Outsourcing and offshoring

[stevelarrison]

Hi everyone. I am new to this forum, but am someone who has been in IT for quite a few years. I am doing some research and trying to get a feel for what people in the industry think about offshore outsourcing.

What are your opinions on the topic?

Do you think it will have a negative impact on your career?

Do you think it will have any impact on your career?

Would you support legislation to curb the practice? If not, is there anything that could or should be done to curb the practice.

Your thoughts are appreciated.

 

[mikeblas]

America puzzles me. It sits on its ass watching Oprah and eating bon bons all day, then wonders why techncial jobs go to overseas, or why scientists or doctors are so likely to be immigrants.

You're far more likely to find a regular column in your news paper by a world-class religious figure or an well-known astrologer than you are to find a regular column by a world-class scientist or a matiemetician.

Why is that? Why do we think we can get away with suing the pants off of pharmecutical companies, then crying when there's not enough vaccine? Or no treatments available for our ills? Why do we cringe whe we see math problems but sit and stare when someone has an hour long documentary about their personal problems?

I think America needs a cultural shot in the arm around technolgy and knowledge.

Where I work, we outsource internal and external support. We enver seem to outsource any mangament function, which is curious to me. Most people who are technical wants to continue to do technical work, as far as I can tell -- they don't want to be managers. Then, why don't we outsource the middle management, or the mundane product coordination stuff (schedule tracking, compliance management, and so on) to outside parties?

If you ask any big software company what their assets are, they'll tell you that it's intellectual property and the people who make it. Great: why not focus on that, instead of management resources?

Maybe I'm all wet -- I'm a technology guy, not a businessman.

 

[Xipher]

America puzzles me. It sits on its ass watching Oprah and eating bon bons all day, then wonders why techncial jobs go to overseas, or why scientists or doctors are so likely to be immigrants.

Trust me, the ones worring about this aren't the ones watching that Oprah (at least I hope thats true). I ask you please, not to use the sterotypes again.

 

[BBowermaster]

For most development projects, overseas can't compete with us. Why? Sure, they may code faster and quicker overseas, but there is that language/cultural barrier that creates problems when it comes to handling client needs and requests. A couple of my own clients experienced this when they tried to get some projects done through sites like RentACoder by people overseas. Sure, the project was done quickly, but it was never 'quite right' or 'spot on' what the client wanted.

 

[stevelarrison]

America puzzles me. It sits on its ass watching Oprah and eating bon bons all day, then wonders why techncial jobs go to overseas, or why scientists or doctors are so likely to be immigrants.

I wouldn't agree with your characterization of the problem. Though there has been a rapid growth in the use of offshore outsourcing in recent years, the fact is that we still lead the world in areas like software development by a wide margin.

How many of the top 500 software companies in the world are Indian or Chinese?

Exactly 0.

How many are American?

Most of them.

You're far more likely to find a regular column in your news paper by a world-class religious figure or an well-known astrologer than you are to find a regular column by a world-class scientist or a matiemetician.

Why is that?

I think that it is because most scientists and mathematicians are better at doing their job than they are at entertaining. People like Carl Sagan who can keep the public entertained while educating them are rare.

Where I work, we outsource internal and external support. We enver seem to outsource any mangament function, which is curious to me. Most people who are technical wants to continue to do technical work, as far as I can tell -- they don't want to be managers. Then, why don't we outsource the middle management, or the mundane product coordination stuff (schedule tracking, compliance management, and so on) to outside parties?

Some jobs are simply more difficult to offshore than others. Though the press tries to describe the software development jobs that are going offshore as being high level, the truth is that they are anything but high level jobs.

Microsoft, for example, has a facility in India that is doing work that will be included in the Longhorn/Vista release of Windows. But the work going on isn't related to advancing the kernel, or the new Windows FS. They are writing a utility to migrate applications from previous versions of Windows. Not exactly rocket science.

For the most part, things that are being shipped to India are low level maintenance programming, and things that don't require a great deal of creativity. Cultural differences have created a situation where the United States is eons ahead of the rest of the world in the things it takes to make a software company successful.

Maybe I'm all wet -- I'm a technology guy, not a businessman.

I am a hybrid. I am a consultant, so all of my work involves outsourcing. But not the offshore variety of outsourcing. Though I am as comfortable leading projects as I am getting my hands dirty, I work with databases. (Database application design and development, Data Modeling/Data Architecture, and occasionally Database Administration)

But I also understand the economics behind offshoring, and do recognize that the forces behind offshoring are unstoppable. It doesn't matter whether you like offshoring or not, it is going to happen. The key to the future is to recognize the structural changes that are happening in our economy before they impact you in a negative way. I have started a blog on the topic that can be found at http://www.surviveoutsourcing.com . If you don't mind, I'd appreciate your opinion on the subject matter, and the angle that I am approaching the problem from.

 

[stevelarrison]

For most development projects, overseas can't compete with us. Why? Sure, they may code faster and quicker overseas, but there is that language/cultural barrier that creates problems when it comes to handling client needs and requests. A couple of my own clients experienced this when they tried to get some projects done through sites like RentACoder by people overseas. Sure, the project was done quickly, but it was never 'quite right' or 'spot on' what the client wanted.

The problem is a lot larger than just cultural differences. Really, anything that involves creativity is best done onshore.

 

[Minishark]

The only people that have to worry about their jobs being outsourced are the people who have absolutely no useful skills other than pure grunt work. As was said earlier, you can't outsource creativity. You also can't outsource business sense. You also can't outsource industry experience.
And just as a side note, the US does far more insourcing than outsourcing (something like 8 times as much). Along with fewer and fewer people choosing an IT field for their careers because they think they won't have a job, in a few years there may be a huge shortage of skilled IT workers in the US. Which means the people who are IT workers will be making more money and have more of choice of jobs. Which is good.

 

[stevelarrison]

The only people that have to worry about their jobs being outsourced are the people who have absolutely no useful skills other than pure grunt work. As was said earlier, you can't outsource creativity. You also can't outsource business sense. You also can't outsource industry experience.

I see the situation somewhat differently than you do. There are a lot of people who currently earn comfortable livings who do have to worry about outsourcing. If you are a pure programmer, and the skills you sell are things like C++ or Java instead of knowledge of business and industry plus tech skills, you can be replaced.

If you are a DBA or a Systems Administrator, and you aren't wrapping yourself up in pure business functions, then you are vulnerable. Space management, performance tuning, applying patches, and security roles don't take creativity. Designing the data model for an enterprise data warehouse does take creativity.

And just as a side note, the US does far more insourcing than outsourcing (something like 8 times as much). Along with fewer and fewer people choosing an IT field for their careers because they think they won't have a job, in a few years there may be a huge shortage of skilled IT workers in the US. Which means the people who are IT workers will be making more money and have more of choice of jobs. Which is good.

In addition to lower enrollment in CS/CIS majors throughout the western world, there is another factor at play. The aging of the existing workforce. We are only a few years from the point in time when baby boomers start retiring in large numbers.

In fact, not only do I agree with your point that there will be shortages of talent in certain segments of the IT marketplace, I have written about it at my blog. ( http://surviveoutsourcing.com/jla/index.php?option=com_content&task=view&id=25&Itemid=2 )
The key is to understand the changes in the marketplace and position yourself so you aren't in a vulnerable position.

 

[rcf1987]

I wouldn't agree with your characterization of the problem. Though there has been a rapid growth in the use of offshore outsourcing in recent years, the fact is that we still lead the world in areas like software development by a wide margin.

I couldn't agree more. America leads the in software devolopment while countries like Japan just make it cheap.

 

[mikeblas]

Though there has been a rapid growth in the use of offshore outsourcing in recent years, the fact is that we still lead the world in areas like software development by a wide margin.

How are you measuring that? Is America far ahead, or not very far ahead? Is their lead waxing or waning?

What my admittedly cloudy rant was meant to point out was that science and engineering isn't interesting to Americans in general. The relatively low rate of graduation in those fields by US citizens in American universities is a concern.

This is one paper that shows some of the stats behind the problem. More medical doctors are foreigners in the country where they've earned their degrees. Math/CS PhD's trail other disciplines by a staggering amount.

How many of the top 500 software companies in the world are Indian or Chinese?

Exactly 0.

How many are American?

Most of them.

Got a list? Not to call you out, but I would be interested in seeing a list of the top 500 software companies even just to see the list. How many of the top 500 are outsourcing or offshoring? By what percentage of their workforce?

Some jobs are simply more difficult to offshore than others.

Yep. Note that I was talking about outsourcing, not offshoring.

I'm aware of many of the things Microsoft is doing. I wouldn't consider only the large scale projects when painting an opnion of what the company is doing -- the company is outsourcing more work than ever, and will continue to do so. Microsoft also has the resources to get lots of H1-B candidates.

 

[mikeblas]

By the way, have you read Dude, Did I Steal Your Job? How about Rising Elephant?

 

[Minishark]

In addition to lower enrollment in CS/CIS majors throughout the western world, there is another factor at play. The aging of the existing workforce. We are only a few years from the point in time when baby boomers start retiring in large numbers.

In fact, not only do I agree with your point that there will be shortages of talent in certain segments of the IT marketplace, I have written about it at my blog. ( http://surviveoutsourcing.com/jla/index.php?option=com_content&task=view&id=25&Itemid=2 )
The key is to understand the changes in the marketplace and position yourself so you aren't in a vulnerable position.

It's going to be weird to see all these older guys with 15 or 20 years of IT experience start to retire. It's going to put all the younger guys in an unfamiliar place. For example, all anybody seems to be learning these days is Java/.NET when it comes to programming. What happened to all the people who know about Win32/COM/ActiveX and all that difficult stuff? They're all getting old and retiring. But somebody still has to know how to do that stuff. And they're not teaching it to you in college. At all. All you have these days are kids whose first introduction to programming was Perl or Python or something, and then they get to college and they can do Java fine, but when they have to actually start programming for a living you say C++ and they don't know what the hell you're talking about, so they end up writing code full of bad programming habits that were developed out of their college CS program telling them they'd never actually have to write that hard stuff because there would always be some old guy with years of experience who will do it for them.

 

[stevelarrison]

How are you measuring that? Is America far ahead, or not very far ahead? Is their lead waxing or waning?

Good question. There are a few ways to look at that statement. In the context that I am making that statement, I am referring to the business of manufacturing software. Companies like Microsoft and Oracle would be included in that list. Companies like EDS would not. (EDS and Infosys are services businesses, not software businesses)

What my admittedly cloudy rant was meant to point out was that science and engineering isn't interesting to Americans in general. The relatively low rate of graduation in those fields by US citizens in American universities is a concern.

I share that same concern. Too many students these days are entering the wrong fields. We already have too many lawyers and not enough engineers.

Got a list? Not to call you out, but I would be interested in seeing a list of the top 500 software companies even just to see the list. How many of the top 500 are outsourcing or offshoring? By what percentage of their workforce?

I just did some quick Googling, and the initial hits I am picking up are including services, not software manufacturing. I'll see if I can dig deeper.

But in the mean time, allow me to elaborate a little further.

The game of wage arbitrage has allowed companies like Infosys and Wipro to take on a lot of consulting assignments in the United States and in other countries. If their success was related to superior engineering talent, you would expect to see the same levels of success in the creation of ERP systems and other software packages instead of just in the services industry.

But we simply aren't seeing that success.

I believe that part of the answer is cultural in nature. In the United States, we tend to encourage risk-taking, and creativity. The same is not true in India. In India, the caste system creates an undue amount of "respect" for people in leadership positions. If a manager or lead technical architect tells their team to do something that doesn't make sense, they will march down that path blindly. In the United States, we aren't afraid to tell the leader that he is a bonehead and explain a better way of doing things.

As far as outsourcing is concerned, despite the name of my blog, it would be hard for me to criticize the industry. As a consultant, outsourcing puts food on my table. But I am bowing to the widespread misuse of the term. Most people aren't aware of offshoring, and use outsourcing in its place.

 

[stevelarrison]

It's going to be weird to see all these older guys with 15 or 20 years of IT experience start to retire.

Damn dude, though I agree with your sentiment, you are starting to make me feel old. At 41 years old, I have been in this field for a little over 22 years....

 

[stevelarrison]

By the way, have you read Dude, Did I Steal Your Job? How about Rising Elephant?

No I haven't, but I looked at the links you provided. Do you think it is worth looking at? (On a side note, in addition to recently launching my blog, I am finishing up writing a book on the same topic)

 

[mikeblas]

No I haven't, but I looked at the links you provided. Do you think it is worth looking at? (On a side note, in addition to recently launching my blog, I am finishing up writing a book on the same topic)

Rising Elephant seems interesting. Did I Steal Your Job? seems more pop-culture, though thumbing through it at the store made me think that it's interesting to hear the other side of the story.

But I am bowing to the widespread misuse of the term. Most people aren't aware of offshoring, and use outsourcing in its place.

I'm well-aware of the difference.

 

[Xipher]

I have heard (notice I didn't do a search on this, and don't remember exactly where the info came from ATM) that Microsoft actually hires a number of their programmers over in India. I haven't heard about this about Microsoft specifically, but some one else mentioned here on these forums, that he work in a company doing the same thing, and that it was often the case that the source code coming from the workers over there, lacked very much in the commenting side of things, and made it difficult to maintain and work with. I'm not sure it this may have been do due a lack of English over there, or if that was just what they were taught?

I'm working on a CS degree myself, and not because I was hoping to make a lot of money, but because I have a lot of fun doing it. I have been a bit worried about the job market when I graduate though.

 

[mikeblas]

Microsoft interviews globally. Interview trips go to colleges all over -- ones I've heard of include the Soviet bloc, India, China, Mexico, and Israel. Lots of hires come from Waterloo. All sorts of schools in the US, too.

I don't see any correlation between the national origin of an engineer and their liklihood to write comments, or write good comments.

I don't speak on behalf of Microsoft, by the way.

 

[stevelarrison]

Xipher, the best thing that you can do is become familiar with changes in the industry and prepare yourself to take advantage of those changes. I have been in the field for 22 years now, so the course I have set is pretty well established. But if I were working on a CS degree today, in addition to the pure IT technical aspects, I would target the bioinformatic industry.

Also, don't fall for all the hype you are hearing about the death of IT in the United States. As I pointed out in my blog in at post at http://surviveoutsourcing.com/jla/index.php?option=com_content&task=view&id=46&Itemid=2 , EDS by itself did about 13.5% more in business in 2004 than all of India. (I am refering to the IT outsourcing business)

But even though the death of IT in this country has been exaggerated, it still makes sense to differentiate yourself from the crowd. If you offer commodity services, you will be paid commodity rates (and compete with a lot of people to get those rates) Find a niche that is vital to some industry, but that doesn't have an oversupply of people. Then do what it takes to fill the needs of that niche. To be successful in the future, you need more than just pure IT skills.

 

[jgoewert]

I used to log a lot of the outsourcing and executive fiascos last year on my weblog, but moved onto less depressing things. One of my best was published on April 1.


---Fortune 500 Company Outsources Entire Executive Staff ---

SAINT LOUIS, Missouri (AP) -- In the boldest move to push their company back in the black, Conglomoritis Co. executives are outsourcing their own jobs to India.

"It's not about us, it's about the company and it's employees.", said CFO Morgan Pilecash. "We want our employees to enjoy the wealth of working for the most advanced and productive company on the planet."

Morgan claims that the revelation to cut back on salary came during a board meeting over cost cutting measures. In this time that many companies are off-shoring lower end jobs, like application development, call center support, and data entry, this move is expected to make a much greater impact on the bottom line.

"Sure, we could have taken away the free coffee, cut jobs, or not bought that new Gulfstream VI. We felt that our desire to see the company succeed outweighted our need for $10 million dollar stock options or company funded mansions. Our average executive was taking home $17 million in salary and other compensation while 99% of our employees only made around $23,000. This was a no brainer, we aren't idiots. There is no way that one of us was worth 740 of the people that actually keep this company moving."

Morgan's replacement, Apulashima Palinama, will assume the position of CFO for a total compensative package of $6,000 US.

 

[mikeblas]

There's an article on page 16 of the September 19, 2005 issue of Infoworld. The writing isn't exactly clear, of course:

... the slide in computer-science enrollment, which is down 50% or more at some schools in recent years.

That the popular media (like, notably, USA Today) is rife with inspecific and therefore useless stastical aggregations is what makes me think America is eating bon bons and watching Oprah. That it appears even in journals about highly technical fields like InfoWorld make me think it's got its feet propped up on a stack of math textbooks.

Scientific literacy ranting aside, what are the real numbers? What are the enrollment and graduation rates for various engineering disciplines? Are there enough engineers in America without offshoring? For now, for the future? How do salary forcasts for those engineers look?

The article also provides a table describing outsourcing. It says that companies with revenues less than three billion are outsourcing 27% of their IT budget toay, and forecasts 31% of the budget by 2008. For companies over three billion dollars, the percentage now is 26% and in 33% in 2008. The source cited is a survey of 95 executives through the Society of Information Management.

Of course, I can't find the "Society of Information Management" by searching. There's the Society for Information Management, and the Society of Information Technology Management. I think they mean the former.

What are the real numbers?

 

[mikeblas]

I also looked into the software companies in China and India.

UFSoft is in China; it's quite large -- according to a MicroStrategy article, it's got more than 3000 employees. Is 3000 employees not big enough to be in the top 500 of the world?

In India, the largest software firm is Tata Consultancy Services, and has almost 41,000 employees counting its subsidiary companies. I couldn't find a specific income figure, but they were the first over a billion in India. I think I read a quote that said something about $1.7 billion in revenue, which seems pretty small for the employment figure.

I really can't agree with your assertion, Steve, that "exactly zero" of the top software companies are Chinese or Indian. Maybe the problem is that you didn't specify how you were measuring "top".

 

[mikeblas]

I found a survey by Software Magazine which ranked 500 companies by revenue from software and software services. Some companies listed are certainly foreign, but provide a US headquarters address in the survey list. As a result, I might have missed some.

Here are the non-US companies I found in the Top 100.

#8 Hitachi, Limited at $9.4 billion. Hitachi is Japanese; their headquarters are in Toyko, about tweleve kilometers from where I used to live.

#11 NTT Data Corporation on $8.0 billion. They're a division of Nippon Telephone and Telegraph.

#13 Atos Origin with $7.2 billion. Formed from the merger in 1997 of two French-based IT services companies - Axime and Sligos.

#23 CSK Corporation, with $3.5 billion. http://www.csk.co.ip/ . CSK is two companies, CSK Holdings and CSK Systems. The latter doesn't even have an English-language website, AFAICT.

#79 Trend Micro, at $603.7 million. http://www.trendmicro.com/ Founded in California, but headquartered in Shibuya-Ku, Tokyo.

The Last 5 companies had sales of about half a million dollars; www.wizzardsoftware.com was the last on the list. It's hard for me to believe there should be no Chinese or Indian software companies on this list -- there's got to be more than a few which are bringing in more than US$500,000 per year!

 

[stevelarrison]

Note that none of the countries mentioned in your previous post are Indian or Chinese. As I said before, their culture is very different from our own. Risk taking and independent thinking aren't very prominent in either culture.

And group-think does not do good things for software development.


Steve Larrison
http://www.surviveoutsourcing.com

 

[stevelarrison]

There's an article on page 16 of the September 19, 2005 issue of Infoworld. The writing isn't exactly clear, of course:

....

Scientific literacy ranting aside, what are the real numbers? What are the enrollment and graduation rates for various engineering disciplines? Are there enough engineers in America without offshoring? For now, for the future? How do salary forcasts for those engineers look?

When you look at the numbers, you will find a dramatic falloff in the number of CS/CIS majors in college. One thing you have to look at is the baseline number that is used for comparison. Most studies I have seen compare to a baseline from the year 2000.

Of course, if you look at older studies on the subject, you will find that at the tail end of the dot-com boom, the number of CS/CIS majors were nearing historic highs. I am not sure about other engineering disciplines, but in the IT world, we are at about the historic mean in production of graduates.

Of course, that is discomforting when you consider the growing influence of informationt technology in our life and in the work world. Though there have been numerous developments over the past couple decades that have increased productivity, it appears that there will be a shortage of qualified people in some segments of the market in the very near future. At the same time, other segments will have too many people.

The article also provides a table describing outsourcing. It says that companies with revenues less than three billion are outsourcing 27% of their IT budget toay, and forecasts 31% of the budget by 2008. For companies over three billion dollars, the percentage now is 26% and in 33% in 2008. The source cited is a survey of 95 executives through the Society of Information Management.

I don't know about you, but those numbers sound high to me. Obviously they are including onshore outsourcing and offshore outsourcing in the same bucket, but the numbers still sound high. According to an article linked to my post at http://surviveoutsourcing.com/jla/index.php?option=com_content&task=view&id=46&Itemid=2 , the world wide IT marketplace was 1.4 trillion in 2004. The US consumed $700 billion of those resources. India is the largest player in the offshore outsourcing market, and they did a total of $17.9 billion worldwide ($12.172 billion for US customers)

 

[stevelarrison]

I used to log a lot of the outsourcing and executive fiascos last year on my weblog, but moved onto less depressing things. One of my best was published on April 1.


---Fortune 500 Company Outsources Entire Executive Staff ---

SAINT LOUIS, Missouri (AP) -- In the boldest move to push their company back in the black, Conglomoritis Co. executives are outsourcing their own jobs to India.

"It's not about us, it's about the company and it's employees.", said CFO Morgan Pilecash. "We want our employees to enjoy the wealth of working for the most advanced and productive company on the planet."

Morgan claims that the revelation to cut back on salary came during a board meeting over cost cutting measures. In this time that many companies are off-shoring lower end jobs, like application development, call center support, and data entry, this move is expected to make a much greater impact on the bottom line.

"Sure, we could have taken away the free coffee, cut jobs, or not bought that new Gulfstream VI. We felt that our desire to see the company succeed outweighted our need for $10 million dollar stock options or company funded mansions. Our average executive was taking home $17 million in salary and other compensation while 99% of our employees only made around $23,000. This was a no brainer, we aren't idiots. There is no way that one of us was worth 740 of the people that actually keep this company moving."

Morgan's replacement, Apulashima Palinama, will assume the position of CFO for a total compensative package of $6,000 US.

LOL! If you don't mind, I'd like to borrow that post for my blog next April 1st.

 

[mikeblas]

Note that none of the countries mentioned in your previous post are Indian or Chinese.

Obviously, you missed this post.

 

[stevelarrison]

Obviously, you missed this post.

Microstrategy is a US company. If memory serves me correctly, their headquarters are in Ohio. (They make a pretty good OLAP tool for very large data warehouses)

TCS isn't a software company. They are a services company. (and part of a larger conglomerate in India that is into a lot of industries including automobile manufacturing) At $1.7 billion in revenue, they have about 8% of the business that EDS has.

 

[mikeblas]

TCS isn't a software company. They are a services company. (and part of a larger conglomerate in India that is into a lot of industries including automobile manufacturing) At $1.7 billion in revenue, they have about 8% of the business that EDS has.

The Top 500 list from Software Magazine combines the two; the revenue totals listed are for software and services combined. Oracle and IBM both sell more services than software, if I recall correctly.

 

[stevelarrison]

The Top 500 list from Software Magazine combines the two; the revenue totals listed are for software and services combined. Oracle and IBM both sell more services than software, if I recall correctly.

I believe that you are mistaken about Oracle. IBM does sell more services though. (So any list you see that doesn't have Microsoft at the top is a combined list)

But there is a reason why I make the distinction that I do. Though both software manufacturers and software services companies produce the same type of product (software), there is a fundamental difference in what it takes to be successful in each respective market.

In the software services industry, you need to instill customer confidence that you can deliver a solution that will meet the requirements and provide that service at a "reasonable" cost.

In the software manufacturing industry, you have to be able to take the pulse of the collective market to determine a need that is unmet, or undermet. You then have to expend resources to develop a solution for that need, and market it to the masses.

The software manufacturing industry is dominated by Americans because there are several qualities required to be successful that just happen to work very well with the culture of our country. If being able to pound out code cheaply were the sole criteria for success, then countries like India and China would do better in that arena. With low wages comes lower total cost of production of a new product IF all else was equal. Yet the market is dominated by high wage countries.


Steve Larrison
http://www.surviveoutsourcing.com