BOTTOM UP CALCULATIONS
Nasscom reports that the average median annual salary for a software engineer in India increased from $6,313 in 2004 to $ 7,010 in 2005 - an increase of 11%.

Nasscom has also reported a 12% salary increase in 2006 over 2005 and this will bring the annual median to around $7,850.

Customers should be careful to use these numbers and divide them to calculate the cost of a person to their offshore vendors. The number that most companies use is cost to company or CTC. The CTC is usually an additional 15 - 20% of salary - so let's say the average median CTC for 2006 will be $ 9,420. To this are added the Infrastructure & SGA expenses

2 - THE TOP DOWN CALCULATIONS
Now let's look at this from the other side. Your offshore vendor is making roughly 20 - 30% EBITDA. That is the profit from operations - before any financial adjustments like interest, taxes or depreciation.

What it also tells us is that between what you are charged per hour and what it costs your vendor per hour is a margin of around 20 - 30%.

So, it is not as high as you may think, but there may be some scope for negotiations

3 - THE NEGOTIATIONS
Weigh the other aspects of what the offshore vendor brings to you

• Milestones based delivery
• Absorbing salary increases for a period of time
• Hard to find skillsets or resources
• Process, Domain, Experience, etc, etc

Recently a prospect used the Altman Z score as a part of their evaluation of our company. The Altman Z score is an insolvency score and is a combination of 5 weighted financial ratios which determine the financial health of a company.

The 5 financial ratios in the Altman Z-Score and their respective weight factor is as follows:

A. EBIT/Total Assets
B. Net Sales /Total Assets
C. Market Value of Equity/Total Liabilities
D. Working Capital/Total Assets
E. Retained Earnings/Total Assets

These ratios are multiplied by the weightage as below, and the results are added together.

Z-Score = A x 3.3 + B x 0.99 + C x 0.6 + D x 1.2 + E x 1.4

The Interpretation of Z Score:

• Z-SCORE ABOVE 3.0 -The company is safe based on these financial figures only.
• Z-SCORE BETWEEN 2.7 and 2.99 - On Alert. This zone is an area where one should exercise caution.
• Z-SCORE BETWEEN 1.8 and 2.7 - Good chances of the company going bankrupt within 2 years of operations from the date of financial figures given.
• Z-SCORE BELOW 1.80- Probability of Financial embarassment is very high.

Our score was above 20, so we did well on this indicator.

Electricity Converters – India uses 220V, 50 Hz AC Electric Current. Converters may be purchased in the U.S. for use with laptops, hair dryers, etc. A power converter/mini multi way adapter can be useful.

Luggage Locks – You might want to consider using a Transportation Security Administration (TSA) approved combination luggage lock as opposed to a lock that might have to be cut off while your bag is being checked through the airport. These types of locks are available on-line and at many luggage dealers.

Tipping – Restaurants usually add a service charge, but it is customary to tip taxi drivers, porters and other service providers, and it is always appreciated.

Office Dress Code - The dress code is informal/semi-casual throughout the year.

Be sure to bring…

• Extra eyewear (glasses/contacts)
• Prescriptions – carry them on the plane with you plus 1-week worth of extra prescriptions. It is also wise to carry copies of any critical prescriptions. You don’t want to put them in your luggage and not have them if your luggage is delayed or lost. Bring 1 weeks more of your prescriptions than you need, just in case. Most US medicines will have an Indian equivalent, however the brand names are not the same.
• Sunscreen with Deet
• A roll of Toilet Tissues for every week in India

Computer Connections
While in your vendor's offices, you will be able to connect to the internet and access your email. Wireless connections for laptops are available in hotels.

International Phone Dialing Codes
The following information will assist your family or friends in reaching you in India as well as guide you in calling back to the U.S.

From anywhere in the US to Bangalore, India – Example Dial: 011-91-80-xxxx-xxxx

• 011 is the international prefix used to dial anywhere outside of the U.S.A
• 91 is the international code used to dial to India.
• 80 is the local area or city code used to dial to Bangalore.
• xxxx-xxxx - a local number in Bangalore.

From Bangalore, India to Boston, MA – Example Dial: 00-1-617-xxx-xxxx

• 00 is the international prefix used to dial outside of India.
• 1 is the international code used to dial to U.S.A.
• 617 is the local area or city code used to dial Boston, MA.
• xxx-xxxx your local number in Boston
  

Flights and Travel Information
Your travel department or agent will book your flight for you. A typical flight route from the U.S East coast will take you via Europe into India. Flights from the west coast may fly over the Pacific into India. The length of your trip will vary depending on your flight arrangements. Actual flight time typically takes 20 hours, not including layovers.

Please confirm that you have either a paper ticket or a print out of your electronic ticket itinerary for each leg of your trip to and from India before you leave for India.

Arranging Accommodations
You can arrange for your Hotel Stay with your travel agent or through the internet. You can also contact your vendor representative for recommendations to one of the local hotels near their offices.

You can stay at any of the five star hotels in India and experience legendary service. While a few international hotel chains like the Marriott and Intercontinental have hotels in a few cities in India, the hotel chains with the largest network are: The Taj, Welcomgroup and Oberoi.

The hotel will be billed directly to you. You will need to present a credit card upon check-in to cover your stay. All major credit cards are accepted in Indian hotels including American Express, Visa, Diners Club and Mastercard. Discover Card is not accepted in India.

Transportation in India
Because driving is very different and potentially dangerous in India I do not recommend visitors to drive while in India. Your vendor's India office can help arrange for a rental car with driver for your stay in India. You can avail of this transportation to and from the office and to local sights, restaurants, etc.

In addition, taxies and auto-rickshaws are readily available. Most drivers prefer to agree on a fixed price, or a fixed amount above the final meter reading.

Money Matters
Most U.S. banks allow you to use your personal ATM card to withdraw rupees from Indian ATMs, which are located in most hotels and in many places throughout most cities, just as in the U.S.

Check with your bank to make sure that your bank belongs to a network of ATMs in India and does not charge an extra fee.

Currency Exchange agents charge a higher fee for conversion than banks and can be used if required. In an emergency, your hotel will assist you in exchanging currency.

It is always advisable to carry some amount of cash while traveling in India. It may be advisable to carry your cash in the form of traveler’s checks.

The Indian Rupee
Please see this currency converter to conver from US dollars (USD) to Indian Rupees (INR).

The Indian Rupee written as INR or Rs. is made of 100 paise (pronunciation key: pay-say). Notes are in denominations of INR1000, 500, 100, 50, 20, 10, and 5. Coins are in denominations of INR 5, 2 and 1, and 50, 25, and 10 paise.

Indian Rupees are not fully convertible outside India and it is advisable to convert them when you leave India into your choice of currency. Approved currency exchange counters are available at all international airports.

Phones
Not all US phones work enroute to India or in India. Some US cellular service providers have roaming arrangements with cell phone service providers in India. However this may be a very expensive proposition. In most cases, you need to contact your cellular service provider to check the rates and availability and/or activate the international roaming service.

Your vendor's Indian office can arrange for an Indian cellular phone for use during your visit in India.

Business Travel Accident Insurance
As with any Business Travel outside the US, you may choose to purchase Business Travel Accident Insurance at your discretion.

Medical Coverage
Please contact your medical insurance company to check if coverage is available in India. In most cases, even where coverage is available, you will have to incur the expenses in India and then file your claims back in the US.

Please take with you in your carry-on luggage:

• Your insurance I.D. cards
• A current copy of the prescription orders for any necessary medication
• Extra prescriptions (Indian drugs are not the same brands as in the US)
• Your Inoculation Card, which has been signed by your doctor, as you may need to prove that you have the proper inoculations and that they are current.

Preparing for your Trip
Preparation for a journey to India will take some time. Below is a list of things that you will need to do before you depart for India. You will make most arrangements through your Travel Department or Agent. A preparation checklist can be found later in this chapter.

Passport
If you don’t already have a passport, you will need to obtain one. You will need to make sure that you have your passport in hand at least 4 weeks prior to travel, as your passport is required for the Visa approval process. It will typically take 6 weeks to obtain a passport. Start this process as far in advance as possible.

If you already have a valid passport, that passport must be valid for 6 months past your return date on your flight itinerary; otherwise you will need to apply for a new passport. Passports are valid for 10 years. Most US post offices can assist you if you do not currently have a passport.

Visa
Your travel agent will assist you with the visa process, which should be started immediately. Your vendor contact can send you an invitation letter to use when submitting you visa application.

The Indian Embassy is in Washington, DC and has Consulates in 4 other cities in the US and all of them issue visas.

Listed below are the homepages of the Indian Embassy and the four Consulate websites for more information on the Visa process. Please apply for a visa to the Consulate which has jurisdiction over your state

• Embassy of India, Washington, DC(Consular Jurisdiction: Bermuda, Delaware, District of Columbia, Kentucky, Maryland, North Carolina, South Carolina, Tennessee, Virginia and West Virginia
• Consulate General of India - New York(Consular Jurisdiction: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Puerto Rico, Rhode Island, Vermont, Virgin Islands)
• Consulate General of India - San Francisco(Consular Jurisdiction: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nebraska, New Mexico, Nevada, Oregon, Utah, Washington, Wyoming)
• Consulate General of India - Chicago(Consular Jurisdiction: Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, North Dakota, South Dakota, Wisconsin)
• Consulate General of India - Houston(Consular Jurisdiction: Alabama, Arkansas, Florida, Georgia, Kansas, Louisiana, Mississippi, Oklahoma, Texas)

Inoculations
Any recommended inoculations should begin around 6-8 weeks prior to travel. Please schedule an appointment as soon as possible with your personal physician. Your doctor will know which inoculations are required and will often have the vaccines available in their office for immediate use.

If you plan on visiting the jungle or other malaria prone areas during your time in India, or if you plan on visiting any other countries during your trip, please inform your doctor as you may require additional inoculations.

The doctor will give you an inoculation health card, which you should take with you when you travel in order to prove that you have had the proper inoculations. For the most current information on inoculations see the Center for Disease Control web site at http://www.cdc.gov/travel/indianrg.htm

A lot of professionals regularly visit India around their offshorcing initiatives. This may include to evaluate vendors, to meet and manage their exisiting partners, or to gather information on setting up their own Captive Center.

The most common go-to place for seeking information on how to travel to India and the "business" best practices, has been the offshore vendor or travel agents (online and offline) or other colleagues who have done the gig before. None of these on their own will completely prepare you. Remember, India can be shocking for the first time visitor and can continue to surprise repeat visitors.

I thought of putting in place a continuing series under the label "Visiting India". I am breaking this series into 2 broad categories - Traveling to India and While in India.

So keep looking for the updates and do share your experiences

Just some definitions to avoid confusions with these two often (wrongly) interchanged words.

Outsourcing is the activity in which a company gets any of its business activities done from another company. It could be a small law firm getting color presentations printed at FedEx Kinkos or a large Fortune 500 using an Indian or US company to get its IT or Business processes executed.

Offshoring is the specific instance where you send the activity outside of your shores (country's boundaries). These could be any activity (not necessarily limited to IT or BPO), ergo - Offshore oil drilling, Offshore tax havens or Offshore sailing.

Offshore Outsourcing is the most commonly used terminology for when companies in the US and Europe send work outside their shores, with a special focus on IT Services and BPO. This terminology has also been used more frequently with respect to sending work to India.

The event was held in the Behrakis Center at Northeastern University, Boston on Nov 18, 2006. The all day event was keynote"d" by James Champy (http://www.perotsystems.com/about/James_Champy.htm), most famous for his path breaking book Reengineering the Corporation.

As a member of the panel on Software Development and IT Outsourcing, I joined other speakers to discuss with a modest audience the hows, the whys and the dos and don'ts of outsourcing. The discussion tended to focus on how to choose the right model and vendor to outsource or offshore with.

Visit TiE Boston for more information or other upcoming events (http://boston.tie.org/)