Posted on 04/21/2003 11:41:20 AM PDT by Willie Green
For education and discussion only. Not for commercial use.
To trim costs last year, Alpharetta-based MAPICS outsourced approximately 80 percent of its major application coding and development to New Delhi, India-based HCL Technologies and formed a five-year partnership.
A year later, the money saved, an estimated 35 percent compared with handling the labor in-house, helped keep the firm profitable in a troubled economy and to facilitate its $30 million acquisition of competitor Frontstep Inc. (Nasdaq: FSTP) in January.
"It's just a good model for us; what it gives me is the flexibility to scale up or down depending on the product development projects over time," said Alan MacLamroc, chief technology executive for MAPICS Inc. (Nasdaq: MAPX), a manufacturing software services provider.
MAPICS is just one of a growing number of U.S. companies outsourcing IT development and software writing overseas to save money, and the trend is expected to grow, according to industry analysts.
The North American IT outsourcing market is projected to increase from $101 billion in 2000 to $160 billion in 2005, and 26 percent of firms already using offshore services plan to double their spending in this area within the next year, according to Gartner Dataquest.
Popular locations for IT outsourcing include India, Ireland, China, Singapore, the Philip-pines, Russia and South Africa.
This trend is similar to companies sending manufacturing overseas to take advantage of cheap labor and operating costs 25 years ago, said Martin Tilson, partner and chair of the technology practice in the Atlanta offices of law firm Kilpatrick Stockton LLP.
An increasing number of noncore services are also being exported to educated offshore work forces, including IT services, product and software development, call centers, human resources, bookkeeping and even entire financial departments, he said.
"We live in an electronic global marketplace where physical borders are less constraining, so once services are moved out and working properly, short of a cataclysmic war where borders are closed, they are probably not coming back," Tilson said.
Within the next 15 years, U.S. companies will send abroad an estimated 3.3 million U.S. service industry jobs, or $136 billion in U.S. wages, according to Forrester Research.
MAPICS' outsourcing to HCL Technologies Ltd. resulted in an approximately 12 percent staff reduction, and the company also underwent a restructuring last spring after the January 2002 deal, MacLamroc said.
Fortune 500 or Fortune 1000 firms have led the trend of offshore outsourcing, with small to midsized companies accounting for just 1 percent of all outsourcing.
That number is not expected to increase to more than 10 percent by 2005, according to Forrester.
Countries compete
The number of countries offering cheap IT labor is also in flux, with new players entering the market while more established ones mature, said Stan Anderson, managing partner at TechDiscovery LLC, an Atlanta-based software development outsourcing provider, which is considering bidding jointly with Indian firms for jobs.
"There's quite a bit of competition among developing shops in cities like Hyderabad and Banglor," he said. "They're now hiring from each other in much the way it was in Silicon Valley a few years ago."
However, if Indian IT salaries are driven up too significantly, cost advantages may diminish, with U.S. companies looking to other locales for talent, Anderson said.
For example, Israeli software firms, once a low-cost alternative, are now more likely to team with U.S. companies as equal players, said Tom Glazer, president of the American-Israeli Chamber of Commerce, Southeast region.
Not all overseas outsourcing experiences offer a happy ending, and companies should ensure that projects sent offshore are clearly defined in terms of goals and technical requirements, Anderson said.
"If you can't explain it to people thousands of miles away, you're not going to have a satisfactory outcome," he said.
MAPICS evaluated potential outsourcers rigorously, checking company references with other firms who had used them and carefully evaluating each contractor's network infrastructure, MacLamroc said.
Communication
A key factor to success is ongoing management and training, as well as ongoing daily communication with the vendor, made easy by videoconferencing advances, he said.
"We have online meetings where we may be projecting the actual application screens live and walking through a design review or an actual code review," MacLamroc said.
Although security might seem like it would be a bigger concern when sending work overseas in the current climate of terrorism, MacLamroc said he felt no more worries in this area than if a project was done domestically.
"Back when there was a lot of saber-rattling between Pakistan and India, we did fairly extensive what-if planning with the vendor in case things were to spiral out of hand," he said. "But I don't think there's any significant difference with security. There are just heightened security [risks] everywhere around the world right now."
Anya Martin is a contributing writer for Atlanta Business Chronicle. Reach her at atlantatechbiz@bizjournals.com.
It's very simple friend: if a guy in Ahmedabad (this is where all the IBMs and Microsofts set up shops) is getting, say, $15/hour and your were to offer $10 --- you would get that job.
Now, I do not know the exact numbers, and I Do not even think that they are available yet. I do know, however, how businesses operate. When the issue was studied, the shop in Ahmedabad was projected to produce more per dollar than your friends that "want anything." To shift the balance, your friends must make lower offers, which they are not ready to do.
Have you ever thought that the Japanese and German auto companies that have built car assembly plants in the US are doing the same thing except we're the outsourcees?
Very little of the "big brain" thinking regarding engineering is done at the local plant level for the new plants - all that is kept back in the mothership. The Americans working in the foreign-owned auto plants are there solely for their relatively cheap labor compared to those in the owner's countries. A majority of the car componets are shipped in from the mothership and assembled here. These companies wouldn't have built these plants from scratch unless it was significantly more cost effective (for them) in the long run than continuing to ship fully assembled cars.
The auto plant jobs are just there to make us locals feel better about our international trade gap.
American corporations have finally jumped on the outsourcing bandwagon that started abroad long ago...
In a nutshell, this is exactly how the market works. YOu are complaining that the ocean does not end where you want it to end. The market is the market: sometimes it works in your favor, sometimes it does not. In the former case, one should thank G-d, save for a rainy day, and not to increase expenses (move to a bigger house, for instance, or buy a better car). In the latter case, one has to read the signals and ask how one can adjust better to the changing environment. One year of the most expensive MBA costs as little as the low-end BMW. Had some of your friends done that, they would not be in the position they are today.
But because of difference in the cost of living this $5 will be paid with larger expenses (or reduced incomes) by others in America . That is why we need tarrifs to level the playing field.
They did not want to do it! They were forced in 1980's by American government under the threat of closing the market access. At that time still the national interest counted more than the free market cult.
And if the guy in Ahmedabad is getting, say, $2/hour? Should he offer $1.50/hour?
No. Has it occurred to you that the outsourcing mentioned in this article INCLUDES the Japanese and German auto facilities that are located here?
Next time you call someone a commie I did not: I said they you are repeating commie propaganda.
hose family has lived in Virginia since 1607.
OK, I'll call you Sire if it you'd like, but what does the pedigree have to do with one's views? Friedrich Engels was German whose family lived in Germany probably since the Gothic invasion, and yet he is one of the fathers of communism. How many descendants of those who shed blood in the Revolutionary War are now screaming anti-war (anti-American) protests? One thing that differentiates us from the Continent and England is that our pedigrees do not determine who we are (except for the country club dues in "restricted" places).
I can see that you can and should be proud of your ancestry, but that point is irrelevant.
At some point in your life, you should move beyond these generalities which anyone can repeat ad infinitum.
What are the limitations of capitalism? What are the "imperfections?" You do not say and I was hinting --- again, it's not my intention to offend you --- your posts indicate that you have no clue about the subject.
Which is fine: we all have a limited knowledge. However, intellectual honesty dictates that, when one steps into a subject he knows not, he refrains from judgment. That was the only point I was trying to make. I've said, you are welcome to ignore it.
It is because being CEO is a vocation like being a minister. If the congregations paid many times more their pastors, the wrong type of people would take over. The people with true calling would be pushed out and the affected denominations would decline after some period of phony flashy success produced by money minded, selfish crooks.
Not only the law of diminishing returns applies here, but the return can be even NEGATIVE.
The general consensus in the software industry is that their work is shoddy and unreliable.
In other words, just like much American code.
The general consensus among management is that at a fraction of the cost, that's more than acceptable.
Management perspective: "I can pay $1,000,000 for unworkable crap made in America, or I can pay $650,000 for equally unworkable crap from India."
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