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.
Agreed. Free trade makes sense with countries where employees are paid decently - say, Canada or Germany. Not China.
Also, the original argument for free trade was that countries should concentrate on what they do best. For example, Scots making whisky and French making wine and not the other way around. China and India are not like that - they aren't doing things better, only more cheaply.
So, ummm, we've outsourced every conceiveable thing in our country, our manufacturing base, our service base, our IT base...
What exactly is left, besides a drive up window and a greeter at Wal-Mart?
Hmmmmm...government jobs, lawyers, doctors....hmmmmm....
Do not worry, in couple of years those programmers in Moscow will be writting requirements and specifications WITHOUT your help. You will be redundant sooner that you think.
If they all do it, they're harming the economy. TO the contrary, they are helping the economy: they provide goods and services at lower prices than otherwise.
Unless you think wage slaves in India will buy products and services in America. No, you do not need exports: as I said, here in America prices are lower; that helps millions of people.
The corporations are doing this to shore up their bottom line. The corporations are owned by people, including widows and orphans. Most Americans own corporations --- through pension plans at work if not their own savings.
WHen corporations improve bottom lines, millions of Americans pocket the money.
You should cut out this socialist anti-corporate crap that you have read in the papers and, apparently, believe.
With all the Americans unemployed or underemployed because all the good jobs are gone, who will be buying stuff? Programmers are not all Americans. I did not hear you complaining that an idiot with almost no education and who can hardly speak English was making $200,000 in 1999 (with overtime). You and I paid that salary.
As his and your forefathers did for centuries, he should've saved for a rainy day because there booms and busts. Today, most of them cannot get a job because they expect comparable money.
The jobs go oversees because our programmers are overpaid. That simple.
If that was not clear --- and I am sorry if it was not --- by "you" I meant an average programmer, which is the issue being discussed. I did not intend to make any attacks on you personally.
Why are people always calling me “son”?
I concluded. The jobs go oversees because our programmers are less productive vs. the cost of their labor.
Really? Then teach us some economics: where will the companies burn all the money they'll save? I want to go there to pick it up.
I am hardly socialist. I am anti-corporatists who manipulate trade laws and bribe my government to assist their bottom line at the expense of the sovereignty and security of my nation. If you hate socialists so bad, why are you so pro-outsourcing? Do you not think the countries in SE asia are socialist? China is pretty socialist, they're just more repressive about it than Europe.
The programming jobs go overseas because the corporations want to bank the delta between what they were paying Americans and what they pay wage slaves in SE Asia. If you think they'll pass along the massive labor cost savings to you you're high as a kite.
It is because they have a strong feeling of common national interest and they do have national economical policy.
I am not a judge of people at all, but the cr-p you are peddling is an anti-capitalist garbage. A conservative should: (i) not have internalized it, (ii) be able to see socialist thought when others present it to him.
You are right: I don't get it; I do not see the connection.
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