A software company is considering outsourcing one of its software products to India for maintenance and support services. The annual costs in the U.S. and India are as follows:
_________________ USA ______ India
Maintenance ....... $132,000 ...... $ 79,000
Support Service .... $235,000 .... $141,000
It will cost $90,000 o train the personnel in India to take over the maintenance and support service that can be amortized over two years. The product will require management and supervision from the U.S. at $40,000 per year and it costs $5,000 per year to administer the contract.
a. What are the total costs of outsourcing this service compared to the U.S. costs?
b. What risks are associated with outsourcing this service?
c. Should the product be outsourced to India?