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.
Geez, I feel so stupid now, having spent all that time to learn some economics: I should've asked you. It's all right there, in two sentences!
Perhaps, before you draw any conclusions, you should buy a book --- I mean other than a Java manual.
Make no mistake, these multinational companies care little for 'America' or its economy in and of itself. If they can make money they will. If America hurts...too bad.
The trick is that penalty is disperesed over many corporations. It pays for the individual corporation to hurt others since the individual gain is larger than individual damage.
But the added damage is greater, that is why the coordination for common good is needed and this is the proper job for the government - to secure the common welfare of the nation.
It's amazing how America ever thrived and became the most prosperous country on earth PRIOR to the era of so-called Global "Free Trade"--which isn't Free, isn't bilateral and certainly isn't practiced anywhere in the world EXCEPT in America.
What is completely lost on you is that many of our so-called trading partners, particularly in Asia, practice systematic "predatory" capitalism that is intentionally designed with the objective of putting the host trading partner (read America) "out of business" in the targeted industry. These countries will go to any length including using child labor, slave labor, government set wages, subsidies, waiver of all state regulations to enable their companies to undercut our companies and gain monopolies in the selected industry.
In other words, they do not play by accepted Western Standards of Commerce, which rests heavily with the notion of businesses operating independently from direct government intervention and management. All we are doing by allowing “Most Favored Nation” status to China is rewarding them for their human rights atrocities and black market capitalism that they use to take over one American industry after another.
Perhaps when our military is forced to contract with China for most of its hardware and machinery needs--because our manufacturing infrastructure is GONE--you will wake up to what is happening.
Why is is a problem: it's great for me, I save on lower prices because I do not have to pay your inflated salary that you received in 1990s.
Vote for whomever you want, just do not say that you are a conservative.
It depends how much income you must make. If you can get by with less, get the job which cannot be exported for example computer service which must be done locally is good (if your background is in computers). If you have some medical/science background look into hospitals - people get sick locally. Etc, etc ...
If you know languages and do not have family look for work abroad :)
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