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.
If that was ever true, it is in the past. The unions don't have that kind of strength anymore. They don't have that influence anymore.
I stand behind my statement - there are more communists in our government than in the labor unions. They are everywhere making environmental laws, school decisions, military decisions, foreign diplomacy decisions, trade decisions, - just anywhere they can have an influence from local to national politics. They are in the movies and tv to get in those subtle messages.
Don't let your hatred of the union, blind you to the facts. If you really would like to know or do something about it. If you just want to bash unions or hate them - then continue live 75 years in the past and look no further.
Read my other post to you - but I was thinking more along the lines of politician type government people.
Maybe the ones in high levels making the laws and decisions -
I like one line quips that try to delfect the sustance of a post rather than actually discuss a post.
To each his own... I find that writing specifications is tedious and redundant. LOL
I find that software programs are exquisitely more precise, dynamic, and of higher dimension in the technical realm, then the specifications we use to describe them. When programming I find modes of expression that are not available in comprehendable written language. One is able to fold higher level concepts and a myriad of cognates into compact solutions to problems in a mathematical language.
Software is on the cutting edge of a vast unknown territory. Look at the genetic algorithms that construct novel and expert-defying electronic curcuits. Look at the artificial worlds being generated by Pixar & all. Look at the fantastic reshaping of the world as we know it brought out by the PC and its software. Look at the matchless prosecution of war facilitated by computer (software) enabled weapons. On all fronts, this mode of human expression is overwhelming past human endevor. About as unexciting as the Lewis and Clark expedition, I suppose.
While attending to the details and requisite precision may be tedious, the work and results are hardly uninterinting!
I'm sure that lots of 'programming' is banal, just like lots of writing is banal - but is is an error to characterize all such work as drivel. Like writing, programming provides a gigantic scale for undreamt compositions.
You reveal a profound misunderstanding of software when you dismiss computer programming as you do.
Only a socialist gov't is in the business of establishing equity.
Your gov't is supposed to provide public goods efficiently and get out of your way otherwise, Willie Green. Can you explain, why or whether you consider yourself a conservative? There you go, Beck_isright: I am still not sure, do these people not hear what they say or they hear and mean it?
The solution is just like with any any other commodity -- through a price mechanism. If you make $20/hour and produce 4 widgets, and a Chinese worker makes $8/hour and produces 2 widgets, once your salary falls to $16/hour or a penny lower, you are more useful than the slave labor.
What you don't fully appreciate is that innovation is NOT some eternal spring that only exists in America and which sprouts new gushers anytime we need them. Historically, scientific innovation and technological breakthroughs come in fits and starts and is entirely unpredictable when in comes to fruition. There are also NO assurances that America will have a lock on the latest Whiz-Bang technology that will lead to a new renaissance and prosperity for many. Especially these days when we export our technology all over the world.
To manage an economy based on the hope of eternally capitalizing on the latest scientific trends while ignoring the more mundane "heavy lifting" tasks of continually developing existing technology, which is the heart and soul of innovation anyway, is fool hardy at best. Also, the idea that MOST Americans have to change jobs and retrain every few years is laughable on its face. Why should they? Because some loud mouth contingent of "Free Trade" Loafers says this is so? Get Real. The end game of these trade policies is the destruction the American Middle Class and the vast wealth that goes with it...so that a tiny few can get rich in the process. When this becomes better known throughout the electorate more than a few politicians are going to be looking for retraining themselves.
Think about this: the MARXISTS in RED CHINA just LOVE YOUR TRADE POLICIES. That alone should tell you something.
Well, in that case, let's just dismantle everything our country stands for.
Exactly. The IT revolution has happened and is pretty much saturated in today's economy, having become more or less another commodity and another service - as essential as it is, but no more so say than oil and gas or food.
Perhaps there will be another technical revolution in another field of equal magnitude in economic importance, but if the IT revolution is the third revolution after the industrial and agricultural revolutions, there is no promise. We may have to wait a few thousand years.
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