Offshore outsourcing grows

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.

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.

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."

the logic of free market laissez-faire economics without government intervention, or limited intervention at best

Well, which is it? They are not the same. We have experienced the former - and ended up with a country run by Robber Barons, you know, where the railroad baron also owns the town and the shop, and pays you $1.00 a day and gives you credit at the company store for the extra $.10 a day it costs to live. Why do you and your fellow laissez faire travellers think that a world run by big corporations, run by the MBA's that so many here despise, is better than one run by an elected government.

Since we long ago surrendered laissez faire capitalism - and our hero TR was a principal trust buster in that effort - we are now left with the latter, limited government intervention. Having admitted we must have the cammel's nose under the tent flap, how much of the cammel do we admit. There are some things the government is lousey at, including the efficient production of most services, many of which can be, should be, and have been privatized. The service that no one here mentions that the government provides is a system of laws that make the rest of our lives, commercial and personal possible. Most of us would agree that in general there are far too many of them. But the laws are what we rely upon to keep Chester Crocker and JD Rockefeller from owning the whole place.

Then you must explain in detail what is bolded instead of attributing a strawman argument to me. I have constantly pointed out that govt intervention is making us uncompetitative with for instance slave labor. Please explain how the free market will solve this problem?

You are missing the key point. The worshippers of free market see nothing wrong with slavery. Slavery means that humans can be a commodity as any other item including their labor. Slavery means more freeemarket and so it is good according to them.

They will not tell you openly this but this is their ultimate dream. The Latin American stratified latifundist society is only a step into this direction.

BTW, the free market justification for slavery will be that people should not be prevented by their government to enter contracts (debts for example) which can lead them to be sold. So in the minds in the free market fundies the "slavery is freedom" and "freedom is slavery" as Orwell phrased it.

Beautiful. One of the biggest problems for the laissez faire cool-aid artists here is that the American Constitution is not a laissez faire document, and that is so because at least one of our founding fathers, Jefferson, even then, feared the power to enslave of big capital. Nor is the Declaration of Independence. That all men are created equal, the right to life, liberty and the pursuit of hapiness rights granted equally to all men are not laissez faire concepts.

The further problem with the laissez faire crowd is that they don't like laws it would appear. Yet it is those laws that enforce just contracts. So, perhaps laissez faire would work, if the deal I do today I can undo tomorrow if I don't like it. I can sign a contract to make myself a debt-slave, and then tomorrow walk away free because there is no controlling legal authority. Or do these folks suggest that the controlling legal authority - the enforcers - would be private gangs of thugs hired by those companies that could afford to hire them. Humanity has been down that road and has moved on - thankfully. The transition from private justice to the king's justice is one of the developments that ended medievalism and began the modern era - including the capitalism of which THEY are so fond.

I detail how a reduction in taxes doesn't mean lower prices for the consumer? False? Stick to the issue and don't resort to personal attacks if you are fustrated by your ability to convince me of your questionable postions. You disagree with me, fine, but insulting me doesn't make your case. If I'm wrong, I'll gladly say so, but you have to prove it first.

Top Quark likes to impress with big words and hard concepts, such asintimidating people about solving Maxwell's Equations, as if he really understands much about these things himself. Then he likes to put words in your mouth, jump to unwarranted assumptions and beat you over the head with them. Since I am one who has solved Maxwell's equqations in a professional capacity for a variety of applications, I can assure you that this is a mere distraction, completely irrelevant to the argument he is not trying to make because as near as I can tell he is incapable of an extended logical argument.

There is a very good argument about whether or not to tax corporations, which has to do with the theory of economic rents. It may be that a particular commodity or product is fundamentally cheap to produce, but sells dear because of the value in the market. Such for instance is the case of oil produced in the Persian Gulf, or rock quarries in cities and towns (for this reason they are a favorite kind of investments for Peter Lynch). Under these circumstances, the sales price is established by the market only and has nothing to do with costs of production, taxes, etc. A legitimate public policy question is to what extent to tax these "free gifts" of the market-place. Top Quark, conveniently forgets all the parts of classical economics that don't suit his line of thinking. A Laissez Faire capitalist will tell you that the boodle is his and you should go tax someone else, but that is not very convincing.

The counterexample is in highly competitive industries, such as airline tickets, where any tax added by the government is immediately passed on to the consumer, because the airline can and must, profit margins being what they are.

Top Quark may have worked as a consultant for companies to advise them on new ways of increasing profits. It is quite general knowledge that they and everyone else also hires one of the big accounting consultancies to figure out how to minimize their tax liabilities, a strategy that Fortune 500 companies have been incredibly successful at, explaining to some extent the large discrepency between pro forma earnings and what is reported to the IRS for tax purposes.

The problem is not what I would approve of, "limited interventionism", by the government. The problem is that we now have unlimited intervention. The United States left the concept of free market capitalism behind in 1932 and yet the "robber barons" you fear are still around (i.e., Bill Gates). The difference now is that you can buy the politicians in a much more efficient manner than you could in TR's time.
Until we accept that we have and change the quasi-socialist state that has been established, our nation will flounder. We are on the path of Europe and I hope everyone is ready for the stagnation which will occur. The happy medium we needed between government oversight and corrupt business ethics has been erased. Now we have instead, corrupt corporate ethics with a corrupt socialist government. And as you can see by the elimination and whittling away at personal freedoms, the elitists are winning their way, and the Marxist utopia many envision for our nation is not that far away.

"You are missing the key point. The worshippers of free market see nothing wrong with slavery. Slavery means that humans can be a commodity as any other item including their labor. Slavery means more freeemarket and so it is good according to them."

Total bovine scattology. Where did any of us "worshippers of free marke" state "slavery is okey dokey"????? You won't find it on this thread. Most of us concur that slavery is evil (I won't speak for everyone, but will assume quite safely). But you are under this mind-numbed robot induced spell that we are supposed to invade every nation in the world and correct their ills. Your choices are quite simple. You can do business with these nations and hope that eventually our ideals, as they have been for the last 30 years in China, will filter down to the populus. Or you can invade. Or we can build a wall around America and you can stay at home sucking your thumb to avoid these other evil nations.

" They will not tell you openly this but this is their ultimate dream."

The true intentions of your posts is now displayed. This is the biggest pantload of crap to come down the pike since Teddy Kennedy said "what broad in the car in the water". You are amazingly ignorant.

"The Latin American stratified latifundist society is only a step into this direction."

Well gee, what do you want us to do. Quit trading with Latin America because they will not become democratic or form unions? That's a great idea, let's break off diplomatic relations with Honduras, close all the textile plants and see if the people are any better off. What a moronic posting you have managed to put up.

"BTW, the free market justification for slavery will be that people should not be prevented by their government to enter contracts (debts for example) which can lead them to be sold."

You're right. Us free market guys just can't wait to get the grandmothers and 4 year olds into our factories working at the sewing machines 14 hours per day. I think the solutions you have in your underlying tone are ideal for this problem. But I will address that after your next moronic sentence.

"So in the minds in the free market fundies the "slavery is freedom" and "freedom is slavery" as Orwell phrased it."

Yes, you are so correct. It's good to quote a Marxist. I think you should push for Castro or whatever farvorite communist you wish to run the world. From the economy down to the streetsweeper, it would be the utopian ideal you seek. Come to think of it, you should start this ball rolling, but turning in your computer to a poorer soul, so they will be equal with you. Own a car? Get rid of it if you have principles and will back up your blather. YOU should be on public transporation. Have a job in management? Resign or take a demotion. Management implies you are one of those evil free marketers.

The absurdity of this post stands on it's own. DU would be proud to have you as a poster child.

"The further problem with the laissez faire crowd is that they don't like laws it would appear."

We don't? Where did anyone state that. Point out the sentence or posting where any of us free market advocates stated directly we do not support the rule of law. You can't.

"I can sign a contract to make myself a debt-slave, and then tomorrow walk away free because there is no controlling legal authority."

I wasn't aware that Algore posted here. But once again, there is reasonable oversight and then there is what we have now, total government intervention. Instead of regulating business to insure it is operating based on basic rules of commerce, now we have government intervening right down to the types of mouse you use with an office computer and the shape of toilets. But that's ok, the government is the cure all for all the evils of us capitalists. Ask those who lived in the former Soviet Union, I'm sure they'll agree with you.

"Or do these folks suggest that the controlling legal authority - the enforcers - would be private gangs of thugs hired by those companies that could afford to hire them."

Already happening by both sides in this matter; the "thugs" are called trial lawyers.

"Humanity has been down that road and has moved on - thankfully."

Agreed.

"The transition from private justice to the king's justice is one of the developments that ended medievalism and began the modern era - including the capitalism of which THEY are so fond."

There is only one response to this stupid sentence since you insist on lumping capitalism in with the autocratic and dictatorial regimes of history:

This song is for you.....

Arise ye workers from your slumbers
Arise ye prisoners of want
For reason in revolt now thunders
And at last ends the age of cant.
Away with all your superstitions
Servile masses arise, arise
We'll change henceforth the old tradition
And spurn the dust to win the prize.

So comrades, come rally
And the last fight let us face
The Internationale unites the human race.
So comrades, come rally
And the last fight let us face
The Internationale unites the human race.

No more deluded by reaction
On tyrants only we'll make war
The soldiers too will take strike action
They'll break ranks and fight no more
And if those cannibals keep trying
To sacrifice us to their pride
They soon shall hear the bullets flying
We'll shoot the generals on our own side.

No saviour from on high delivers
No faith have we in prince or peer
Our own right hand the chains must shiver
Chains of hatred, greed and fear
E'er the thieves will out with their booty
And give to all a happier lot.
Each at the forge must do their duty
And we'll strike while the iron is ho

The Internationale
Words by Eugene Pottier (Paris 1871)

"There is a very good argument about whether or not to tax corporations, which has to do with the theory of economic rents."

For at least the 10th time on this thread or more, CORPORATIONS DO NOT "PAY" TAXES.

"A legitimate public policy question is to what extent to tax these "free gifts" of the market-place."

Since you promote the era of TR, let's review something. Was there a Federal income tax during his administration? No. Was their a corporate income tax? No. You call them "free gifts". Bunk. These goods and services are brought to the market place by people who innovate and take risks with their own personal capital or with groups of people who do the same. That rock in the quarry did not jump into the lap of the owner. He risked his own personal capital to buy the implements necessary to extract the rock. Why? Because the market (that's society for the ignorant Marxists hanging out around here) has stated a demand for the rock. But you're concept that it's a "free gift" to the capitalist because he created the business to dig the rock up first is absurd. And any taxes you impose on the capitalist are actually a penalty imposed on society. The capitalist does not pay the tax on it. It is passed on as part of the final sales price and considered by most a line item on the ledger as a cost of production.

"A Laissez Faire capitalist will tell you that the boodle is his and you should go tax someone else, but that is not very convincing."

Actually, once again, you have no clue about what you are talking about. The tax on a good sold by one of us evil "laissez-faire captialist" types is not paid by us. As I've explained a dozen times on this thread, the tax is considered part of the price of doing business. In my own business, small as it is, I deteremine how much profit I wish to earn and what the taxes on the price of profit plus cost will be. Then I add the tax on top of both to insure that my profit is protected. Do you honestly think that on each box of Fruit Loops cereal that General Mills takes a 72 cent loss on each box to pay taxes? Duh, no. That's why the prices are artificial at the grocery store. Do you know the actual real price of one gallon of unleaded gas is? I doubt it.

"The counterexample is in highly competitive industries, such as airline tickets, where any tax added by the government is immediately passed on to the consumer, because the airline can and must, profit margins being what they are."

One more time because I see you'll never acknoledge this....All taxes on corporations are passed through to consumers.. My company does not pay the corporate income tax, my clients do. I pay a personal income tax on the salary I pay myself from the company, that's it, period. The fees I charge incorporate all taxes, state and federal, to every client. Every item from a paper clip to a doctor's visit does the same.

"Top Quark may have worked as a consultant for companies to advise them on new ways of increasing profits. It is quite general knowledge that they and everyone else also hires one of the big accounting consultancies to figure out how to minimize their tax liabilities, a strategy that Fortune 500 companies have been incredibly successful at, explaining to some extent the large discrepency between pro forma earnings and what is reported to the IRS for tax purposes."

I will not speak for Top Quark, but for myself and the companies I have worked with a reduction in tax liabilities is an increase in profits. It has nothing to do with with cheating the IRS, or the government. Most legitimate (Enron is not one of them, so don't go down that road) corporations use the rules provided to them. If you want to level the playing field, impose a 15% flat tax or NRST. Otherwise no one has any reason to bitch and moan about the current tax law as an individual. Until the lazy voters remove the politicians which support the status quo, nothing will change and us evil capitalists will laugh all the way to the bank.

It's good to quote a Marxist

Orwell was not a totalitarian of any stripe, but surely you already knew this.

Your problem is that you are so committed to the ideal of a free economy that you don't know what it means and cannot explain what you mean to anyone here. Far less regulation - sure we all buy that. But you do not want so much freedom that we have lawlessness, so you do admit some law and regulation. The issue is how much? Apprently so little that you, yourself, and everyone you approve of can do whatever you want, but enough that others can do you no harm.

What you think you want, you don't, where interlocking trusts of banks and oil and real estate and railroads close you and me and every other small businessman out.

"B.S. Your particular experience surely applies to a lot of business, where sales price is determined by costs including labor costs (your own reasonable salary as profit is included). But it is not universal. I just cited examples where that is not true, i.e. where the profit is a large number between a market established sales price and a low production price. Production costs, taxes, etc. have nothing to do with the sales price, which vastly exceeds all of these. This is what is called an economic rent. Economists have long regarded such economic rents as fair targets for taxation."

How do I dissect thee, let me count the ways....

1. It is universal unless the government interferes with free market activity to create artificial price supports or ceilings. Quit reading Marx and start reading Smith.

2. Productions costs and taxes have everything to do with the sales price. But bottom line is that profit has everything to do with sales price. What moron puts a product on the market without building a profit into the price? You? If so, you're the bigger fool and support the bigger fool theory which enables true capitalists to snicker all the way to the bank.

3. "Economic Rents" is a theory proposed by those who have never earned a dime in their life in the market place. It's for the scholars whose contribution to the world economic scene is Argentina, Cuba and other failed experiments. Please. When you can quote factual data instead of pinhead scholars get back to us in the real business world. Most of us who understand the phrase "profit motive" (and that includes a lot of successful Fortune 100 companies) do not pay attention to people who write "papers". We pay attention to results.

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