Outsourcing trends in U.S. IT industry

Brundlefly · September 17, 2003, 16:21

Attention U.S. IT workers: Time for a career change! You've been thinking about going for that MBA at night - now is the time to get it and move into management....'cos your job is going overseas!! It's not like the writing hasn't been on the wall for the past five years or so, but the issue is now getting national attention...

It's an OutsourceWorld

A controversial trend in the IT industry makes its presence known at New York's PC Expo.
September 17, 2003: 2:47 PM EDT
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Though it's on the outskirts of New York's massive PC Expo, it takes up nearly a third of the expo's total floor space at the Jacob Javits Convention Center, a metaphor for its growing impact on the IT industry.

It's OutsourceWorld, and it's only getting bigger.

DSS promises big cost savings at OutsourceWorld
Just past the Hewlett Packard (HPQ: Research, Estimates) exhibit at the 22nd PC Expo, OutsourceWorld pitched its booths, filled with reps from more than 80 global outsourcing companies who want to help customers -- U.S. firms, mostly -- cut costs and raise productivity by farming out work, quite often overseas.

In booths decorated with the flags of Nepal, South Africa, Egypt and many more nations, company and country representatives touted the advantages of moving work abroad.

An Indian software development company, DSS Infotech International Inc., promised customers savings of up to 50 percent by moving work to its development centers. Bulgaria noted its information technology (IT) professionals make, on average, just $300 a month. IBM (IBM: Research, Estimates) commandeered a cafe to ply potential customers with free coffee and brag about its outsourcing abilities.

More and more, U.S. firms, including CNN/Money parent company AOL Time Warner (AOL: Research, Estimates), are getting the message and moving jobs in IT and other services offshore -- pretty soon, the whole world will look a little like OutsourceWorld.

Countries such as Bulgaria and Romania tout their advantages at OutsourceWorld
Consulting firm Forrester Research has predicted that, in the next 15 years, 3.3 million U.S. service industry jobs and $136 billion in wages will move offshore to countries such as India, Russia, China and the Philippines.

Needless to say, this development is unwelcome news for thousands of U.S. IT workers, who blame offshore outsourcing for a nagging lack of IT jobs and stalling wage growth.

"Workers, from software developers to system administrators to engineers, are very frightened about what this trend means about the future of the industry and the future of their jobs," Joshua Sperry, an organizer with the Communications Workers of America, said this week in a press release announcing a protest of offshore outsourcing.

Exhibitors not so popular
John Sullivan, a senior account manager with Princeton, N.J.-based EPAM Systems Inc., which has software development centers in Moscow and Minsk, Belarus, said at his company's exhibit that he'd caught some flak from PC Expo visitors accusing his and other companies of destroying U.S. jobs.

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Sullivan argued, however, that offshore outsourcing could actually save jobs by cutting corporate costs and enabling companies to take on last-minute, short-term projects, for which it's easier and quicker to outsource than to hire and fire a bunch of temporary U.S. workers.

"We have companies that wouldn't be doing business at all if they had to develop in the United States," Sullivan said. "They're in business because of what we can provide."

Curtiss Montgomery, director of outsourcing services for Buffalo, N.Y.-based IT staffing firm CTG -- which actually keeps most of its outsourcing in the United States -- acknowledged that the flow of jobs offshore was causing real pain to thousands of workers in the short term.

But, echoing the sentiments of most economists on the issue, Montgomery also pointed out that other U.S. industries, agriculture and manufacturing, had gone through similar periods, and the country eventually ended up the better for it.

"The problem is figuring out how to take displaced workers and help them to do something more valuable for the economy," Montgomery said. "You can't stop this -- but it can be guided."

chequita guevara · September 17, 2003, 16:23

Guess it's time to become that marine biologist I always dreamed of being.

Oerdin · September 17, 2003, 16:30

Today is the day of the copy cat thread.

Kidicious · September 17, 2003, 16:31

What will we do now?

rah · September 17, 2003, 16:32

Not all is rosey outsourcing.
We outsource considerable work to one of our shops in India. For simple well spec'd project, it works fine. (even though this is the type of work we'd give to entry level peopel so there isn't much savings)
For the more complex or poorly spec'd projects, it has been a nightmare.
The time zone differences causes many communication problems which delay turnaround. (assuming you can find someone that speaks good enough english to begin with)
Simple misunderstandings (which happen frequently when you're not face to face with your enduser) causes work to be redone 2 to 4 times. Much higher than when you have a close relationship with your user.

Speaking in Dollars, all initial savings are eaten up in DO-OVERS. Middle management is still trying to hide this trend from their bosses since they're the ones that promised savings by shipping it out. The last complex project from our shop that was shipped out is late and way way over budget. It would have been done cheaper and faster in house.

QUALITY. Is another issue that middle management is lying about. They may doing fine work, but if it wasn't explained right or not understood properly, IT"S STILL WRONG>

SO providing exemplary customer service, which seems more expensive in the short term but is really a money saver in the long run, is still the way to go. And if you provide it, your job will be safe.

chequita guevara · September 17, 2003, 16:36

I didn't want to be the one to say it, but Rah is correct. With American IT workers you have less response time, and because English is our first language, we understand the needs better. While India may be turning out some of the best IT workers in the world, most of them really aren't up to our standards.

DanS · September 17, 2003, 16:37

I can't help but think this is all a very good trend. It will be better for US IT workers over the long run. 3.3 million jobs might seem like a lot to lose over the next 15 years or whatever, but when it gets rev'ed up, our IT industry can create that many jobs in a year or two.

chequita guevara · September 17, 2003, 16:39

Quote:

Originally posted by DanS
I can't help but think this is all a very good trend. It will be better for US I.T. workers over the long run.

Yeah, just like how shipping manufacturing jobs overseas was good for autoworkers and steelworkers and garment makers?

No, in the long run this is a bad trend for US IT workers. Sooner or later India will get it's **** together and present us with serious competition. Then we'll be looking for new careers.

DanS · September 17, 2003, 16:42

Quote:

Yeah, just like how shipping manufacturing jobs overseas was good for autoworkers and steelworkers and garment makers?

The thing that you're forgetting is that the number of jobs in those industries is not growing, while the number of jobs in the IT industry will likely continue to grow, once this recession in the industry is over.

3.3 million jobs will be moved overseas, but the majority of IT jobs that are created by American companies will still go to Americans (or immigrants living in the US).

This isn't a zero sum game. We can all make out like bandits.

chequita guevara · September 17, 2003, 16:51

Quote:

Originally posted by DanS
This isn't a zero sum game. We can all make out like bandits.

Maybe we could, if American corpoerations were intelligent. I don't make that assumption.

rah · September 17, 2003, 16:57

I agree with CHE. It's an alarming trend because there are enough senior managers that are seduced by the initial cost savings to try it. Then forced to hide the real story because they're the ones with the butts on the line when it sours. Hopefully more companies will figure it out before it's a irreversable trend.

But I do agree that once the economy picks up that the number of IT jobs will climb back towards previous levels. And it is starting to pick up. (based on the ratio of calls that I get from headhunter/consulting companies that are looking for people vs. offerring people.)

chequita guevara · September 17, 2003, 17:03

There are rumors in my company that the company president is thinking about outsourcing us to India. I don't think my position is in danger, since design tends not to be cross cultural, but my mangers are all running scared.

Course, I knew this was coming nine years ago. Americans aren't inherently anymore intelligent than anyone else, and the internet and the nature of digital work means that different people in different places can do the same job for less money.

I still don't think they're capable of doing the same job yet. That's only a matter of time, I'd say less than a generation. I'm also hoping that certain cultural tendencies will hurt India (vis a vis me), like their tendency to need a bribe for everything and to do only do an adequate job rather than do a good job. But the people who get into IIT don't need bribes and do very good jobs.

rah · September 17, 2003, 17:13

Of all the shops I've worked at or managed, the world class ones were when we were next to our end user and interacted with them daily. At one call center, I used to make the programmer take calls a couple of times a year to help them understand our users needs.
After those sessions it was unbelievable, the suggestions they had for improving the process and laughing at themselves for some of the things they had done just because the user didn't request something clearly. It went from, "they asked us to do this". to "we didn't truely understand what they were trying to say"
This is common in every relationship with users. (unless you have SUPER users.)

Outsourced programmers will NEVER have this type of rapport with their user. So the end product will suffer.
WHERE ARE THE TRUE SAVINGS.
We were able to reduce phone calls by 3-4 seconds, just by making a few screen changes to add efficiency. Multiply those few seconds by millions of service calls and you outweigh any savings that might have been incurred outsourcing it. And when your user sees this type of effort, the respect on both sides in increased.

MichaeltheGreat · September 17, 2003, 17:51

One of the big problems that IT service end users are fairly jaded and displeased with the cost/benefit ratios in many areas of IT. It doesn't much matter whether it's internal IT weenies providing intra company development and services, or if it's a non-IT business going to outside vendors. The history is that you have a lot of hype, a lot less performance, and costs often out of control.

The worker bees are not the most to blame in most cases, but they do contribute their fair share - sometimes it's end user senior management who buy into hype unrealistically, sometimes it's vendors who promise far more than they can deliver, sometimes it's architects, project managers and senior developers who really don't know their ass from a hole in the ground when it comes to effectively meeting the customer's real needs. The problem is that non-IT management just goes for bullet points, rather than realistic analyses, and looks right at salaries.

There's been too many "latest and greatest" technologies, and too many gold rushes where people who are experienced in the current fad are paid far more than their worth, and the fad can't survive from marketing BS to real productivity gains (*cough* Cold Fusion, *cough* Java, *cough* Microsoft's decade long stumble into a decent distributed architecture, etc.)

Labor costs are what the end user sees (especially if they hire internally and have chased after the fads), so the "let's get cheap bodies, so when they **** up and underperform we won't have wasted as much money" mentality will be around for a while.

It's not a net boon to the US or the US IT workers, but a lot of people in IT have had it too good for too long, and have failed to remember that if you don't perform well enough to justify your cost, you won't stick around.

DanS · September 17, 2003, 17:51

rah: Didn't you just agree to contradictory principles?

Quote:

But I do agree that once the economy picks up that the number of IT jobs will climb back towards previous levels.

Likely, the jobs will be more than in the end of 90s salad days. And those that are in the business will likely be higher quality. The late 90s sucked up a lot of people into the IT industry that probably shouldn't have been there, or at least shouldn't have been there yet.

MichaeltheGreat · September 17, 2003, 17:53

Net wages for all but a fairly elite few with proven track records will likely be a lot lower, though.

redbaron · September 17, 2003, 17:53

Quote:

Originally posted by rah
(assuming you can find someone that speaks good enough english to begin with)

Is that in the Indian office or in the US one?

MichaeltheGreat · September 17, 2003, 17:55

With a lot of programmers, if they can use indoor plumbing unassisted, you'd better count your blessings.

DanS · September 17, 2003, 17:56

Quote:

Net wages for all but a fairly elite few with proven track records will likely be a lot lower, though.

Well, when your programmers are getting paid as much as your orthopedic surgeons, then maybe we could mark the high wages down to an unsustainable circumstance.

rah · September 17, 2003, 18:01

I didn't say they wouldn't exceed those levels, just saying I expect them to at least get back to those levels.

DanS · September 17, 2003, 18:05

Well, if the jobs are at least going to come back (but maybe in different IT areas), even while we're giving away IT jobs to India, why should we be alarmed?

rah · September 17, 2003, 18:11

Because of crap work that can reflect back poorly on the industry.

The desire not to see quality programmers laid off in lieu of less qualified off shore programmers because some idiot is blinded by potential upfront savings. I've had a couple of buddies that were laid off already due to this type of short term thinking.

MichaeltheGreat · September 17, 2003, 18:14

And it almost always comes back from the end user management point of view as a failure of IT in general.

"We tried doing it in house, then we hired consultants, then we outsourced, and we still didn't get what we wanted...."

rah · September 17, 2003, 18:33

Quote:

Originally posted by MichaeltheGreat
"We tried doing it in house, then we hired consultants, then we outsourced, and we still didn't get what we wanted...."

Yep, gotta love it.

But it's always my goal to provide such intimate service that the user is willing to spend the extra money instead of risking it being done by someone that doesn't understand what they do. We have been very successful providing this type of service.

MichaeltheGreat · September 17, 2003, 19:07

Quote:

Originally posted by rah

Yep, gotta love it.

But it's always my goal to provide such intimate service that the user is willing to spend the extra money

You run an escort service?

faded glory · September 17, 2003, 20:22

yay. So this means in 15 years we can all look forward to either being in the Entertainment industry or Retail. The rest will be gone!

faded glory · September 17, 2003, 20:24

Oh wait. Entertainment is being outsourced too. There making movies everywhere else but hollywood now. So I guess we will all be saying "What else can I get you with that 12 pc Extra Krispy?"

faded glory · September 17, 2003, 20:25

Oh ****. I will just move to Mexico or India and get a job!

Skanky Burns · September 17, 2003, 20:41

Think how Australia feels. With such close proximity to India, our IT industry is all almost non-existant. Outsourcing has virtually taken over. The IT job market here is very poor.

**** it, I'm going to become an accountant.

chequita guevara · September 17, 2003, 21:40

Quote:

Originally posted by faded glory
Oh ****. I will just move to Mexico or India and get a job!

Mexico's out. The Maquiladoras are moving to Vietnam and Cambodia.