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.
"People like you make me laugh. The virtues and ideas of which I expound are the same that the WWI and WWII generation of the United States lived."
Me, too. Hard work, individual liberty, refusing handouts, not depending on anyone, owning lots of guns, hating the feds, and hating unions. Yup, we share those values. One of us.
"It was during that time that the leaders of our government looked out for and helped the working man in this country and did not sell our jobs to overseas interests."
State your source. Of course, you can't. Just more Marxist progaganda.
"It was then that the officers of corporations tried their best to keep their employees employed"...
No, it was then when you could fire anybody for being stupid. It was then that EMPLOYEES showed up on time, dressed well, and had a good attitude. If they spouted envy of wages, or tried to unionize (same thing), the were out the door. They knew then that nobody owes anyone a job. If you want to bust your butt and kep your mouth shut, you were hired. If you were a marxist whiner, you were fired that day.
" and to make a buck in a moral way instead of filling their pockets and screwing anyone and everyone to fill their need for greed. "
More marxist crap.
"It was then that a hard working, honest, voting american could have a job for a lifetime all the while having time for his family and raising responsibile children who would continue their family traditions, etc. "
Yes, but see above. If you were a whiner, you were fired that day, unlike today, with union restrictions.
"Do we have this today?
Sadly, no. Except in small businesses, where they can still fire you if you whine about management.
" If you call me communist"
Marxist.
"and your family has lived here for more than one generation, "
Over three hundred years, non-Adams
"then you are the son or daughter of such said communist yourself as well as a bigot."
You forgot homophobe.
Stick around; we need you.
Socialists always depend on capitalists backing down. The house of cards collapses in the face of the truth.
We need you, your wisdom, and experience.
Government policies are what have skewed the playing field.
You, the individual, are powerless to set things straight on your own.
A change in government policy is the only thing that can restore equity.
Oh?
And what form of government would you suggest?
Heeh I just assumed that if I said that you'd call it protectionism, or nationalism or something. I completely agree with you on this.
" How is an American worker overpaid in comparison to a slave in communist china?"
A bogus Hegelian question. American workers are not overpaid. They are paid what the market will tolerate and observe. If the government intervenes and distorts market forces, then the ChiCom slave will get the business. Regardless of if we have a deal with China or not.
Society cannot always tolerate what the market may tolerate. We are paying for this by watching communist china turn into a modern nuclear power who has threatened us with war and certainly threatens a new cold war.
"Would an American also be overpaid in comparison to a slave in one of Nazi germany's concentration camps?" Ah yes, the old "Nazi" garbage. What you are attmepting to do is present the point of the Marxist without actually backing up your supposition with a logical starting point. It's not worth discussing. You refuse to accept the logic of free market laissez-faire economics without government intervention, or limited intervention at best. But you keep living in your fantasy world. Pick up a copy of "Atlas Shrugged". Get the large print version so you can't miss a word or a thought in it. Then get back to us.
Actually the communist and nazi examples are the same in my mind but others often dont see the atrocity until you compare it to nazism. The only point is to leave no room to avoid the communist example.
Society cannot tolerate whatever the market may tolerate. I accept a free market with free also meaning respected inalienable rights, but that is exactly what we do not have. You cant bring out the past and pretend that has anything to do with it now when we are not practicing it. We live in a world full of govt intervention by hostile govt's that have huge interests in undermining America.
If capitalists give up, then millions die, under communism.
But the funny thing is, if you just ignore the abuse they throw out, they fade away. They huff and puff (like the head of the Socialist Ba'ath party, Sadaam did), and like Cubans in Grenada did, and like the Soviet Union did. They all depend on fear; reality is sunlight on the socialist vampire.
Be proud of your beliefs, and laugh in their faces.
They always fade away, and it is so satisfying when they do. Trust me; be strong and fearless. Again; Laugh in their faces. They go away.
Free trade, free market Capitalism.
Yes, some will whine, and some will riot.
Let them--it only happens in democrat zones, anyway.
When unionist longshoremen make an average of $120,000 a year, for pulling levers on cranes, don't be surprised when the rest of us hate unions.
That simply does not respond. I'm talking about the difference in a market that may be perfectly happy with slavery, hired killers and mass murder gladiator combat at the local stadium and what a civilized society that respects inalienable rights can tolerate. A govt that acknowledges inalienable rights and hopefully a very limited one, is required.
If you can understand that our govt going to war against an enemy does not automatically mean we are socialists then you can also understand that govt that protects us against slave labor is also not a socialist one. Our govt protecting us against unfair intervention by another govt does not mean we have fallen into socialism.
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