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.
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?
When did you stop beating your wife?
Don't you mean it is about class warfare?
If I get outsourced, so be it. Americans believe in ingenuity, and I will think of something. That's what America is all about.
If you want a guaranteed job, move to Cuba. Just don't ever complain, because you can't there.
When you ask a loaded question, what else do you expect in return?
Had you asked with an open mind, you might have learned that what he probably meant was day-to-day, minute decisions. It is indeed an achievement if a general manager can organize that properly. Because his job is keep an eye on the big picture and have a fresh outlook.
Sounds like you received what you asked for.
Unions are Marxist. "From each, according to his ability; to each, according to his need."
It is the citizenship that is a barrier to free markets in the first place. Relazation of that requirement is a move towards the freedom of the market, not away from it.
You criticized my remark for something I did not say.
We care if the creators of hi-tech move overseas. Not happening.
"To bad we don't produce anything here in the states ourselves anymore..."
What we don't care about is dumb labor. We believe that nobody deserves a job; you have to earn it.
Could you just tell me in one sentence: why do you have to have an opinion about things you have never examined?
No, what we are seeing here is an orchestrated movement of a few people here.
Workers of the world, unite! Lol, marxist.
Perhaps the workers should unite, Mr. Marx?
Where did I earn this slam? I should have kept on going with that story. The guy I was talking about also represented and campaigned for the MOST LIBERAL Republicans in our district. Fortunately my district was quite conservative (at least it was in the early 80s) and RINOs were routinely defeated in every primary. In fact this guy was a FORMER DEMOCRAT and probably feels very comfortable in TODAY'S Republican Party...perhaps like YOU DO.
No, it is a union, marxist nightmare.
You are confused. Communists distrusted trade unions. And rightly so as they got undermined by Solidarity in Poland.
Workers have the same right to organise as the businessmen have. Free society cannot function with atomized and isolated individuals. Citizens have moral duty to organize in defense of their group interests and in promoting common good.
Latin American plutocracies are not a good example to emulate in United States.
You forgot your last name, nanny. That would be, "state."
There, feeling better? You can have the last word: I am not interested in explicating this minutia.
Have a good night.
I just got done reading "Reagan's War, by Schweizer. It documents how communists infiltrated the hollywood unions, and tried to take control of them, for propaganda purposes, funded by the Soviet Union.
Reagan fought it, just about singlehandedly, and won. It was his core philosophy: individual freedom always wins over some commitee deciding for you.
Marxists always go for control of the unions first.
BTW, the favorite slogan of communists is, "Workers of the world, unite!" If that is not union, nothing is.
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