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Research agency Gartner estimates that in 2002 the total BPO business worldwide was worth US$110 billion and of this amount only US$1.2 billion, or just 1 per cent, was sent offshore to other countries. By 2007, predicts Gartner, the total BPO business will grow to US$173 billion of which US$24 billion or about 14 per cent will be sent to other countries.
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| Outsourcing company lures Swiss business to India |
| 07.28.04 (12:57 am) [edit] |
[b]A small office on the edge of a Zurich industrial estate is an unlikely location for a company which aims to transform the way Swiss firms do business.[/b]
But it is from here that Cognizant is seeking to persuade some of the country’s biggest corporate names of the benefits of outsourcing work to India.
Krishna Nagashwaran has headed Cognizant’s Zurich office since it opened just over 18 months ago.
His task is to encourage chief executives in Switzerland to shift their information technology (IT) and software projects to the company’s facilities in India.
“[The outsourcing model] in Switzerland is some way behind more mature markets like the United States and Britain, but business is very much on the rise,” Nagashwaran told swissinfo.
[b]Winning contracts[/b]
Cognizant, which employs 9,000 people in the Indian city of Chennai, has already won a multimillion-franc contract to develop a new internet bank for Credit Suisse.
The company refuses to divulge the names of other Swiss firms from which it has received contracts, saying only that it has succeeded in generating interest from some of the country’s leading financial services and insurance companies.
Cognizant’s European vice-president Kim Rajah said he was also setting his sights on the country’s pharmaceutical industry.
“A number of large pharmaceutical companies already do business with us, and clearly this is an area where Switzerland is very strong,” he said, adding that it would be a “safe assumption” that Basel-based drugs giants Novartis and Roche were either potential or current clients.
[b]Looking abroad[/b]
According to a report published in March by Switzerland’s largest bank, UBS, nearly 50 per cent of 300 leading Swiss industrial firms have already transferred at least part of their manufacturing activities abroad.
But a separate study by St Gallen University found that many companies underestimated the disadvantages of outsourcing parts of their business abroad.
The authors of the report concluded that firms did not always weigh up the additional logistical costs as well as the difficulty of maintaining quality control when considering whether to award contracts to offshore companies.
The findings have not, however, put experts off from predicting that the business of outsourcing will grow at an annual rate of between 30 and 40 per cent over the next few years.
A recent survey by Swiss television’s consumer affairs programme, “Kassensturz”, found that such household names as Novartis, Swisscom, Swiss Federal Railways and the Swiss Post Office had all outsourced some of their IT activities to India.
Rajah said the small size of the labour market in Switzerland was one reason why more and more companies were shifting software development projects abroad.
“You have a number of world-class companies coupled with a scarcity of skills in certain key areas, so businesses are looking at how they might use offshore firms,” he said.
[b]Jobs warning[/b]
The business of outsourcing has not been universally welcomed.
Trade unions warn that many Swiss-based software specialists will be left out of work, in the same way that thousands of jobs in countries like the US and Britain disappeared as companies transferred their call centres to India.
But some industry insiders believe that companies in Switzerland where French, German or Italian is spoken will shy away from outsourcing their activities.
“Outsourcing is not going to be attractive to some companies because… [in India] there is a lack of fluent speakers of Switzerland’s languages,” said Stefan Buess of Callnet, an association which represents the country’s call centre industry.
Though Cognizant itself has chosen not to enter the call centre business, Rajah warns that the language barrier in any outsourcing sector is unlikely to be a strong defence against low-cost competition from abroad.
“French- and German-speakers in some parts of the world are already providing call centre services in France and Germany.
“This might not have happened in Switzerland yet… but I would not suggest that complacency is a good course of action.”
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| TCS to sign more fixed price deals |
| 07.27.04 (1:28 am) [edit] |
Indian Software major Tata Consultancy Services (TCS) said it aims to sign more fixed price projects as it expects to increase productivity from such projects to boost operating margins.
Fixed price projects accounted for 55.5 per cent of TCS' April-June quarter global revenue in the current fiscal, said the Executive Vice-President and Head of Global Corporate affairs, Phiroze Vandrevala.
The company, which will offer its shares for sale on Thursday, said its operating margins for the first quarter were 27.7 per cent.
Its manpower utilisation rate was close to 77 per cent and the company expects to hike productivity with better utilisation.
However, its plan to increase the share of fixed priced projects was independent of the improving pricing environment witnessed across the services industry, Vandrevala said. "It's only that we will manage to squeeze better value out of it, since there will some significant offshore component in some end-to-end solution projects," he added.
The company derives close to 48 per cent of its revenues from offshore activities while the remaining 52 per cent comes from onsite engagements.
"We hope to increase the offshore component going forward," Vandrevala said.
TCS said that it has bought forward covers for its receivables for the next six months and has taken a forex fluctuation hit in its first quarter. However, it did not detail such exchange loss.
With the rupee softening against the dollar, the company expects a five per cent boost in its revenue earnings as its receivables are adequately hedged.
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| Democrats Push Broadband |
| 07.26.04 (1:40 am) [edit] |
[u][b]But besides hints against jobs moving offshore, few tech references exist in 2004 party platform.[/b][/u]
[b]Grant Gross, IDG News Service[/b]
Universal access to broadband services and more jobs at home are priorities that pertain to technology in the 2004 platform of the Democratic party, which opens its national convention in Boston this week.
The platform, approved by the party's Platform Committee earlier in July, doesn't mention offshore outsourcing by name, but it does seem to focus on the position taken by some Republicans that U.S. companies have the right to move jobs overseas.
"We believe Americans are the smartest, toughest competitors in the world," the platform says. "Our products and ideas can compete and win anywhere, as long as we're given a fair chance. And our companies can keep and create jobs in America without sacrificing competitiveness."
Economic Interests
While presumptive Democratic presidential nominee John Kerry hasn't been involved in many technology issues in his Senate career, Democrats include a handful of technology-related issues in the 41-page platform. Some, including the party's advocacy of universally available broadband and a permanent research and development tax credit, mirror positions by many Republicans.
Most of the document, titled "Strong at Home, Respected in the World," focuses on issues not directly related to information technology. It's heavy on fighting terrorism, achieving energy independence, and reforming health care. But in a section titled "Creating Good Jobs," the platform takes a handful of technology-related positions.
The document accuses President George W. Bush's administration of defending policies that "weaken America's competitive position and destroy American jobs."
The platform continues: "Instead of meeting the challenge of globalization by strengthening our workers' ability to compete and win, this Administration uses globalization as an excuse not to fight for American jobs."
The Republican National Committee didn't immediately respond to a request for comments on the Democratic platform.
Industry Comments
Democrats are concerned about offshore outsourcing, and the two parties have some major differences on the issue, says Representative Rick Boucher, a Virginia Democrat who's frequently involved in Congressional tech issues. In February, N. Gregory Mankiw, chairman of Bush's Council of Economic Advisors, called outsourcing "just a new way of doing international trade."
U.S. tax law should encourage U.S. companies to keep jobs at home, by giving companies incentives to keep jobs in the U.S., Boucher says, echoing a Kerry campaign theme. Democrats have decried a tax loophole in which corporations can take advantage of tax deferrals for money made overseas, as long as the money stays overseas.
Boucher suggests Congress should even consider penalties for companies moving jobs overseas. "I think we should have tax incentives the reverse of what we have today," he adds.
Technology groups such as the Information Technology Association of America have opposed most legislation designed to curb outsourcing, saying U.S. companies need that option to stay competitive. U.S. companies need to take advantage of ideas from foreign workers and need foreign workers to localize and sell products in foreign markets, adds Robert Cresanti, vice president for public policy at the Business Software Alliance (BSA).
Cresanti praises most of the Democratic platform, saying some tech issues it addresses, including universal broadband and a permanent research and development tax credit, "are right squarely within the technology industry's agenda."
But the platform's language on protecting U.S. jobs and reforming labor laws may suggest additional regulation for U.S. companies, Cresanti says. "It's concerning to me," he says. "How deep do they plan to go in and define things that affect our industry? I hope we're talking about an incremental approach to regulation and not brute force."
Cresanti opposes tax penalties in response to outsourcing, saying such a policy could slow job growth in the U.S. "If we start to fiddle with penalizing companies for moving jobs overseas, we could easily find ourselves in uncomfortable straights," he says.
Less Tech in Politics
The 2004 Democratic platform seems to address fewer technology issues than President Bill Clinton-era platforms, Cresanti says. Indeed, the 2000 party platform included a whole section on "Investing in Innovation," as opposed to the 2004 platform's mentions of technology-related issues in the jobs section.
The new platform's focus on antiterrorism and domestic security is appropriate, Cresanti says, but security sections lack any mention of cybersecurity. "You would've thought (the security sections) would be a great place to put critical infrastructure and cybersecurity issues," he said. "That all still demands attention."
The BSA supports efforts to expand broadband availability and make the research and development tax credit permanent, although Cresanti says both issues also have support among many Republicans. The platform says universal access to broadband services could add $500 billion to the U.S. economy, create 1.2 million new jobs and "transform the way we learn and work."
The parties take different approaches to achieving universal broadband adoption, however, Boucher says. While Republicans focus on ending telecommunication and broadband regulation, Democrats also want to use tax credits and other incentives for companies to roll out broadband in rural areas and other places with limited broadband choices.
"I support both approaches," Boucher says. "In some places in the country, you can deregulate down to zero and still not get broadband deployment."
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| Inside the Outsourcing Debate |
| 07.23.04 (12:54 am) [edit] |
The debate over outsourcing pits supporters of free trade and free enterprise against those who fear that globalization and the global market are taking away American jobs and eroding the U.S. economy.
An analysis of the arguments presented by the two sides suggests there is reason to believe in both.
Supporters argue that cheaper labor and lower capital costs in foreign countries help American companies increase productivity, which, in turn, boosts the U.S. economy.
Supporters “argue that outsourcing is a scapegoat, that the loss of most jobs c an be attributed to a poor economy and increased productivity and cyclical changes in employment,” said Justin Marks, a policy analyst who covers labor and workforce issues for the National Conference of State Legislators, in a recent policy brief.
Opponents of outsourcing say it is bad for the economy because it exports jobs, blue-collar and white-collar, overseas and places a burden on the American worker.
“Their primary argument is simple,” Marks said in that same policy brief. “Losing white-collar jobs to cheap overseas labor is bad for families and bad for states’ economies. And there is no proof that outsourcing results in the creation of higher level jobs for displaced workers.”
A recent poll by the Office of the U.S. Trade Representatives shows 53 percent of the public believes that foreign trade has done more to hurt Americans than help. Thirty-nine percent believe that trade has done more to help.
According to a poll counted by NBC News and the Wall Street Journal, 54 percent believe free trade is not worth the amount of lost jobs, while 35 percent say it is.
[b]The Numbers Behind the Arguments[/b]
Some 300,000 jobs are estimated to have been moved offshore in the last three years, according to a study by Forrester Research. Economist Robert J. Samuelson is quoted in various media reports as saying the jobs lost probably cluster from 300,000 to 500,000.
In more current statistics, a report released in June by the Department of Labor said 4,633 in the U.S. lost their jobs to overseas outsourcing in the first three months of 2004.
The number accounted for two percent of the 239,361 private-sector, non-farm workers who lost their jobs for at least 30 days at companies employing 50 workers or more. At those companies, at least 50 people had to file for unemployment benefits during a five-week period.
The current U.S. economy has a workforce of 138.3 million, according to a study by the U.S. Chamber of Commerce.
Projecting further into the future, the Forrester study said some 3.3 million jobs will be moved by 2015.
However, other studies and research say outsourcing has benefited the U.S. Economy.
A report published by the McKinsey Global Institute titled “Offshoring: Is It a Win-Win Game?” states, “While Forrester, a technology research and trend analysis firm, predicts the loss of some 3.3 million jobs to offshoring in the U.S. by 2015, MGI's analysis shows that the United States has much more to gain.”
The McKinsey study estimates that every dollar of costs the United States moves offshore brings the U.S. a net benefit of $1.12 to $1.14, in addition to the benefit of the country receiving the investment.
McKinsey projects a net savings to the American economy of $390 billion by 2010 due to outsourcing.
The study attributes the savings to reduced costs and new revenues because, ostensibly, there is new demand for U.S. products in destination countries. Savings are also earned from repatriated earnings, where companies who outsource but are incorporated in the U.S. have to pay certain taxes. Redeployed labor, where workers who lost their jobs take up other jobs, which, in turn, generates value for the economy also add to the savings, according to the McKinsey study.
Meanwhile, a special report, prepared in April of 2004 by the United States Chamber of Commerce entitled “Jobs, Trade, Sourcing, and the Future of the American Workforce,” disputed the number of jobs lost due to outsourcing.
Citing the 2004 Economic Report of the President, the Chamber of Commerce report states, “domestic outsourcing may cause much of the job displacement currently attributed to offshore outsourcing.”
The report also refutes the charge made by some such as Senator John Kerry that some companies – termed “Benedict Arnold companies and CEOs”– are “selling out” the U.S. workers to cut costs. The report states, “In 2002, the U.S. companies invested $1.1 trillion in the U.S. economy compared to $120 billion abroad – nine times as much.”
[b]Drawing a Parallel[/b]
Some experts, such as Catherine Mann of the Institute for International Economics, compare the current boom in outsourcing of software development and other computer-related services to the outsourcing of computer hardware manufacturing that occurred in the late 1980s.
An article by Virginia Postrel, published in The New York Times in January 2004, explained the phenomenon. Manufactures in Asia in the late 1980s began developing memory chips and because of lower production costs, jobs and chip-manufacturing firms in the United States began disappearing. Then, as now, the outsourcing began a legislative and policy debate.
The outsourcing of chip manufacturing, however, led to a productivity boom because of cheaper capital costs. A policy brief cited by the Times quoted Mann as saying, “Globalized production and international trade made IT hardware some 10 to 30 percent less expensive than it would have been.”
The cheaper costs and globalization led to revenue of about $230 billion from 1995 to 2002, the Times article said. Mann said the current trend in outsourcing software and services could have the same effect in years to come.
State Representative John Noel (D-Atlanta), who co-sponsored a bill that would ban state agencies, funded by state taxpayer money, from outsourcing, said he agreed with Mann’s argument.
“I do buy the argument, I think it’s a clear argument and it’s largely right,” Noel said. “But I think it’s different. The product is vastly different as compared to a call center product where your only cost is people.”
He continued. “A highly industrialized company has high capital costs such as building a silicon chip manufacturing plant. A call center doesn’t.”
Noel said American companies, legislators and, ultimately, the consumer, also have to consider the other costs, and not just the production costs, associated with outsourcing.
“Suppose a numbers guy tells me that it will cost an extra million dollars to have a plant operate here than overseas. My answer to that is, ‘Fine.’ I am willing to pay the million dollars in extra costs. I’m willing to consider what it won’t cost me in unemployment checks and welfare for people in this state,” Noel said.
“You have to ask, ‘What are the societal costs of saving that million dollars?'"
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| Australian Call Centres will harness new tech |
| 07.21.04 (8:37 pm) [edit] |
Outsourcing, VoIP, speech recognition and self-service in contact centres were some of the main topics covered in the opening speeches at Genesys' G-Force conference in Melbourne yesterday.
James Brooks, Genesys vice president South East Asia-Pacific and India, delivered an upbeat keynote about the rising importance of contact centres and their significance to the enterprise.
He cited examples of the ATO, which gets 85 percent of its customer contact through its contact centre, and GIO -- with 90 percent of its revenue coming through its contact centre. "Every year the contact centre becomes more and more important to the enterprise."
Brooks identified [url=www.binarysemantics.com]offshore outsourcing[/url] as "an emotional issue" in Australia but acknowledged that the potential cost savings of offshoring would make it increasingly attractive. He said that currently Genesys was "not advocating offshoring, and it makes no sense for some" but said the key issue was understanding its benefits and considering the options.
SalesForce CEO Kevin Panozza at a media roundtable said cost was the crucial factor when it came to outsourcing. He said that in India agent rates of $10 per hour -- compared to Australian agents at $30 per hour --- were "not just attractive, but irresistible".
"We all believe that IP is a reality," said Genesys CEO Wes Hayden. He demonstrated that most businesses believed IP telephony would be "an important part of their contact centre technology" in the next couple of years, even though few companies had a clear idea of when they would begin deploying it.
Nicolas De Kouchkovsky, Genesys senior vice president, marketing and business development, said the latest version of Genesys software, G7, had much greater IP telephony capabilities. "We've added tremendous support to IP soft switches."
Moving from tone to speech recognition was a "breakthrough" area in contact centres, said Brooks. "Efficiency remains a huge issue for the industry and at the heart of efficiency, there's no doubt, is speech recognition."
Brooks said speech recognition addressed the three main contact centre issues: having happier customers, happier agents and reducing costs. He said it allowed customers to get to the right agents or to self-serve and that talking was more "natural" than pushing buttons.
"There are some compelling business cases around speech [recognition]," Brooks said.
De Kouchkovsky described voice recognition-enabled self-service in contact centres as a "win-win" situation for both the enterprise and for customers. "It reduces cost for the enterprise, the customer gets access to the system without having to wait, and it also allows the customer to browse," he said.
Brooks said that since 2002, with the introduction of voice recognition in contact centres, the average time to abandonment -- when a customer hangs up after waiting in the queue too long -- had increased by 53 percent.
"People are prepared to wait longer in queues because they know that when they do speak to someone, their enquiry is going to be satisfied," he said.
Around 650 delegates attended this year's G-Force conference.
[b]Claire Doble - InformationWeek[/b]
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| BPO Boom a boon for Kiwis - GARTNER |
| 07.20.04 (7:46 pm) [edit] |
NEW ZEALAND could cash in from an impending boom in business process outsourcing, claims Gartner research. But consultancy businesses will have to change their business models.
Sydney-based analyst Rolf Jester says the country has several successful BPO providers such as Datamail and Oxygen Business Solutions, who are starting to move into Australia before heading into the wider Asia-Pacific.
The Kiwi potential and the threats to services firms will be raised as Gartner hosts a major regional Outsourcing Summit in Sydney from July 27-28.
The event will look at outsourcing over the next ten years, during which Gartner expects more than 100 changing facets by 2013.
However, Jester, the event’s keynote speaker, says there will be two overriding factors that will influence IT in an enterprise.
One is how committed firms will be committed to adopt a “real-time enterprise strategy” and use information to adapt quickly to a constantly changing business environment.
The second, is the types of services they will outsource over the next ten years and whether they outsource the whole business processes or just the underlying functions.
Jester says these two factors will determine one of four future scenarios for an IT department. The scenarios are:
IT inertia — a scenario in which the existing IT investments serve to slow down the ability of the business to change quickly enough.
Process islands — a sub-optimal state in which departments inside an enterprise look after their own business processes, diminishing the relevance of the CIO and IT staff.
IT-centric real-time enterprises — in which businesses have become agile through a strong focus on IT.
Virtual enterprise — organisations that are “real time” by nature, they stick to their core business and buy external services for all non-core activities.
Jester expects the world the move to either it IT-centric or virtual model, saying service companies need to plan and prepare for it.
Such a high degree of business process outsourcing may suit New Zealand, he continues, noting Telecom New Zealand’s takeover of Geni and their push into the Australian IT services market, where returns are greater.
However, while some businesses may benefit from BPO, Jester warns IT consultancies will suffer if the services market consolidates to just providing services to the business process outsourcers. Such consultancies will need new channels, new sales forces and new marketing strategies.
While [b]offshore outsourcing[/b] and its related job implications has been a source of recent controversy, Gartner says the impact of [b][url=http://www.bslindia.com]offshore outsourcing[/url] [/b] is currently “minor”, estimating that only just seven per cent of an estimated $US728 billion of global outsourcing contracts will be spent offshore by 2007.
Whether offshoring is a good thing, depends on the deal.
“Trade as a whole benefits both parties and trade in services is still just trade. But buyers need to buy carefully and find reputable suppliers. The relationships, contracts, delivery and quality will need to be managed, which increases the management cost.
“Some people have done well dealing with service providers in other countries, while others haven’t because they haven’t followed the guidelines on how to do it well,” Jester adds.
[b]Darren Greenwood, Auckland[/b]
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| The outsourcing hole |
| 07.19.04 (8:59 pm) [edit] |
It's a story that could come from a Tom Clancy book — a terrorist cell looking for an advantage against the powerful U.S. military trains a group to be software programmers, who then infiltrate companies that have sent their software development work overseas. Working for those companies, the programmers surreptitiously put vulnerabilities in software.
The concept may seem far-fetched, but so did using planes as weapons prior to Sept. 11, 2001. And given the importance of networks in the nation's day-to-day activities and in military operations, information security is even more critical now than it used to be.
As more technology work — specifically code writing — is outsourced to cheaper labor overseas, lawmakers and industry insiders are becoming increasingly concerned with what could amount to a large hole in the Defense Department's vaunted security.
For various reasons, DOD officials have made a concerted effort in recent years to purchase commercial off-the-shelf (COTS) software rather than develop it in-house.
The problem they face, however, is that the vendors on which the military has become dependent are sending much of their software development work overseas to cut costs. Offshoring may make economic sense for the companies, but the security ramifications are starting to raise red flags for Congress, the Pentagon and some vendors.
At a meeting of the House Armed Services Committee last year, Eugene Spafford, a professor of computer sciences at Purdue University, said that anyone with an Internet connection can get the information necessary to launch a successful cyberattack on virtually any computer network.
"With bulletin boards and discussion lists...anyone can learn sophisticated attack methodologies," he said. "There is a virtual worldwide training camp going on on a continual basis."
In recent years, DOD officials have shifted their focus to buying proven commercial products. Unfortunately, holes repeatedly emerge in the code, which require patches, and the code is often written by people in foreign countries with no security clearance, some experts said.
"Over the past two decades, the policy of using COTS products whenever possible has provided a great benefit to the military and the taxpayers," said Spafford, who also is director of the Center for Education and Research in Information Assurance and Security at Purdue.
"But there are some downsides to the department's increased dependence on COTS," he added.
Namely, much of the commercial software that DOD agencies use was never intended to be subjected to the significant threat level of the department's networks. Spafford noted the inability to determine the code's authors or their intentions or politics.
Using foreign labor "has been wonderful for the economy," he said, "but it has introduced tremendous vulnerability to our software."
[b]Matthew French[/b]
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| Outsourcing headed for decade of change: GARTNER |
| 07.18.04 (10:01 pm) [edit] |
[b]The practice of outsourcing will undergo a dramatic transformation over the next ten years, according to [u]Gartner analyst Rolf Jester[/u], who adds that offshore outsourcing will only be one of the many adjustments. [/b]
A release issued by [b]Gartner[/b] today stated outsourcing in the future will "offer new alternatives to buyers and additional challenges for suppliers"; Jester claims that "offshore outsourcing is only one of a myriad of changes that the sector will undergo through to 2013".
According to Gartner, offshore outsourcing currently has a "minor" impact on local IT jobs, as the release states "only 7 percent of an estimated $US728 billion of global outsourcing contracts will be spent on offshore by 2007".
Gartner has identified over 100 changes in outsourcing that will influence its direction in the future, said Jester, however he adds two overriding factors that will influence IT in an enterprise is the adoption of real-time enterprise strategies and the types of services that are outsourced.
There are four possible scenarios for the future direction of an IT department, according to Jester, they are:
• [b]IT Inertia[/b]: a scenario in which the existing IT investments serve to slow down the ability of the business to change quickly enough;
• [b]Process Islands[/b]: a sub-optimal state in which departments inside an enterprise look after their own business process needs, diminishing the relevance of the CIO and IT staff;
• [b]IT-Centric Real-Time Enterprises[/b]: in which businesses have become agile through a strong focus on IT; and
• [b]Virtual Enterprise[/b]: organisations are "real-time" by nature, stick to core business and buy external services for all non-core activities.
Jester said that one of the four scenarios is "likely to be dominant for all organisations in 2013".
"Outsourcing is undergoing significant change right now," he said. "It would be smart for IT executives to begin thinking about which scenario they would like to create for their organisation, and compare it to the one that is evolving right now."
Jester said that one scenario is not necessarily better than the other, however he adds "the world will move towards either a ‘[u]Virtual Enterprise[/u]’ or an ‘[u]IT-Centric Real-time Enterprise[/u]".
He also predicts a considerable push towards business process outsourcing.
- Sourced from ZDNet -
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| Is Canada the solution for offshore outsourcing-wary U.S. companies? |
| 07.15.04 (10:11 pm) [edit] |
[b]BY: Ian Palmer - IT Manager's Journal[/b]
According to [b]Gartner Group[/b], outsourcing remains the primary source of growth in IT services. [b]Forrester[/b] reports the movement of U.S. services jobs offshore will occur at a faster pace than previously projected. Nonetheless, LecStar Telecom, a regional provider of integrated communications services, is among the U.S. firms not yet enticed by [b]offshore outsourcing[/b].
"We don't outsource, because the only way you can control your quality is to build it internally as you go," said Dale Smith, president and CEO of LecStar, an Atlanta-based firm that provides fixed wireline voice, data, long distance, and Internet services to business and residential customers. "I've never been a real proponent of moving things to the point where you lose control, and as you go offshore the proximity makes it very difficult to have control."
But when briefed about a Canadian study by PriceWaterhouseCoopers in Toronto -- which revealed that some U.S. companies prefer out to outsource to their Canadian neighbors rather than to offshore to companies on the other side of the globe -- Smith said that there would likely be fewer barriers to climb if his company where to choose Canada over some other nations.
[u][b]Advantages to staying 'on-continent'[/b][/u]
"I would feel much better outsourcing -- if outsourcing proved to offer cost savings and incentives -- to someone in Canada than going, say, off the continent," said Smith, whose company started operations in 1999. "It could be a very good alternative for U.S. companies who can go to people who are specializing in certain functionality, and I'd be much more comfortable doing it on the continent of North America."
The report in question, entitled "A Fine Balance: The Impact of Offshore IT Services on Canada's IT Landscape," showed that Canada could lose up to 75,000 IT jobs by 2010 to offshore outsourcing, but Canada could also gain some 165,000 jobs through U.S. outsourcing contracts.
"There's a big 'if' here," said Robert Scott, partner at PriceWaterhouseCoopers and a co-author of the report. "And it is: If we do something to promote the Canadian advantage to the rest of the world -- and particularly the United States ... because our observation is that we're now competing in a global marketplace for IT services work. And yet Canadian companies have not been as aggressive at going outside of Canada as, for instance, the Indian firms, the Russians and now the Chinese firms have been."
David Ticoll, an independent analyst based in Toronto and co-author of the study, added that Canada remains a bit player in the offshore outsourcing realm compared to countries like India.
"Let's not kid ourselves," he said. "There are hundreds of thousands of people today in India doing outsourcing work for U.S. customers and maybe 25,000 in Canada, so clearly a lot more work is going over to India. Then there are other countries besides India like Mexico, and other Latin American companies and Philippines and even China, Russia, Eastern Europe -- all of those countries are providing offshoring services to the U.S market. So there's a huge potential for growth [in Canada], once people begin to see the benefits of sending their work here."
Canada has a number of things going for it, such as proximity, time zones, and culture, according to both Scott and Ticoll. If Canadian businesses and governments realize this, the country stands to benefit, particularly when it comes to attracting U.S. firms wary of offshore jurisdictions.
[b][u]Accounting laws map to the U.S. [/u][/b]
"There's the whole series of advantages around the protection of intellectual property and security where Canada has a regulatory framework that is fairly similar to the U.S," said Scott. "In fact, things like our accounting laws quite clearly map to the U.S. You hear about something called Sarbanes-Oxley in the U.S. The Canadian equivalent to that is Bill 198. There's a very high awareness about regulations that exist in the U.S.
"Another regulatory area is privacy, where in that particular area Canada actually has tougher, stricter, and more consistent privacy laws than the U.S. does. Canadian privacy laws are more like European laws. So U.S. companies that are concerned about sending their customer data offshore should have less concern in sending it to Canada, because they understand the regulatory environment that we work in."
Even though many U.S. companies have jumped onto the offshore outsourcing bandwagon to reduce costs, Ticoll said that paying foreign programmers a fraction of the salary of U.S. programmers won't necessarily translate into the whopping cost savings some U.S. firms crave,
"You can pay a programmer in India 20 percent or 10 percent what you pay a programmer in the U.S.," he said. "But you have other costs. Sending work halfway around the world -- there are costs involved in doing that, even if the labor is free."
However, U.S. companies that choose Canada as an outsourcing destination will not only benefit from doing business with firms more in tune with the U.S. way of doing things but also can save some money on salaries, owing to at least two factors, according to Ticoll. For one, the value of the Canadian dollar continues to lag behind the U.S dollar, and Canadian programmers tend to make probably 20 percent less than their American counterparts. All of which, he added, could result in a 40 percent cost savings on salaries if U.S. companies outsource to Canada.
[u][b]Industry group working on these issues [/b][/u]
Measures have already been taken in Canada by groups such as the Information Technology Association of Canada to grapple with the issues confronting the [url=http://www.bslindia.com]offshore outsourcing[/url] industry in the country and to determine how best to market Canada as an offshoring center.
All things being equal, however, Smith from LecStar said that outsourcing is an option for companies large enough to benefit from economies of scale.
"You [have to] be a certain size to gain the economies of scale," he said. "Obviously, when you're just starting out as a startup company, which we were in 1999, you don't have enough critical mass. More importantly, it's a control issue. If you save fractions of a cent by moving something offshore, and you can build it internally and control it, you're better off keeping it in house."
[b][i]Ian Palmer is an ITMJ regular and a free-lance IT writer based in Brampton, Ont., Canada.[/i][/b]
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| Study tracks offshore outsourcing by state governments |
| 07.14.04 (7:45 pm) [edit] |
A union-backed group calls for states to let citizens know how much of their tax dollars are being spent to send work overseas through [b]offshore outsourcing[/b], instead of having either state workers or homegrown companies do it.
A study released by the group today showed that 18 firms specializing in [b]offshore outsourcing[/b] either have business or are actively soliciting it, in 30 states, and the trend is growing.
Florida has five of those companies on its approved vendor list, although it's not known how much business they do with the state.
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| India Sees Backlash Fading Over Boom in Outsourcing |
| 07.13.04 (8:50 pm) [edit] |
The backlash against the outsourcing of software and back-office services to India appears to have died down, executives here said Tuesday as a bellwether company posted better-than-expected earnings, mostly on improved business from the United States.
The company, India's second largest for software and services outsourcing, Infosys Technologies, said on Tuesday that its quarterly profit had increased 39.2 percent, helped by the economic recovery in United States, its prime market. Net profit rose to 3.88 billion rupees ($84.3 million) in the April to June period, its first fiscal quarter, while revenue was 15.2 billion rupees ($33.04 million), a rise of almost 39 percent.
The results at Infosys, the first of a series of Indian outsourcing companies to post earnings, underscored that pressure against Indian software and back-office companies was easing, though the emotional protests against it in the United States and Europe never seemed to actually cut into business.
"The backlash against outsourcing has abated, customer spending is on the rise and we have redesigned ourselves internally to take advantage of the vast opportunities," said Nandan M. Nilekani, chief executive of Infosys.
Nearly two-thirds of Infosys's earnings come from customers in the United States. The outsourcing company hired 2,305 employees in the quarter, bringing its work force to nearly 28,000, and added 29 clients, taking that total to more than 400. That roster includes Reebok, Amazon, Cisco, Apple and Boeing.
Infosys shares closed almost 2 percent higher on the Mumbai stock exchange.
India's outsourcing sector has boomed as global companies have shifted work offshore to take advantage of the country's skilled, cheap, English-speaking labor force. The loss of jobs to India from the United States and Europe became a political cause, however, which sent ripples of anxiety through the industry.
India's $15 billion software and back-office services sector has grown at around 30 percent in the last few years, with the industry looking for $50 billion in business by 2008. Most of the business, about $12.5 billion, is with companies outside India, and more than two-thirds of that from the United States. The industry employs just short of a million people in India.
Some executives said the Infosys results could be the turning point for the industry's preoccupation with the backlash issue.
"The debate about outsourcing appears to have moved from an emotional, anecdotal, job-losses plane to a more sober, balanced one about the advantages of globalization of services," said Sunil Mehta, vice president of Nasscom, India's leading software industry trade body.
Infosys, known for its conservative earnings outlook, especially during the backlash period, said it expected sales to rise nearly 40 percent in the current year. "Infosys continues to benefit from the positive demand environment for offshore services," said S. D. Shibulal, head of worldwide customer delivery.
Though the furor in the United States has died down some, the National Foundation for American Policy, a research group, says more than 100 bills are pending in 38 states to curb the use of offshore contractors by state and local governments, and legislation has been passed in 5 states and vetoed in 2.
Earlier this year, Congress enacted an amendment to the federal omnibus appropriations act, sponsored by Senators Craig Thomas of Wyoming and George V. Voinovich of Ohio, both Republicans, that prohibits the use of offshore workers on some government jobs. And Senator John Kerry, the Democratic candidate for president, earlier this year referred to the outsourcers as "Benedict Arnold companies and C.E.O.'s," but lately has been relatively quiet on the issue.
Earlier this year, executives from American companies that outsourced to India came on clandestine visits, rarely spoke about what deals were being negotiated and forbade Indian companies from publicizing the contracts.
As Indian outsourcing companies grew fearful that negative publicity would harm business, Nasscom tried to protect themselves by campaigning for outsourcing with lawmakers, government officials and industry lobbies in the United States and Europe.
But in the last two months, analysts say the backlash issue seems to be fading in importance to the American public and to United States businesses.
"No longer are customers prefacing outsourcing questions with what they should do to deflect the backlash issue," said Partha Iyengar, research director for Gartner in Mumbai. Gartner nonetheless still recommends that its United States clients continue with employee-impact assessments and community audits before embarking on outsourcing.
Some experts said they expected the concerns to be replaced by more pressing matters, like the shortage of skilled labor.
"Most companies are expanding so rapidly," Mr. Mehta of Nasscom said, "that we fear the new threat for outsourcing is not the backlash but the imbalance in supply of skilled professionals."
The hostility against outsourcing may have inadvertently helped the industry, some experts suggested.
"The backlash proved a gold mine of free publicity for Indian outsourcing companies," Mr. Iyengar of Gartner said. "For many U.S. companies, the backlash made offshoring a compelling proposition."
Even smaller outsourcing companies, like iGate Global Solutions, based in Bangalore, reached some deals after the controversy. The company, with $125 million in annual revenues and 4,000 employees, has customers like General Electric, GreenPoint Financial and Kraft Foods.
"The backlash issue made outsourcing so mainstream that even my barber was speaking knowledgeably about outsourcing," said iGate's chief executive, Phaneesh Murthy, who is based in Fremont, Calif.
[b]By SARITHA RAI - NYT[/b]
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| Controversial 'Offshore Outsourcing' Term a Misnomer for Complex Array of Global Sourcing Strategies |
| 07.12.04 (8:15 pm) [edit] |
[i]TowerGroup Research Finds US Financial Institutions Sold $200 Billion to International Markets, Offsetting $1.3 Billion in IT Spending Going Offshore [/i]
NEEDHAM, Mass., July 12 /PRNewswire/ -- Amid continued political and popular resistance against [b]offshore outsourcing[/b], new research from TowerGroup asserts that the term itself is a reductive misnomer for a far more complex array of global sourcing strategies.
Beyond fears of the US bleeding jobs overseas is a landscape of diverse insourcing and outsourcing initiatives that net out to benefit the US economy.
"TowerGroup estimates that in 2003, US financial services institutions imported $1 billion in software application development from offshore locations, with another $0.3 billion in IT services," said Virginia Garcia, senior analyst in the Financial Services Strategies & IT Investments practice and author of the research. "However, all of these offshore sourcing revenues are offset considerably by US financial services exports of roughly $200 billon sold annually to international markets. Moreover, TowerGroup estimates that global sourcing resulted in $1.2 billion in operational efficiencies last year, with an additional $0.4 billion in capital freed for innovation."
Garcia added that a healthy portion of that money went to US vendors and will fund the much-needed innovation to drive international business. "In the end, it pays to join the 'global village,'" she said.
Highlights of the research include:
-- Global companies do business globally. Many multinational firms that source globally have been doing so for decades. It makes no sense economically or logistically for them to do otherwise.
-- While "captive" sites for IT and business processes owned by financial institutions may be located offshore, they often don't qualify as true "outsourcing." Captive sites represent internal operational spending and there might be better called "offshore insourcing."
-- There is no such thing as 100% offshore outsourcing. Any sourcing project or contract will necessarily involve onshore and offshore leverage resources on both the client and vendor side. Indeed, many companies tagged as "offshore outsourcing" vendors actually have large and growing operations in the US -- creating thousands of job stateside and reducing operational risk to clients.
-- Approaches to global sourcing are increasingly diverse. Today's top financial services firms are managing global sourcing portfolios that include typical offshore vendor outsourcing, captive site insourcing, outsourcing to US firms with global delivery capabilities, and outsourcing to firms with US delivery models.
"Process transformation and efficiency are the new frontier of global sourcing, building on the cost savings nirvana once sought," said Garcia. "In sourcing smartly, financial institutions will cherry-pick those processes and locations that best meet their goals, including best practices, strategic transformation, IT and process governance, strategic cost management, and risk management. Providers with global delivery capabilities, financial services domain expertise and platforms specific to financial services will be well- positioned to service these clients."
TowerGroup's research report, "Baptism By Fire for Global Sourcing: It's Time to Relinquish the 'Offshore Outsourcing' Moniker!" is available to qualified members of the press for review.
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| Divining Outsourcing’s Hidden Costs |
| 07.11.04 (8:26 pm) [edit] |
In the mad rush to save on wages by outsourcing IT projects, companies are not only failing to spot the hidden costs — they risk losing precious corporate knowledge in the process.
Not long after five graduates of the California Institute of Technology (Caltech) founded automated error prevention software provider Parasoft, the fledging company turned to offshore outsourcing to moderate its development costs. To the privately held company, founded in 1987 by the research team that developed the first parallel computer, Poland looked like a pretty attractive place to source low-cost IT professionals.
“I was looking for a way to find cheaper developers than you find in the US,” says CEO Adam Kolawa. “In 89 Poland switched from communism to a ‘normal’ system, and there was a great opportunity, because they were really, really inexpensive. We’re talking about prices lower than you find in India.”
But looks can be deceptive, and since offshore outsourcing was barely on most organizations’ radar back then, there was no one to warn Kolawa about any hidden costs. The upshot was that for the first five, or even seven years, Parasoft got very little out of the arrangement. The Polish developers, he says, did not understand the need for a process and infrastructure to back their software development efforts. Corruption was endemic. The developers were overly inclined to stick to contract specifications, and ill-prepared to show the flexibility needed to put quality ahead of specifications. Overall, the culture was just plain wrong.
Although that offshore team is now very efficient, thanks to Kolawa’s dedicated efforts at changing that culture, hiring and training the right people and putting the infrastructure in place, he asserts that although he might have had more control had he outsourced to an organization in the US, many of the other problems would have remained. “I would have been able to control what is going on, but we would have had similar problems,” Kolawa says. “The misunderstandings between the two organizations, the mis-definitions, are general problems with outsourcing, because contractors always try to do minimum amount of work to get maximum pay. That’s how they are structured. So they are going to stick to their contract as much as they can because they want to be paid and go on to the next contract — that’s how they make money.”
A growing number of studies now confirm Kolawa’s assessment. For instance, according to Tom Weakland, a partner at management consultancy DiamondCluster, when you parse it all out, the total cost of offshoring a given IT job is generally comparable to getting the work done domestically. It is just that few companies are aware of these real costs. “Most companies can’t accurately measure their productivity and costs prior to and after outsourcing,” Weakland says. “Most look just at wages.”
Consideration of the hidden costs of outsourcing run in a different direction over at the Australian Customs Service (ACS), where CIO Murray Harrison struggles to find a nuanced response to allegations that one of the major reasons the agency’s massive Cargo Management Re-engineering (CMR) project has run into so much difficulty is that the agency has lost much of the corporate knowledge needed to keep the project on track since it outsourced to EDS in 1997.
CMR — a massive development and one of the most significant government/industry e-business projects ever undertaken in Australia — has been dogged by damaging press reports alleging massive cost and budget blowouts. Stark headlines obscuring a complicated picture.
But part of the focus of the criticism from journalists, traders and developers has revolved around claims the ACS has suffered from a lack of detailed knowledge of its IT systems, and particularly the legacy systems CMR intends to replace, ever since the outsourcing to EDS. As the EDS contract took hold, people close to Customs allege, IT staff perceived as uncooperative, stubborn, overly critical or less than highly effective found their positions eradicated as the new corporate culture, which focused on cost-cutting, rationalization and efficiency, took sway. They charge that like many departments caught up in the sweep of outsourcing, Customs focused too much on clearing its balance sheet of liability for wages, but lost immeasurable amounts of corporate knowledge — particularly in how core business processes interoperated with its technology infrastructure — in the process.
“One of the aspects of this in my opinion is — one of the big costs in the project is — that they are paying for the re-education of Customs about how to build and manage IT,” says Eagle Datamation International’s (EDI’s) chief executive Richard White. “I believe much of the cost of the project is about relearning lessons that had already been learned.”
White, whose company is one of the key software developers involved with the CMR project, says some very skilled long-term professionals that knew Customs’ systems well left at the time of the outsourcing, and have “scatted to the four winds” — comments supported by federal president of the renegade Customs Officers Association Peter Bennett. “We’ve got a few people in EDS at the moment who, if they were still working there, would save Customs tens of thousands of dollars,” Bennett claims. “Making the system just run the way it used to run once, meant we paid somebody a wage. Now we’ve got to pay somebody a profit, and the profit is extraordinary. We’re talking about $800 a day — more than that in some cases, $1000 a day per person — to get jobs done that this person would once have been getting paid $100 a day for as an employee.”
Although Harrison does acknowledge the concerns, he calls them a “half empty view of the glass”. There’s a fine line between retaining in-house knowledge and capability and duplicating services being bought from the outsourcer, Harrison says. And after all, if you duplicate too much of what you buy in, you risk losing the advantages of outsourcing. “You make judgments about what it is that you choose to buy from the market, and what you choose to retain,” Harrison — who chairs the sourcing group on the federal government’s CIO committee — says. “Customs chose to buy in quite a lot.”
While conceding loss of skills is a problem, Harrison says government agencies have recognized there are significant difficulties at both ends of the outsourcing spectrum: the prime contractor, big bang-type deal and the selective sourcing arrangement.
“The problem with the big bang approach, which we’re familiar with here, is the one of visibility. You don’t get to see what [the outsourcer is] up to, and all you get to see is a fairly large bill at the end of the day, which you don’t understand. So the temptation is to employ your own people to basically shadow the people who are doing the work in order to be able to give you an internal view . . . I think there’s something of a stampede away from that approach.
“At the other end of the spectrum we’re yet to really hit the issues about [selective sourcing], which is basically accountability: if something goes wrong, it’s not me, it’s them. The question is how much do you want to be your own integrator? The job for people like me is identifying where an organization fits in that spectrum. I think that differs from organization to organization about what fits and what doesn’t.”
[b]Questions Over Costs[/b]
If the mounting controversy over moving IT work offshore has pushed the outsourcing phenomenon back under the public microscope, it is the desire to explore other hidden costs like the potential cost of lost corporate knowledge that is keeping it there.
While outsourcing remains an extremely attractive option for many organizations, some of the other hidden costs of onshore outsourcing — the ones the vendors remain strangely silent about — have started to come under renewed scrutiny: The cost of choosing a vendor. The hard-to-quantify transition costs as the vendor gradually lessens its dependency on the in-house IT staff. The costs of managing the contract. The costs at the end of the contract, such as the price to switch vendors or bring IT back in-house. And the unrecognized costs that come from the loss of corporate memory and intellectual capital as those closest to the organization’s IT become employees of the outsourcer — or are lost to the organization altogether.
A 2002 study by Dr Nick Beaumont, a senior lecturer in the Department of Management at Monash University, found that while outsourcing is popular for business reasons such as economies of scale and enabling executives to concentrate on core business activities, many organizations are finding it difficult to ascertain all relevant costs. Beaumont says he suspects too many Australian companies are failing to factor in those hidden costs because they are not easily quantifiable.
“It is a question that is really impossible to research, but I do have that impression from conversations that people tend to discount costs that are in the indefinite future. They tend to overlook costs that are intangible and hard to measure,” he says. “It is notoriously difficult to allocate the costs of internal IT among individual applications or to quantify the fixed and variable components. Documenting internal operations being considered for outsourcing and preparing service level agreements can be a lengthy and expensive exercise.”
It clearly is difficult: even the analysts rarely agree.
Take the cost of searching out and vetting vendors. Organizations accept that if they are to outsource, executives will have to spend time going through the tender process. A still-relevant study of 50 outsourcing deals — conducted by French academic Jerome Barthelemy in 2001 and reported in the MIT Sloan Management Review — suggests that finding the vendor and writing the contract costs an average of $US500,000, or about 3 percent of the average total outsourcing cost.
Studies by research and analyst firm Gartner show there are substantial costs involved in moving from internal to outsourced IT service delivery. Although these might pale in comparison to the overall annual value of the deal, these hidden costs are far too rarely quantified, it says. And that is undeniably a problem, because after all, companies that remain oblivious to costs associated with such activities cannot ameliorate those costs. Gartner estimates the total cost to evaluate and select an enterprise service provider generally ranges from 2 to 5 percent of the projected annual price of the outsourced deal, with smaller deals more likely to be towards the 5 percent range.
Analysis firm Compass puts the cost of managing any outsourcing contract at between 4 and 8 percent of the total value of the contract, but says the amount jumps by an extra 50 percent in the case of offshore projects.
However, Beaumont does not fully accept those figures, maintaining they really apply only to high-routine, commodity applications like payroll. For anything more complex the organization can expect to pay between 8 and 13 percent of the actual worth of the business outsource to manage the relationship with the vendor, he says.
Just as hard to pin down are the costs associated with corporate governance, risk management, ongoing testing and evaluation, and the implications of lost ICT knowledge and skills within the organization. Beaumont says all these considerations should be carefully evaluated in light of the company’s mission and objectives before a decision is taken to send jobs offshore.
Alexandra Weber Morales, the US editor-in-chief of Software Development magazine, told CIO: “Increasingly, development managers and executives who are in the position to make the offshoring move are at least thinking once or twice about potential loss of core competency or intellectual property, deleterious effects on employee morale and even potential consumer backlash as a result of such a manoeuvre.
Morales says one justification many IT companies are using for offshore outsourcing is that the higher level engineering functions — design, architecture, management — will stay in the US, while the “grunt work” — programming, testing, maintenance — will move to low-wage, high-skill economies. But in a recent survey conducted by Software Development, a disturbing trend emerged: not a single phase of the software development life cycle was immune to outsourcing. Project management, requirements gathering, business integration, architecture, design, modelling, R&D and deployment all stayed overwhelmingly in-house, but even so, none of those activities had lower than a 15 percent score for outsourcing.
[b]Doubts Remain[/b]
Even with the trend in the US to outsource offshore moving from trickle to flood, some scepticism remains. For instance, executives at human capital management (HCM) software company Softscape are adamant about keeping research and development within the four walls of their Massachusetts-based office.
“The potential of losing any portion of our intellectual property, knowledge capital or competitive advantages is unacceptable,” co-founder Dave Watkins says. “I fear the thousands of companies jumping on the perception of offshored cost savings — even if working to appease shareholders and investors with a smaller labour expense — may be undertaking a dangerously short-sighted practice with macro-economic impact.”
Watkins rejects an October 2003 report in which AMR Research told vendors that the benefits of offshoring are simply too great to ignore. The report references some cost savings, but acknowledges in the fine print that it typically takes three projects to get it right. “Given the significance of that fact, this subtle concession should have been in bold and up front,” he says.
He insists pioneering software development is just not suited to offshoring — particularly for the many smaller, more nimble vendors that wield competitive advantage by being able to innovate and deliver on a dime. Offshoring inhibits product and engineering teams from directly and consistently interacting with critical cross-functional teams to ensure direction, control, quality and rapid deployment, Watkins says. Keeping your most strategic and competitive functions in-house is key to success.
“Offshoring certainly jeopardizes security and confidentiality for the perception of lower labour cost. A full-time or contractual engineer located on-site might leave, but the probability that that employee is motivated and well-compensated, and more likely to stay on board, is far greater than with someone you’ve never met,” Watkins says. “Offshoring typically lends itself to high turnover, whereby the cost of intellectual property is considerably higher. A part-time [programmer] or project engineer in India or China, who works unseen in a virtual world, has few loyalties to a team or vendor.”
He says cultural, language and time differences can be inhibitors to simple communications, which sometimes creates an “us versus them” mentality and impacts the development process.
Parasoft’s Kolawa wonders how many companies can afford to wait five years before quality work is produced. It takes time for contractors to learn your products, your code, your methodologies and how to work with you effectively, he says. Are you prepared to work with an outsourced contractor for the long term? Is it committed to be your exclusive resource, or is it a code “sweatshop” that takes on many projects? If it is the latter, he says you are guaranteed to get low-quality products that are devoid of true innovation.
“This is the real danger of outsourcing, which isn’t the permanent expatriation of jobs but the permanent damage the software industry suffers due to shoddy products. Is the quality of outsourced software sufficient and consistent enough to make it worth the effort it takes to move development projects out of the country? For some industries, the answer is yes, but for software the answer is a resounding no,” Kolawa wrote in a recent article for Computerworld (US).
There is also a very real risk to a company’s security and reputation to consider. “If you outsource IT you are making available to other people confidential information, like the names of clients and so on, which might not be too good,” Monash’s Beaumont warns.
This would seem to be illustrated by a story that ran in the US press late last year, which examined the experience of a company that outsourced some IT database work to India. When the contracting company was late in paying, the person doing the database work threatened to divulge names and confidential details (including diseases afflicting them) of people in the database.
Beaumont also points to the risk of loss of distinctive competencies. He says a bank that outsources the development of software driving its automatic telling machines (ATMs) may advantage competitors or create new competitors because the skills and knowledge accumulated by the contractor are applicable to the development of a competitor’s similar system. It may be impossible to re-create in-house outsourced knowledge and skills, and once that happens the vendor may use its monopoly power to demand a high price for changes.
[b]Marriages Of Inconvenience[/b]
William Poole, Professor and chair of the Department of Computer Science and Software Engineering at Seattle University is considering outsourcing IT work to professional companies in India, and believes in some cases outsourcing overseas makes a lot of sense, but he is trying hard to get a grip on the true cost of doing so.
“We normally hear about the great cost savings, primarily attributed to salary rates being cut in half or quarter,” Poole says. “However, your major cost savings shrink for several reasons. Your travel budget grows significantly as you and your vendor must travel regularly to communicate face-to-face. Currently, your local salaries are steady or dropping while overseas salaries are rising significantly, making the cost savings shrink. Additional hardware and software are needed, adding to the cost.”
He says there are also communication problems because you are no longer just “down the hall” from the team you work with. Now they are halfway around the world, they work for a different company, they work when you sleep and vice versa, and your culture, pronunciation and language possibly are different.
“You will not know the major consulting businesses, you will not have the contacts and you don’t know the quality in the overseas markets,” Poole says. “Most of the security-related work and most business functions will stay at home.”
Outsourcing creates change issues, Beaumont notes. “Outsourcing a function may entail dismissal or redeployment of employees, changes in the work they do or their transfer to the vendor’s employment and its different conditions,” he says. “And if an in-house system is replaced by a vendor’s system, there is danger of disruption caused by misunderstanding or failure to transfer data properly.
“Another general problem is what I call ‘cooperation vanishes’,” he says. “Jack and Jill are the team leaders for the client and the vendor. They bust their guts to get a negotiation settled, signed and sealed. They work fruitfully, they’re really good at their jobs, they get promoted and other more ordinary people take over the roles. These people don’t have knowledge, don’t have the history, and they may tend to look at the legal detail of the contract rather than continue the spirit of cooperation.
“On that theme I spoke to a lawyer once who said that the Australian law does not recognize a spirit of cooperation. Outsourcing contracts mostly assume and depend on cooperation between the parties for mutual benefit, but it’s like a marriage: the cooperation breaks down and you go to the law.”
And when lawyers get involved you can always count on some substantial unanticipated costs.
[b]Sue Bushell, CIO[/b]
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| Energy Dept. plan pushes science careers |
| 07.08.04 (8:09 pm) [edit] |
U.S. Secretary of Energy Spencer Abraham (news - web sites) launched a campaign Thursday to help the United States regain its footing as a science superpower by boosting the number of American students interested in becoming scientists and engineers.
The "Scientists Teaching and Reaching Students" program will award scholarships at national labs for math and science teachers. It will require the labs, including Los Alamos, Lawrence Livermore and Sandia National Laboratories, to host a total of 2,000 fifth and eighth graders for at least one day each year.
"The risks of a scientifically illiterate nation in the 21st century are too great for business as usual," Abraham told about 300 people under a tent at the Stanford Linear Accelerator Center. "Right now it appears that despite our grand national lab structure, despite the lasers, accelerators, electron microscopes, experimental fusion reactors and billions of dollars in research funds, we could fail to maximize our potential."
American students are rapidly being overtaken by their overseas counterparts when it comes to math and science. U.S. fourth graders ranked among the world's best in math and science but by 12th grade, the students trailed almost every other industrialized country, ahead of only Cyprus and South Africa, according to the Third International Mathematics and Science Study completed in 1999.
The effort announced Thursday will focus on students and teachers in middle school — a time when American children's curiosity in math and science often wanes.
The Energy Department and the labs will also sponsor an annual science expo, Science Appreciation Days and Career Days, where government and industry scientists, including Nobel laureates, will visit public schools.
"Young people are inspired to take up things like sports, music and acting," Abraham told the crowd, which included scientists who sported "Got Physics?" T-shirts, and about two dozen elementary students from a nearby public school. "I believe it's time we start putting our science leaders on the same footing as other celebrities."
Abraham said the department has not yet "costed out" the program, but he expected the country's 17 national labs to contribute money, equipment and employees.
The program "is certainly not a waste of tax dollars," said John Yochelson, president of San Diego-based Building Engineering & Science Talent, a consortium that promotes math and science education. He would like to see government-sponsored college scholarships for math and science students.
Still, it's unclear whether the initiative will stem years of declining enrollment in university science programs, and it's unlikely to change a broader trend: Engineering and science graduates from India, China, Russia and other developing nations dramatically outnumber those from U.S. universities.
Experts also worry about a reverse brain drain. Although highly educated foreigners for decades flooded U.S. universities and vied for jobs at American corporations, they're now able to find equally challenging work in their home countries, thanks to the [url=www.binarysemantics.com]offshore outsourcing[/url] of thousands of high-paying jobs to low-cost countries.
Heightened restrictions on work visas after the Sept. 11, 2001, attacks have also made it tougher for many foreigners to live here.
Abraham said the consequences of the declining number of American scientists could be dire — both to the Energy Department, which employs thousands of nuclear physicists, astronomers, cryptographers and other specialists, and to corporate America.
"It is a simple fact that work will migrate to the nation with the most skilled work force," Abraham said. "Our national security depends on having access to a work force that has highly advanced technical skills."
By RACHEL KONRAD (AP)
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| IT contractor confidence soars in improving market |
| 07.08.04 (1:37 am) [edit] |
CWJobs survey shows that nearly half of IT job seekers are more confident in getting a contract now compared to six months ago
IT contractors are becoming increasingly bullish about their prospects in the current jobs market, despite the threat presented by the European Union and [b]offshore outsourcing[/b] of IT jobs. Results of the latest contractor research from CWJobs, which surveyed nearly 3,000 IT job seekers in the UK, show that 43% of all IT job seekers are more confident of getting a new contract position than they were at the beginning of 2004.
The results of the CWJobs web-based survey also revealed that IT contractors are becoming more optimistic when it comes to salary increases as well: 54% of contractors expect their rates to increase in 2004 with 13% of these expecting an increase of as much as 20%. The most popular industries for job seekers were software, electronics/communication s and finance.
When prompted about possible threats to UK IT jobs, over 70% of respondents thought that [url=http://www.bslindia.com]offshore outsourcing[/url] and the opening up of the EU would increase competition for UK-based contract positions. However, the CWJobs survey also revealed that the EU presented an opportunity as well as a threat, with 72% of contractors stating that they would consider jobs outside the UK. The most popular destination was within the EU, with 83% interested in positions in existing EU member countries and 39% specifically interested in emerging member countries.
Perhaps unsurprisingly for IT job seekers, the most effective method of getting a contract position was found to be via online recruitment methods. 53% of respondents favoured job boards and job alerts, compared to 23% who thought that registering with a recruitment agency was the most effective way of getting a job.
Commenting on the findings, Richard Nott, sales director at CWJobs said:
“The threat of IT off-shoring and the EU has created a lot of fear and uncertainty amongst IT job seekers, so it is great news for the UK IT market that contractor confidence is on the up. However, with the market tightening up and competition increasing it is vital that contractors can find out about vacancies quickly and stay ahead of the game. As an IT specialist job board, CWJobs should be the first choice for contractors looking for new positions.”
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| Two million IT jobs in India by 2008 |
| 07.05.04 (8:48 pm) [edit] |
The number of software and IT service jobs in India will increase by 1.5 million to 2 million by 2008, according to a report. This represents a 40% compound annual growth rate.
This increase, said the report, is consistent with the business growth and workforce increase that has been observed in Indian software service providers and their Indian operations.
To prove this point, the report refers to Infosys and Wipro revenues growing by 40% and 36% and their staffing by 46% and 35% respectively in the past 12 months.
IBM and Accenture are expected to add 15,000 additional offshore jobs together by end of next year. Due to IT worker productivity gains and minimal IT spending increase, AMR Research, an independent analyst, estimates that US IT headcount requirements will grow at less than 1.5% or roughly 7 lakh workers in the next five years.
Since India’s capacity will grow by 1.5 million Information Technology workers, the net result is that not only will the demand created of 7 lakh new jobs be filled by India, but that 8 lakh existing jobs will also migrate to India. The 30% to 50% cost savings offered in India is too big a benefit to ignore and will more than counteract the jingoistic attitudes that threaten to delay the transfer of work.
The report said that despite the rumours of large US IT job losses due to offshore outsourcing, recent US department of labour statistics indicate that the number of jobs currently lost is still relatively small.
The department’s statistics show that the computer systems design and related services industry sector of the US economy lost only 20,000 workers or 1.7% in the last 12 months.
Analyst Lance Travis said in the report that companies looking to reap more than just savings offered by India need to plan their transition to becoming a globally sourced, strategic IT organisation.
To begin with, they must consider issues like segmentation of roles and responsibilities and governance that allow for work to be geographically dispersed, training and skills development to turn technology focused IT workers into business focused IT workers, and process restructuring that maximises the value of onsite and offshore people.
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| New ball game for outsourcing! |
| 07.04.04 (8:04 pm) [edit] |
United States-based Computer Sciences Corporation, the parent of Hong Kong-listed Automated Systems, raised quite a few eyebrows when it announced it had signed a US$1.6 billion (HK$12.48 billion) IT outsourcing deal with retail giant Sears, Roebuck and Company last month.
``In normal product buying or purchasing terms, nobody would plan that kind of money to acquire technology,'' Automated managing director Lai Yam-ting said at the company's office complex in Sha Tin.
``But in outsourcing services, that's a whole new ball game. We do see really substantial growth of business coming from outsourcing.''
Gartner Inc, a research and analysis provider of the global information technology industry, said recently that the market for worldwide IT services grew 6.2 per cent to US$569 billion last year, due to accelerating offshore outsourcing.
``Through 2004, outsourcing will continue to drive the growth in worldwide IT services market,'' Gartner's principal analyst Kathryn Hale said.
Lai admitted that IT outsourcing is not new but still offers a lot of business opportunities in Asia, and even though the trend may have started in the US about a decade ago it is only now that it is seeping slowly into Asia.
``Outsourcing will be a major trend in the next three to five years [in Asia],'' he said.
``Although not really in a big wave yet, everybody's been talking about it and it's a matter of time that they will embrace this concept.''
Lai may be right in pointing to IT outsourcing as one of the key focus in the company's strategies. Looking at the company's portfolio, the share of software services in terms of total turnover increased to 34 per cent for the year ended March this year, from 23 per cent two years ago.
In outsourcing businesses, IT services vendors like Automated help clients maintain their operating environment, inclusive of the IT solutions and products, and help senior management set up and maintain their IT environment.
Vendors also provide advice to clients, to help them become more efficient and more competitive.
``It takes time for the customers, or the end-users, to get used to this idea, and to get the management to accept this concept,'' Lai said.
``The initial selling cycle is obviously much longer than selling a product because the effect will not come out in the very short-term.
``That's why most of the outsourcing contracts last multiple years.''
Automated Systems (HK) was founded in Hong Kong with only three employees in 1973 as a subsidiary of CSA Holdings in Singapore, whose ultimate controlling shareholder is CSC. Automated was listed on the Hong Kong stock exchange in November 1997.
The company's regional markets include Macau, Taiwan, Thailand, as well as Singapore and Malaysia through its sister company CSA.
According to Gartner, CSC was the world's fourth largest IT services vendor last year with US$12.8 billion in revenue and a 2.2 per cent global market share.
``Vendors based in the United States and India have been most successful at driving sales outside their native regions of North America and Asia Pacific,'' Gartner's Hale said.
``Vendors based in other countries tend to sell primarily in their own country and then expand within their local region.
``As a result, vendors based in the United States and India are more experienced in global sourcing, another term for [url=http://www.binarysemantics.co...]offshore outsourcing[/url] , and best positioned for global expansion.''
Automated's relationship with CSC offers a good illustration.
``They (CSC) have been providing skills transfer to our guys here in Hong Kong and the region,'' Lai said.
``They have been feeding global contracts to us such as Motorola, Nortel and Dupont ... and that helps us prepare for the bigger wave coming in the next few years.
The latest Sears deal is a good example.
The 10-year agreement with Sears requires CSC and its global subsidiaries to provide desktop, server, voice and data network support, as well as services for systems supporting Sears-related websites and decision-support technology to the global operations of the US retailer.
``Through serving all these global customers, we are ready to serve any companies now,'' Lai said.
As it is, Automated has indeed been successful with clients from both the private and public sectors.
At the end of the last financial year, the company generated 54 per cent of its turnover from the public sector and the rest from the private sector.
Figures on the government's website showed that 88 per cent of its IT projects in 2002-3 were outsourced.
Some of Automated's latest private sector clients include Merrill Lynch, CLSA, Cathay Pacific Airways, Cable & Wireless and Prudential Assurance, while recent public-sector clients include the Housing Authority, Lands Department, Customs and Excise Department and other government departments.
Automated has also penetrated into the education sector, with recent major contracts that include the Open University of Hong Kong, Hong Kong Polytechnic University and Delia School of Canada.
[b]The Standard[/b]
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| Audit probes state job outsourcing |
| 07.03.04 (1:53 am) [edit] |
Investagtion to see how much state work is being sent overseas
A Bay Area lawmaker has won approval for an audit of state contracts to find out how much state-funded work is being sent overseas.
The audit, proposed by Assemblywoman Wilma Chan, D-Oakland, was approved Monday on an 8-5 vote of the Joint Legislative Audit Committee, which Chan chairs.
It will be conducted by the nonpartisan California State Auditor.
"I'm very concerned about the privacy issues raised by offshoring data operations," Chan said in a statement issued Wednesday. "For example, last year an offshore subcontractor transcribing (University of California) San Francisco patient records threatened to make them public, breaching privacy protections.
"We also need to know how many jobs are being sent overseas using state tax funds."
AB 1829, authored by Assemblywoman Carol Liu, D-South Pasadena, would require all state contractors to guarantee they and their subcontractors will perform all their work using U.S. labor.
The Assembly passed it on a 46-32 vote May 27, and it's now pending before the Senate Appropriations Committee.
The audit will probe outsourcing of state-funded work with a focus on any work that could raise public safety, consumer privacy and security concerns, such as creation and maintenance of DNA or fingerprint databases, medical records or tax data.
It will also examine whether the state should develop criteria for evaluating whether it's appropriate to send such work abroad.
Chan's audit proposal grew out of the committee's May 19 informational hearing on [url=http://www.bslindia.com]offshore outsourcing[/url] of white collar jobs in state contracts and job training programs.
The committee was told the state lacked a central contract database and so couldn't provide the information this audit will seek.
By Josh Richman - Tri-Valley Herald
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| US Chamber endorses offshoring! |
| 07.01.04 (11:08 pm) [edit] |
US Chamber of Commerce President Thomas Donohue is promoting overseas outsourcing of jobs as a way to boost the economy and even increase employment - a stance that rankles the flagging technology industry.
Donohue, speaking to the Commonwealth Club of California, said he believes exporting high-paid tech jobs to low-cost countries such as India, China and Russia saves companies money that they may use to create new jobs for Americans.
CEOs from Wall Street to Silicon Valley have embraced the theory, and the pace of offshoring has shocked statisticians and economists.
In early June, the Bureau of Labor Statistics downwardly revised projections for white-collar job growth for 2002-2012, based on accelerated job migration.
The agency reported that seven of the 10 occupations expected to gain the most ground are low-wage occupations that do not require a college degree.
Technology consulting firm Gartner estimates that 10 per cent of computer services and software jobs will be moved overseas by the end of this year.
The job outlook in the San Francisco Bay area - home to legions of unemployed programmers since the dotcom bust of 2000 - is particularly bleak. Nearly 31 pecent of local workers are worried about losing their jobs, compared to 18 per cent for the nation, according to a survey released by staffing firm Hudson Highland Group.
Donohue acknowledged the pain for people who have lost jobs to offshoring - an estimated 250,000 a year, according to government estimates. But pockets of unemployment shouldn't lead to "anecdotal politics and policies,'' he said, and people affected by offshoring should ``stop whining."
"One job sent overseas, if it happens to be my job, is one too many," Donohue said. "But the benefits of offshoring jobs outweighs the cost."
Although call center jobs have been migrating to the Philippines and Malaysia since the 1990s, in the past two years cash-strapped companies have exported high-paying jobs in research and development, software engineering, chip design and biotechnology startups.
Most of those jobs have gone to India and China, whose universities graduate hundreds of thousands of engineers each year.
General Electric, which offshores about 70 per cent of its technology work, designs medical equipment in its Chinese research center and studies nanotechnology at a lab in India.
Motorola is hiring 5,000 researchers for a global research and development center in Beijing, while Intel employs hundreds of researchers at its Russia Software Development Centre in Nizhny Novgorod.
President George W. Bush, facing re-election in November, has largely avoided the touchy subject in public appearances.
Some of his economic advisers have said that exporting labor to low-cost countries will reduce business costs, boost corporations' financial performance and thereby improve the US economy.
Democratic candidate John Kerry said last week in San Jose that "America can't put walls around itself" or reject the realities of the global economy. He has proposed tax reforms that would erase some financial incentives for companies to export high-paying jobs.
The Chamber of Commerce, which represents 3 million businesses, champions tax cuts, free trade and more liberal trade deals with China, and Donohue, 66, past president of the American Trucking Associations and regional assistant postmaster general in San Francisco and New York, likes to say that "business should stop apologizing" for perceived abuses.
But some experts are urging politicians and lobbyists to move away from rhetoric and start talking about what to do with jobless white-collar workers in tech hubs such as Silicon Valley, Boston, Seattle and Austin, Texas.
"Endlessly debating whether offshoring is good or bad is pointless - like debating whether you've had a good trip on the Titanic while the iceberg comes into view," Forrester Research analyst John McCarthy said Wednesday.
"The jobs go offshore today and the economic benefits don't come around for years. For the unemployed guy to accept business leaders' position is like believing Dick Nixon saying, 'Trust me, I'll take care of it all. Things will be fine.'"
Source: - [b]AP[/b]
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The BLOG will keep track of the latest Offshore Outsourcing moves and news! This is an attempt to get closer to the market and verify actually whats happening! SHARE YOUR THOUGHTS AND IDEAS ABOUT THE PRESENT STATUS OF THE INDUSTRY IN DISCUSSION.
"Tax return outsourcing gives the accounting firm the chance to keep its preparation business and remain competitive," said Allan Koltin, president of Practice Development Institute, a practice management consulting firm based in Chicago. "I wouldn't be surprised if this becomes the norm in the next couple of years."
- Accounting Today, March 2003
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