(Business 2.0) – There's nothing political or philosophical or mystical about the reason for shipping jobs overseas: It simply can save companies boatloads of money. The fiber-optics glut and low wages in developing countries make it cheaper to answer a call in Manila than in Memphis, and the best programmers in Bangalore can bang out code as well as the high-priced talent in Sunnyvale. But while costs are lower, so is your margin for error. Here's how to get your jobs done right. --OWEN THOMAS

WHAT TO SEND OVERSEAS

--Customer Service To most consumers, the term "customer service" has become synonymous with phrases like "phone-tree hell" and "know-nothing idiots." The fear of alienating customers even more makes many companies reluctant to move this function overseas. But truth be told, a big part of the problem is rampant job dissatisfaction: U.S. call centers are plagued by turnover, with most phone reps lasting less than a year. So moving call centers overseas can do more than shave costs--it can help you dramatically improve customer service merely by reducing employee turnover. ePerformax Contact Centers, which manages outsourced call centers in both Memphis, Tenn., and Manila, reports that its Filipino reps not only stay on the job longer but are better educated--100 percent are college grads vs. 70 percent of ePerformax's U.S. employees. Costs are 30 to 50 percent less in the Philippines, a savings that's typical for offshore locations.

--Data Entry This is perhaps the easiest task to outsource--workers don't even have to speak the language they're typing--and thus where cost savings can be most dramatic. Typical is a facility in Ghana operated by Affiliated Computer Services. Linked to the States by a satellite Internet connection, 1,400 workers process medical claim forms for Aetna and others for about $10 a day (10 times Ghana's minimum wage). Costs are similar in the Caribbean, Bangladesh, and Central America.

--Software Development Offshore programmers made a name for themselves fixing the Y2K problem. Now they do everything from maintaining aging code to sophisticated work like architecting entire applications. Infosys, Tata, and Wipro dominate the Indian market--where 85 percent of all tech outsourcing goes. Three years ago, Indian programmers worked for less than 20 percent of their American counterparts' salaries ($65,000 a year, on average). Today the best talent commands as much as $50,000. They're worth it too: Carnegie Mellon's Software Engineering Institute now ranks top Indian firms alongside U.S. companies such as Lockheed Martin and SAIC. Meanwhile, more basic work is moving to Bulgaria, Romania, and Russia, where quality is spotty but wages can be 25 percent less than on the subcontinent.

STRIKING THE DEAL

Finding outsourcers isn't hard: The World Information Technology and Services Alliance (witsa.org) can lead you to hundreds of firms. Negotiating a contract is the tricky part. Jim Kalyvas of Los Angeles law firm Foley & Lardner offers these tips:

--Know your current cost structure--and the new costs you'll be incurring. Arm yourself with a line-by-line breakdown of what you've been spending and insist that the outsourcer provide equivalent data. Generally your labor costs should drop by 30 to 50 percent, but some of this savings will be offset by travel and training and by the need to dedicate staff to managing the relationship. Bottom line: A well-run outsourcing arrangement should cut the cost of performing the same function in the United States by about 20 to 30 percent.

--Pay for performance. Tie some portion of your fees to prearranged benchmarks, such as customer-service quality rankings or the delivery of projects on deadline.

--Keep the rights. Insist on retaining intellectual property rights in the software that outsourcers create for you, including the source code. If the outsourcer wants to develop the software into a commercial product, make sure you get a cut--after all, it was written on your dime.

--Always have an out. Terminating a partnership can be messy, so it pays to write into the contract the business equivalent of a prenuptial agreement. Make sure to include sanctions that cover you if the outsourcer royally screws things up. You could, say, force it to pay for another consultant to get things working again.

MANAGING THE RELATIONSHIP

If the work you get isn't up to snuff, it doesn't matter how much you're saving--you're getting a raw deal. So make sure you're coordinating with your outsourcer as effectively as possible. Ernest Gundling, managing director of Meridian Resources Associates and author of Working GlobeSmart, has the following advice for dealing with your global workforce:

--MAKE IT PERSONAL. Despite the risks associated with SARS and terrorism, a certain amount of face-to-face contact is essential. Lower your exposure--and your travel budget--by flying a handful of key people to the United States, and then use them as your main points of contact. To keep the rest of the workforce happy, simple touches like posting digital photos on an intranet can help team members to bond.

--STUDY THE TERRITORY. Knowing something about the country where your workers live can make a difference. Read local papers online: Google News has an Indian edition (news.google.com/india), and China's People's Daily has an English-language version (english.peopledaily.com.cn).

--COMMUNICATE THE OLD-FASHIONED WAY. E-mail offers less context than any other form of communication, which can lead to mistrust and confusion. Use it sparingly until you've established a solid relationship. When you do use e-mail, keep in mind that overseas workers' command of idiomatic English varies--stick to short sentences and bag (um, make that "eliminate") the slang.

--TRIANGULATE. In many cultures, people defer to authority more readily than Americans do. As a customer, it's unlikely you'll be told "no" directly. Inquire through a local manager or another respected figure to see if, say, the engineers have concerns about their ability to meet your deadlines, rather than asking them point-blank.

OUTSOURCING HOT SPOTS

CANADA

Growth areas: Software development, customer service GDP per capita: $29,400 (81% of U.S.) Literacy: 97% Telecom infrastructure: Excellent Edge: Doing software R&D here lets you profit from the favorable exchange rate and government tax credits.

ARGENTINA

Growth area: Customer service GDP per capita: $10,200 Literacy: 96% Telecom infrastructure: Excellent Edge: International calls cost 3 cents a minute, and thanks to a ravaged peso, Argentina's educated workers make less than that.

IRELAND

Growth areas: Software development, customer service GDP per capita: $28,500 Literacy: 98% Telecom infrastructure: Excellent Edge: Michael Dell thinks Ireland's the best way into Europe, and he may be right: It boasts an educated, tech-savvy populace whose work habits are more flexible than those of their neighbors in the European Union.

GHANA

Growth area: Data entry GDP per capita: $1,980 Literacy: 65% Telecom infrastructure: Poor Edge: Shoddy landlines mean outsourcers must use satellite links, but low wages and high quality make up for the added telecom expense.

ROMANIA

Growth area: Software development GDP per capita: $6,800 Literacy: 97% Telecom infrastructure: Poor Edge: Three dozen universities teach computer science here, producing a surfeit of highly trained programmers.

CHINA

Growth areas: Software development, contract manufacturing GDP per capita: $4,600 Literacy: 82% Telecom infrastructure: Better in coastal cities Edge: Wages are low. Caveat emptor: Weak intellectual-property laws can lead to major contract headaches.

INDIA

Growth areas: Software development, customer service GDP per capita: $2,540 Literacy: 52% Telecom infrastructure: Mediocre Edge: India's programming talent has lured 85 percent of all software outsourcing. But wages are on the rise.

PHILIPPINES

Growth areas: Customer service, data entry GDP per capita: $4,000 Literacy: 95% Telecom infrastructure: Good Edge: American-accented English and a 12-hour time difference make this country perfect to handle the overnight phone shift.

BUT ARE WE DAMAGING THE U.S. ECONOMY?

Shifting computer programming offshore doesn't generate the grim images that shuttered factories provided in the '70s and '80s. Nevertheless, offshore outsourcing still produces plenty of controversy. (Not to mention irony: New Jersey recently pulled the plug on a contractor's plan to have the calls of state welfare recipients answered by offshore phone reps.) Forrester estimates that 3.3 million infotech jobs will move overseas in the next 12 years--taking $136 billion in wages with them.

Those aren't very big numbers. In fact, at less than 1 percent of our GDP, the loss is barely noticeable, economists say. "It causes a lot of pain to the workers involved," admits University of Chicago economics professor Robert Shimer. "But there are benefits to a lot of other people from the lower costs of goods and services." Just as America did not become a nation of burger flippers, as was famously predicted two decades ago, the movement of tech jobs shouldn't kill the economy now. And when the impending worker shortage hits, we may even be better equipped to handle it.