Skip to comments.Offshore outsourcing is relentless: Issue is a sensitive one for execs, who say cost outweighs ...
Posted on 06/30/2003 3:08:04 PM PDT by Mini-14
LOS ANGELES -- Offshore outsourcing is so mainstream that by next year, more than 80% of U.S. companies will have had high-level discussions about the topic. And 40% will have completed some kind of pilot program or will be using near-shore or offshore services.
Despite that assessment, made by Gartner Inc. at an outsourcing conference here last week, offshore outsourcing remains a difficult issue for executives to talk about. In fact, many attendees were skittish about responding to questions for this article, except in the most general terms.
Corporate officials did, however, acknowledge trends related to the politically charged issue. For instance, BP PLC in London is discussing offshore work with its existing outsourcers, IBM and Accenture Ltd. "They are offering us an opportunity to have consistent performance at a lower cost," said Russell Taruscio, downstream chief financial officer at the oil company.
Adding offshore components to outsourcing contracts is on the rise, according to IDC. In a report last week, the Framingham, Mass., research firm said offshore outsourcing is the dominant trend in the IT services industry, with 42% of the application management contracts now having some offshore component. A big reason is cost.
Bob Walters, IT director at supply chain system provider Intermec Technologies Corp. in Everett, Wash., surveyed development costs recently at an SAP AG user conference. He determined that U.S. companies are charging $80 to $120 per hour for programming work, while the fee for offshore providers is about $40.
When you can pay a third of the price, offshore is "something that has to be considered," said Walters.
As offshore business grows, so does competition for it. Pioneering India-based offshore companies, such as Tata Sons Ltd., are facing increasing competition from the large U.S. IT consulting firms. Accenture CEO Joe W. Forehand, who spoke at the Gartner conference, compared the trend to the previous exodus from the U.S. of many manufacturing operations. "The way we look at it, the industrialization of IT is a reality, and we have to embrace that," he said.
Competition is also becoming more global. In the vendor exhibit hall, Bamboo Networks Ltd.'s mere presence raised eyebrows. Some rivals said it was the first China-based outsourcer to set up a booth at a U.S. outsourcing conference.
China is considered something of a sleeping giant in the offshore world that isn't quite ready to compete with India. China "represents the next wave" in offshore outsourcing, said Traci Gere, an IDC analyst.
Rajesh Rao, chief operating officer at Hong Kong-based Bamboo, which operates an offshore development center in Guangzhou, China, said the company believes it has developed its offshore processes sufficiently to compete for U.S. customers.
One user of offshore services, Sudhir Agarwal, senior manager of architecture and services at Verizon Communications in New York, said India's talent pool, its populace's proficiency with English and the country's U.S. connections will ensure India a dominant role for years to come. But China's emergence "is good for companies in the U.S.," Agarwal added.
If I were an IT worker, I'd consider moving to one of those countries, where one can live very well on pathetically little money. Living in California is definitely a non-starter with an income under $100k or so, and if all the $100k jobs are going, then that ends California.
The economy should adjust, at least in theory. The cost of American IT should go down through competition, and that should in turn affect things like real estate and food prices.
I'm an IT guy who's basically sole manager of my own department, consisting of myself. I single-handedly do everything my 150-odd employee company needs in IT, and that makes me very cost-effective. So I can be somewhat detached from this overall trend, but it's still a pretty depressing one for anyone who would want to stay in the US and make decent money from their computing skills.
Even I'm thinking it might be a good idea to leave the US and move somewhere tropical and inexpensive. Not because the US isn't a great country, but because it's getting paralyzingly expensive, at least if you want to live in a warm climate close to the ocean.
Not sure how I'll do it, though, but my $100k income won't even buy me a decent entry level house in my neighborhood. And if that's not telling me to move, I don't know what would.
These CEO's know that they'll be alright,so why should they care about the peon employee? How would that possibly benefit their pocketbook? Afterall, that IS all that matters, right?
In Grand Rapids, we are watching the demise of 3 international companies. The 3rd and 4th generation family owners don't really care about the businesses, but they sure love to spend the moola. Amway has been split-up into several different companies and several hundred employees sent packing over the last 4-5 years. Bissell has moved all it's production to Texas (translation: cheap illegal labor) with again hundreds losing their jobs...many with 25 years plus. And Steelcase, the 'giant' in office furniture is being systematically destroyed . They, too, have let hundreds go in last 3 years. I know people who work/have worked at these companies and because they are local, it's easy to see whats going on.
Do these companies have the legal right to do what they're doing? For the most part, yes. But that's where morality comes into play, If I have a choice to keep someone gainfully employeed or to upgrade my already embarrassingly garish yacht/private jet/multi-million dollar home/etc., the morally correct decision would be to put that employee above my own selfishness. And it used to be so.
The economy, our standard of living, etc. is falling by the way-side. And with it goes the middle class. We are the only buffer zone between the rich and the poor. What's going to replace us will be anarchy.
The other day I got a telemarketing call. The person calling had an Indian accent. Aha, I thought, he's probably one of those outsourcing people and he's sitting in India right now. But is it really practical to outsource telemarketing if you factor in telecommunications costs? What's the lowest rate for long distance to India? There wasn't a satellite delay, so the call must go by undersea cable. I also once received a telemarketing call from New Zealand. In this case the caller was selling some sort of financial service for homeowners whose high profit margin might justify doing business this way.
In theory, this is true. In theory, any programmer is interchangable with any other programmer and a probject that will take one programmer 6 months will take 6 programmers only 1 month. In theory, a project's sponsor knows what they want and in theory the project's sponsor will deliver their requirements and not change them until the project is delivered. Reality doesn't always work that way because of human factors.
If a company can write a comprehensive specification for their project and if that specification remains unchanged throughout the development project and if the workers in India can produce results on schedule without direct supervision, then, yes, I think India could work just fine. But a substantial amount of communication and understanding is normally needed between the sponsors of a project and the developers, not only to develop the design specifications but to manage the sponsors' changing requirements and to make sure that the sponsor is getting what they want. This is why documentation, change control, communication, and expectation setting are such major parts of project management books. And a substantial amount of supervision is often needed to keep contractors on schedule.
If software development in the US were humming along with the same predictability and efficiency as an assembly line, I'd be more willing to believe that location doesn't matter. But the truth is that a lot of software development is a mess, a lot of projects are late or have failed, and a lot of project sponsors are not happy with what they get. And unless Indian programmers and project managers are significantly better than their US counterparts, moving the developers a half-a-world a way will only make matters worse.