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.
At the bottom of it all, if you strip all the political theory and economics, what you said is exactly what differentiated this country from Europe.
No, he should try to find an alternative employment
Well that's the theory. What's gonna happen in practice is that he'll vote Democratic and we'll get another four years of a Clinton incarnate.
Not to contradict you: the confused ones will vote Democratic in anger, I agree.
But they will also find alternative employment. When the steel industry went down, none of the previously employed there was recorded to have died from hunger.
But they will also find alternative employment. When the steel industry went down, none of the previously employed there was recorded to have died from hunger.
Sure, they applied food stamps. Not a very conservative solution, is it?
You know it is amazing to me people always say they prefer these cheap prices. So-called, because prices have not come down. Why if we once bought something a worker was earning 15 dollars an hour to make - now we are paying 1.00 an hour, is the product not 15 times cheaper? Hmmmmmmmm? Also, no one ever factors in the added costs to the consumer of paying more and more taxes because their countrymen are out of work.
I am just wondering if all those people who spent so much time in college learning the 'buggy whip' analogy - might should have been learning real economics.
It is amazing people seem to think they understand the concept of a global economy in which you make products, other countries make products and you buy and sell to one another - yet they don't understand that business once worked fine that way in America. We all worked, bought from each other, and everyone had a pretty good standard of living. Now some have a great standard of living and some are on a downhill slide. Hmmmmmmm?
True. What the MBA types don't realize is that you can squeeze people only up to a point. After Hoover, it took twenty years before another Republican was elected and MBAs will not see this freight train coming until it runs over them.
Sure, like phony disability, drug dealing or government work (prison guards.)
And your point is?
Very insightful observation and, I think, exactly right.
And nowehere will the disalignment of interests become more clear than at the time of war, when national loyalties stop the goods flow at the borders.
If not sooner that is where it'll stop --- at the next serious war, which I think is coming.
And your point is?
Well, there is a religion - I forgot its name, but it has
The Eleventh Comandement
Thou Shalt Not go against the (sic) tenents of a free market
(sarcasm off)
Now they are sending the "service type" jobs overseas.
I wonder...what type of an economy are we to be now? I suggest, if the trend continues, the 'welfare economy'.
Only the good ones. We're keeping the crappy ones. Want some fries with that?
You: No. Has it occurred to you that the outsourcing mentioned in this article INCLUDES the Japanese and German auto facilities that are located here?
After rereading article, absolutely is no mention of any foreign auto manufactures with US operations within the article by name. Moreover, the list of "Fortune 500 and 1000 firms that lead the trend of outsourcing" are by definition are solely US firms because Fortune excludes foreign companies in their 500 and 1000 rankings.
So, is it bad for the US to outsource jobs but good for foreign companies to outsource jobs to the US? I thought you believed outsourcing was an abject evil in all cases. Be consistent.
Allowing foreign workers in via L1 and H1 is meddling with the "free" market to begin with.
Could you just tell me in one sentence: why do you have to have an opinion about things you have never examined?
I am speechless. But not for long, plant.
Perhaps the workers should unite, Mr. Marx?
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