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.
You are not very logical.
My G-d you are not just from a communist country: you are still a commie! There you go folks: the power of indoctrination. A.Pole lives in this country, and still thinks in terms of group inerests (classes).
The distinction between interests that citizens have in common and group interests is central in this country: learn it, if it is now your country.
MonroeDNA: it does not look like A.Pole reads much. (s)he draws conclusions from personaly experience. In particulat, he is not familiar with the history of the communist party, although I am sure it was a required subject in his old country. You are correct: communists loved and infiltrated trade unions as a one of the first measure. It is only in the last decade of communism --- and only in Poland --- that there was apprehension of the trade unions because the unions took a separate path and became increasingly dangerous. Nothing like --- not a squeek --- was there from the unions in Russia, Ukraine, any other country. In sum: the bifurcation bwetween the two is only a Polish phenomenon, and only in the last decade before the fall. You are correct in your assessment.
I couldn't agree with you more.
Ultimately the companies which succeed will do so because of innovation and eficiency. Keeping our system closed would ultimately eliminate the need to have either.
First of all, OUR SYSTEM is the most OPEN SYSTEM in the world so it's not a matter of "keeping our system closed. You better talk to the rest of the world about that because they apparently do not share our values concerning open trade.
The trade issue, like most issues, does not lend itself well to either of the extremes-- the extremes being unfettered Pure Free Trade (which we don't have btw) or Total Protectionism. Unfortunately, many Advocates of our so-called free trade policies often instantly tag anyone that utters criticisms about it as "protectionists". The implication, of course, being that such people do not believe in world trade, which I assure you is NOT the case. Such is Art of Political Warfare I guess. You know, the old technique of re-defining your opponent into the realm of "fringe" and therefore irrelevant to the debate.
Speaking for myself, the optimal position on trade is somewhere in the middle of the extremes but closer to the free trade position. But it's a mistake to embrace free trade theory like it is a some kind of religion, which has no dark side. It does. And this should be quite apparent to most by now.
"That is not very logical."
Why? Not the same slogan?
Cute - not original, though.
Refute the statement, or try to - silly remarks are really - well - silly.
Did I say anything about the government? I did not. All I said was everyone claims they just love all these cheap prices, but so far there are no cheap prices - even at the check out stand.
Well, now there is all that cheap plastic Chinese geegaws, if that is your taste - but I was assuming most people's taste ran to better things.
So come on - more silly remarks or some facts here. Tell me why labor has been reduced from $15 to $1 an hour and the prices stay the same. No one likes to be taken - but you can't deny it - Come on now.
I have one, I know.
I truly do not know - but could you expound on that? I mean we have heard the reasons corporations are going overseas is because they are being taxed to death. I have never argued differently because I truly don't know.
You are absolutely right! By taxing corporations/businesses, government hides the TRUE level of taxation it exacts on us. The business sector merely takes the tax that the feds and states levy on it including those insidious regulatory "mandates" and passes it on to the consumers in the form of higher prices. I am always amazed how the republicans roll over on this one, especially when the democrats talk about taxing those greedy corporations. Seems that no one in Washington wants to set the record straight about the sham of taxing business. I guess if more people knew they might rightfully ask for more tax cuts.
No we are redistributing our wealth to unequal societies with lower standards and cheap labor. As long as our standards our unequal we will not be able to compete. Either ours will go down or we will PAY for theirs to come up. But why should a country that uses slave labor for instance bring their standards up to our level?
Yep. I've tired explaining this to a lot of people over the years and most folks simply do not understand or care what their Combined TOTAL RATE of taxation is (fed, state, local--direct, indirect). It is in the 60-65% range for most employed people...even more in some cases. And the tax I hate the most is property taxes. A tax one pays to the state for the right to "technically" own property. In the truest sense, we just rent property from the state.
I am sorry, only God is perfect. You fell into the trap of free market fundamentalist cult.
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