Friday, February 13, 2004
The debate about pro and contra for offshore programming are very present in many newspapers.
I found a very good article in the International Herald Tribune about : Exporting jobs: Offshoring is the way to go .
This article quotes a very good study of MGI (Mc Kinsey Global Institute)
Here is an extract :
Exporting jobs
SAN FRANCISCO, California The debate over American jobs, globalization and free trade is back in the headlines. This time, one of the reasons is the growing practice of offshoring, with unions and some politicians accusing countries like India of ‘‘stealing American jobs’’ as companies in a range of industries relocate to lower-cost regions everything from call centers to data entry to software development.
.
Several states are considering laws to prohibit or restrict offshoring, and unions are lobbying Congress to stop it. Just last month, a provision in the spending bill passed by Congress said that when the federal government decides to allow private companies to do work now being done by government employees, the private companies can’t do the work outside the United States.
.
While a backlash over jobs is understandable, resorting to protectionism would be counter-productive. A study by the McKinsey Global Institute has found that offshoring benefits the American economy far more than previously thought.
.
Many people believe that the U.S. economy simply loses money spent for services abroad. But far from being a zero-sum game for the economy, offshoring is a story of mutual gain.
.
It’s no news that because of advances in telecommunications and computing, large firms can arbitrage labor costs globally. Still, the magnitudes are startling. Software developers who earn $60 an hour in the United States get $6 in India; data entry agents who cost $20 an hour in Topeka run $2 in Calcutta. Since service offshoring is so labor-focused, and doesn’t require the massive capital investment of offshore manufacturing, these differences translate into outsized returns.
.
Beyond an individual company’s mandate to maximize earning, the ability to capture cross-border labor efficiencies actually creates enormous value for the world economy, and disproportionately for American firms.
.
Our study found that the United States receives 78 percent of the new economic value created by offshoring, versus the 22 percent that goes to the lower wage countries where these services are relocated.
.
I found a very good article in the International Herald Tribune about : Exporting jobs: Offshoring is the way to go .
This article quotes a very good study of MGI (Mc Kinsey Global Institute)
Here is an extract :
Exporting jobs
SAN FRANCISCO, California The debate over American jobs, globalization and free trade is back in the headlines. This time, one of the reasons is the growing practice of offshoring, with unions and some politicians accusing countries like India of ‘‘stealing American jobs’’ as companies in a range of industries relocate to lower-cost regions everything from call centers to data entry to software development.
.
Several states are considering laws to prohibit or restrict offshoring, and unions are lobbying Congress to stop it. Just last month, a provision in the spending bill passed by Congress said that when the federal government decides to allow private companies to do work now being done by government employees, the private companies can’t do the work outside the United States.
.
While a backlash over jobs is understandable, resorting to protectionism would be counter-productive. A study by the McKinsey Global Institute has found that offshoring benefits the American economy far more than previously thought.
.
Many people believe that the U.S. economy simply loses money spent for services abroad. But far from being a zero-sum game for the economy, offshoring is a story of mutual gain.
.
It’s no news that because of advances in telecommunications and computing, large firms can arbitrage labor costs globally. Still, the magnitudes are startling. Software developers who earn $60 an hour in the United States get $6 in India; data entry agents who cost $20 an hour in Topeka run $2 in Calcutta. Since service offshoring is so labor-focused, and doesn’t require the massive capital investment of offshore manufacturing, these differences translate into outsized returns.
.
Beyond an individual company’s mandate to maximize earning, the ability to capture cross-border labor efficiencies actually creates enormous value for the world economy, and disproportionately for American firms.
.
Our study found that the United States receives 78 percent of the new economic value created by offshoring, versus the 22 percent that goes to the lower wage countries where these services are relocated.
.
Tuesday, February 03, 2004
Intel Capital crosses into Russia
Last modified: May 15, 2003, 10:20 AM PDT
By Michael Kanellos
Staff Writer, CNET News.com
Intel Capital has begun to operate in Russia and has placed its first investments there.
The planned investment, announced Thursday, extends the Santa Clara, Calif., chipmaker's involvement in Russia. Some of the complex math underlying software coming out of Intel's labs in recent years was developed in its research center in Nizhny Novgorod.
"Russia is a critical market for Intel," Claude Leglise, vice president of the company's venture capital arm, said in a statement. "Intel Capital has invested in companies in emerging markets worldwide to support Intel's strategic objectives. A wealth of technology expertise distinguishes Russia from most other emerging markets, and we are excited about the opportunities to invest in the unique and innovative technologies developed here."
Russia and the rest of Eastern Europe are shaping up to be one of the hot new frontiers for technology companies, according to several technology executives. Sales of PCs, servers and other computing equipment continue to grow at a rapid rate in these markets, a trend that has benefited local manufacturers such as Kraftway, Russia's leading PC maker. Additionally, universities such as Moscow State Technical University are often flush with underemployed Ph.D. scientists and engineers.
Moscow-based Ru-Net Holdings, which invests in technology companies such as system integrator TopS Business Integrator Group, has received the first Russian funding from Intel's venture capital arm. The money will be used to help TopS develop products, based around Intel silicon, for Russian corporations.
In addition to system integrators, Intel said it will look to invest in companies specializing in software, new semiconductor materials, nanotechnology and wireless. The company will make investments in companies in both Russia and Ukraine.
Intel Capital currently has investments in approximately 475 companies. The net worth of the group's portfolio is around $870 million. Financial details of the Russian investment were not disclosed.
Last modified: May 15, 2003, 10:20 AM PDT
By Michael Kanellos
Staff Writer, CNET News.com
Intel Capital has begun to operate in Russia and has placed its first investments there.
The planned investment, announced Thursday, extends the Santa Clara, Calif., chipmaker's involvement in Russia. Some of the complex math underlying software coming out of Intel's labs in recent years was developed in its research center in Nizhny Novgorod.
"Russia is a critical market for Intel," Claude Leglise, vice president of the company's venture capital arm, said in a statement. "Intel Capital has invested in companies in emerging markets worldwide to support Intel's strategic objectives. A wealth of technology expertise distinguishes Russia from most other emerging markets, and we are excited about the opportunities to invest in the unique and innovative technologies developed here."
Russia and the rest of Eastern Europe are shaping up to be one of the hot new frontiers for technology companies, according to several technology executives. Sales of PCs, servers and other computing equipment continue to grow at a rapid rate in these markets, a trend that has benefited local manufacturers such as Kraftway, Russia's leading PC maker. Additionally, universities such as Moscow State Technical University are often flush with underemployed Ph.D. scientists and engineers.
Moscow-based Ru-Net Holdings, which invests in technology companies such as system integrator TopS Business Integrator Group, has received the first Russian funding from Intel's venture capital arm. The money will be used to help TopS develop products, based around Intel silicon, for Russian corporations.
In addition to system integrators, Intel said it will look to invest in companies specializing in software, new semiconductor materials, nanotechnology and wireless. The company will make investments in companies in both Russia and Ukraine.
Intel Capital currently has investments in approximately 475 companies. The net worth of the group's portfolio is around $870 million. Financial details of the Russian investment were not disclosed.
By Michael Kanellos
Staff Writer, CNET News.com
Like India and China before it, Russia is revamping national policies to expand its presence in the global information technology industry.
Although raw materials have been the cornerstone of Russia's economic growth in the last decade, the country will increasingly attempt to derive wealth from its technological backbone, said speakers at the U.S.-Russia Technology Forum taking place at Stanford University this week.
In two weeks, for example, the national government will issue a decree that will permit state scientific institutions to grant patents and other intellectual property rights to the actual inventors, who will then be allowed to commercially exploit them, said Andrey Fursenko, the acting minister for Industry, Science and Technologies for Russia.
"We want to tell them that, as a result of their work, they will be the ones, not the state, that will own it. It is a big motivation," Fursenko said. "Our motive is not to give them something, but to give them motivation."
Although Fursenko declined to identify the fields where technology transfer would begin (or the exact terms of the grant), he said Russia's strengths lie in information technology, life sciences and alternative energy.
The inability to profit from inventions has long been a problem with Russian science. A Russian institute invented Velcro to fit space suits together, said Fursenko, but "no one ever got a dollar" for the invention. In 1998, when the national government passed a law that decreed the government owned all patents, patent applications dropped to zero, he said.
Similarly, Alexander Galitsky, a Russian entrepreneur who worked with Sun Microsystems in the '90s on various projects, had to prove to the government that his independent businesses in no way leveraged the 30 patents he obtained while working with the state. He also had to prove that he didn't use rubles to start his businesses, he recalled.
Russia does have many of the elements to become a technological power, panelists and attendees said. The country has a long history in mathematics and computer science. The scientific institutes created in the Soviet era are also strong in basic science. Unlike with their western counterparts, profit wasn't an issue back then, so the institutes were free to explore any area that seemed interesting. Engineers also cost less there.
To date, Russian technological exports have been fairly limited. Other than a few companies like Kaspersky Labs, most Russian companies serve the domestic market. Virtually all of the panelists noted that business and managerial skills were lacking in Russia.
"We've got to learn the trees from the forest," Galitsky said. "In the past, we didn't need to develop marketing efforts. I just handed my results to Sun."
The pattern, though, is starting to slowly change. The IBS Group, a technological company that performs research and programming for hire, is currently performing offshore programming for, among others, Dell and IBM, said President Anatoly Karachinsky. Similarly, Epam Systems has around 450 employees (400 in Belarus and 50 in Princeton, N.J.), and is performing programming work for a variety of U.S. companies, said President Arkadiy Dobkin.
American companies are also hiring more in Russia. Intel, for example, maintains labs in Russia that concentrate on wireless technology (a vestige of the Cold War science). Sun Microsystems also retains Russian programmers and has started to make venture investments in Russian companies.
"They aren't so hung up on titles," said Vadim Temkin, of the Java Card Group at Sun. (Temkin was an attendee, not a speaker.) Temkin's group runs quality assurance programs. Typically, American and Indian programmers try to avoid working on QA teams, viewing it as secondary in importance. Russian engineers "try to make it interesting."
In September, Vision Capital, Intel and others will participate in a three-day "tech tour" that will allow U.S. venture investors to meet with Russian start-ups, said Sven Lingjaerde, general partner at Vision Capital. Similar tech fairs have taken place in Italy, Israel and Switzerland, said Lingjaerde, that have led to U.S. investments in European companies.
Still, Few U.S. companies have made direct investments in Russia, noted former Secretary of Defense William Perry.
The exception, Perry said, is Boeing, which participates in Sea Launch, a United States-Russia-Norway-Ukraine venture that launches commercial satellites from a platform in the Pacific Ocean.
Piracy also remains a major problem. Five years ago, 95 percent of foreign software was pirated, now only 79 percent is pirated.
To increase U.S. investment, the U.S. government has devised a number of programs. The Market-Based Commercialization Initiative is seeking to obtain U.S. funds for Russian start-ups in the hope of stabilizing the local economy, said George Atkinson, special science and technology advisor to the U.S. secretary of state.
The U.S. Export Import Bank is initiating a "sub-sovereign" lending program that will allow cities and provincial governments to obtain loans on U.S.-Russian joint ventures, said April Foley, first vice president for the bank. The loans largely exist to benefit U.S. companies seeking to expand into Russia, she said. Generally, U.S. banks won't issue loans for these ventures.
Although some may see these as foreign giveaways, that is not the case, said Esther Dyson, chairman of Edventure Holdings. "If we make a strong, local economy in Russia, we Americans will benefit from an export market," she said.
Staff Writer, CNET News.com
Like India and China before it, Russia is revamping national policies to expand its presence in the global information technology industry.
Although raw materials have been the cornerstone of Russia's economic growth in the last decade, the country will increasingly attempt to derive wealth from its technological backbone, said speakers at the U.S.-Russia Technology Forum taking place at Stanford University this week.
In two weeks, for example, the national government will issue a decree that will permit state scientific institutions to grant patents and other intellectual property rights to the actual inventors, who will then be allowed to commercially exploit them, said Andrey Fursenko, the acting minister for Industry, Science and Technologies for Russia.
"We want to tell them that, as a result of their work, they will be the ones, not the state, that will own it. It is a big motivation," Fursenko said. "Our motive is not to give them something, but to give them motivation."
Although Fursenko declined to identify the fields where technology transfer would begin (or the exact terms of the grant), he said Russia's strengths lie in information technology, life sciences and alternative energy.
The inability to profit from inventions has long been a problem with Russian science. A Russian institute invented Velcro to fit space suits together, said Fursenko, but "no one ever got a dollar" for the invention. In 1998, when the national government passed a law that decreed the government owned all patents, patent applications dropped to zero, he said.
Similarly, Alexander Galitsky, a Russian entrepreneur who worked with Sun Microsystems in the '90s on various projects, had to prove to the government that his independent businesses in no way leveraged the 30 patents he obtained while working with the state. He also had to prove that he didn't use rubles to start his businesses, he recalled.
Russia does have many of the elements to become a technological power, panelists and attendees said. The country has a long history in mathematics and computer science. The scientific institutes created in the Soviet era are also strong in basic science. Unlike with their western counterparts, profit wasn't an issue back then, so the institutes were free to explore any area that seemed interesting. Engineers also cost less there.
To date, Russian technological exports have been fairly limited. Other than a few companies like Kaspersky Labs, most Russian companies serve the domestic market. Virtually all of the panelists noted that business and managerial skills were lacking in Russia.
"We've got to learn the trees from the forest," Galitsky said. "In the past, we didn't need to develop marketing efforts. I just handed my results to Sun."
The pattern, though, is starting to slowly change. The IBS Group, a technological company that performs research and programming for hire, is currently performing offshore programming for, among others, Dell and IBM, said President Anatoly Karachinsky. Similarly, Epam Systems has around 450 employees (400 in Belarus and 50 in Princeton, N.J.), and is performing programming work for a variety of U.S. companies, said President Arkadiy Dobkin.
American companies are also hiring more in Russia. Intel, for example, maintains labs in Russia that concentrate on wireless technology (a vestige of the Cold War science). Sun Microsystems also retains Russian programmers and has started to make venture investments in Russian companies.
"They aren't so hung up on titles," said Vadim Temkin, of the Java Card Group at Sun. (Temkin was an attendee, not a speaker.) Temkin's group runs quality assurance programs. Typically, American and Indian programmers try to avoid working on QA teams, viewing it as secondary in importance. Russian engineers "try to make it interesting."
In September, Vision Capital, Intel and others will participate in a three-day "tech tour" that will allow U.S. venture investors to meet with Russian start-ups, said Sven Lingjaerde, general partner at Vision Capital. Similar tech fairs have taken place in Italy, Israel and Switzerland, said Lingjaerde, that have led to U.S. investments in European companies.
Still, Few U.S. companies have made direct investments in Russia, noted former Secretary of Defense William Perry.
The exception, Perry said, is Boeing, which participates in Sea Launch, a United States-Russia-Norway-Ukraine venture that launches commercial satellites from a platform in the Pacific Ocean.
Piracy also remains a major problem. Five years ago, 95 percent of foreign software was pirated, now only 79 percent is pirated.
To increase U.S. investment, the U.S. government has devised a number of programs. The Market-Based Commercialization Initiative is seeking to obtain U.S. funds for Russian start-ups in the hope of stabilizing the local economy, said George Atkinson, special science and technology advisor to the U.S. secretary of state.
The U.S. Export Import Bank is initiating a "sub-sovereign" lending program that will allow cities and provincial governments to obtain loans on U.S.-Russian joint ventures, said April Foley, first vice president for the bank. The loans largely exist to benefit U.S. companies seeking to expand into Russia, she said. Generally, U.S. banks won't issue loans for these ventures.
Although some may see these as foreign giveaways, that is not the case, said Esther Dyson, chairman of Edventure Holdings. "If we make a strong, local economy in Russia, we Americans will benefit from an export market," she said.
Friday, January 30, 2004
European outsourcing and offshore programming to catch US market in 2004
Growth outstrips that of US due to "remarkable increase" in deals... (source taiga)
Outsourcing is continuing to boom in the UK and Europe, with the total value of contract awards in 2004 predicted to match that of the US.
The latest quarterly statistics from outsourcing consultancy TPI reveal that while the global market remained flat in 2003 with a marked decline in contract values in the US and Asia, Europe experienced a "remarkable increase" in outsourcing activity.
The figures, based on private sector deals that TPI has advised on, show that Europe enjoyed an increase of 66 per cent in contract award values from €15.8bn in 2002 to €26.4bn in 2003, whereas the Americas saw a decline of 15 per cent from €45bn to €38bn.
In 2002, the outsourcing contract volume in Europe was one-third that of the Americas and last year it was 68 per cent. TPI claims this trend will increase as Europe rapidly closes the gap.
Duncan Aitchison, managing director at TPI, said: "It is a very real possibility that the volume of deals signed in Europe could approach that of the Americas in 2004."
The statistics also show that the business process outsourcing (BPO) market still has some way to go before it justifies the current hype, although again Europe is showing signs of early adoption with an increase in total contract values in 2003 - up almost 50 per cent on the previous year to €2.6bn.
"The trend towards BPO is actually not increasing at the rate than many market-watchers had predicted. The global BPO wave is at the early stages of adoption in terms of award volumes. The transactions are not yet in the marketplace," said Aitchison.
Companies are also no longer offshoring IT services to places such as India purely for cost cutting and cheap labour, and are considering it as part of a wider "globalisation" business strategy, TPI found.
2003 also saw a significant change in the service provider landscape with some of the major outsourcers losing market share.
"One point stands out," said Aitchison. "CSC and HP took market share from EDS in 2003."
IBM Global Services remains top dog, however, competing for 40 per cent of deals TPI was involved in, with EDS and Accenture next down the list. In the BPO market Accenture and IBM are out in front.
Growth outstrips that of US due to "remarkable increase" in deals... (source taiga)
Outsourcing is continuing to boom in the UK and Europe, with the total value of contract awards in 2004 predicted to match that of the US.
The latest quarterly statistics from outsourcing consultancy TPI reveal that while the global market remained flat in 2003 with a marked decline in contract values in the US and Asia, Europe experienced a "remarkable increase" in outsourcing activity.
The figures, based on private sector deals that TPI has advised on, show that Europe enjoyed an increase of 66 per cent in contract award values from €15.8bn in 2002 to €26.4bn in 2003, whereas the Americas saw a decline of 15 per cent from €45bn to €38bn.
In 2002, the outsourcing contract volume in Europe was one-third that of the Americas and last year it was 68 per cent. TPI claims this trend will increase as Europe rapidly closes the gap.
Duncan Aitchison, managing director at TPI, said: "It is a very real possibility that the volume of deals signed in Europe could approach that of the Americas in 2004."
The statistics also show that the business process outsourcing (BPO) market still has some way to go before it justifies the current hype, although again Europe is showing signs of early adoption with an increase in total contract values in 2003 - up almost 50 per cent on the previous year to €2.6bn.
"The trend towards BPO is actually not increasing at the rate than many market-watchers had predicted. The global BPO wave is at the early stages of adoption in terms of award volumes. The transactions are not yet in the marketplace," said Aitchison.
Companies are also no longer offshoring IT services to places such as India purely for cost cutting and cheap labour, and are considering it as part of a wider "globalisation" business strategy, TPI found.
2003 also saw a significant change in the service provider landscape with some of the major outsourcers losing market share.
"One point stands out," said Aitchison. "CSC and HP took market share from EDS in 2003."
IBM Global Services remains top dog, however, competing for 40 per cent of deals TPI was involved in, with EDS and Accenture next down the list. In the BPO market Accenture and IBM are out in front.
Thursday, January 29, 2004
Leader: Offshoring is about more than bad PR
silicon.com
And never totally wrong or right per se...
This publication today carried a story about IBM and its own moves to offshore certain operations, mainly for reasons of cost. It was notable because here we have - though IBM isn't in a hurry to confirm media reports - an outsourcer outsourcing, or at least using offshore facilities.
Indeed, the highest-profile trend of the year so far, following on from the last few months of 2003, has been major companies offshoring IT and call centre operations. In the UK, the financial sector in particular has seen a host of offshoring projects.
When we broke the story last December of Barclays sending some application development work to India, it was notable because it became apparent a statement was due to be released a couple of weeks earlier, only the flak caught by Aviva's Norwich Union insurance arm postponed any public announcement.
Understandably, most organisations considering such a move are sensitive to how it will play with the media, among Britons in general and, most importantly, affected workers.
But having a good PR machine in place shouldn't be top of corporate wishlists.
Undoubtedly the most important factor should be whether offshoring - or outsourcing even - is the right idea. We're talking about the fundamental business decision. There should be no dogmatic answer, either for or against it.
If, on its merits, offshoring does prove the best course of action - and it quite often isn't, as some users will find out to their cost - then it must be done properly. That means facing up to the xenophobes and ignorant and communicating what exactly is being done and why.
The more enlightened in business realise offshoring is a product of globalisation and normally means exporting the most tedious, most unrewarding jobs. It wasn't that long ago that call centres, for example, were held up as sweatshops, modern 'dark Satanic mills'. And now we want to keep those positions?
It might be asking a lot but any company should be honest about where and how they conduct business. The labour market has gone through countless changes in the last 50 years and adapted. When a large company such as IBM announces cut backs in one area, it very often expands elsewhere. This week it said it will hire 15,000 more staff as the economy rebounds.
Offshoring is an unstoppable tide and PR spin isn't the way to handle it. Presenting the whole picture and long-term benefits - where they truly exist - is the right way.
silicon.com
And never totally wrong or right per se...
This publication today carried a story about IBM and its own moves to offshore certain operations, mainly for reasons of cost. It was notable because here we have - though IBM isn't in a hurry to confirm media reports - an outsourcer outsourcing, or at least using offshore facilities.
Indeed, the highest-profile trend of the year so far, following on from the last few months of 2003, has been major companies offshoring IT and call centre operations. In the UK, the financial sector in particular has seen a host of offshoring projects.
When we broke the story last December of Barclays sending some application development work to India, it was notable because it became apparent a statement was due to be released a couple of weeks earlier, only the flak caught by Aviva's Norwich Union insurance arm postponed any public announcement.
Understandably, most organisations considering such a move are sensitive to how it will play with the media, among Britons in general and, most importantly, affected workers.
But having a good PR machine in place shouldn't be top of corporate wishlists.
Undoubtedly the most important factor should be whether offshoring - or outsourcing even - is the right idea. We're talking about the fundamental business decision. There should be no dogmatic answer, either for or against it.
If, on its merits, offshoring does prove the best course of action - and it quite often isn't, as some users will find out to their cost - then it must be done properly. That means facing up to the xenophobes and ignorant and communicating what exactly is being done and why.
The more enlightened in business realise offshoring is a product of globalisation and normally means exporting the most tedious, most unrewarding jobs. It wasn't that long ago that call centres, for example, were held up as sweatshops, modern 'dark Satanic mills'. And now we want to keep those positions?
It might be asking a lot but any company should be honest about where and how they conduct business. The labour market has gone through countless changes in the last 50 years and adapted. When a large company such as IBM announces cut backs in one area, it very often expands elsewhere. This week it said it will hire 15,000 more staff as the economy rebounds.
Offshoring is an unstoppable tide and PR spin isn't the way to handle it. Presenting the whole picture and long-term benefits - where they truly exist - is the right way.
Wednesday, January 28, 2004
In Forbes I found many very good articles about Offshore and aoutsourcing.
Here is a good example of the situation about Off-shore programming. It is a fact that India still has the bigger part of the cake, but Russia and China are just behind with a lot of very good skills.
Hope this will help the world to share its money amoung all the countries.
People
Face Of The Year
Lisa DiCarlo, 12.19.03, 7:00 AM ET
NEW YORK - Recently, our readers voted "offshoring"--the movement of traditionally high-paying jobs from rich countries to poorer ones--the most significant business trend of 2003. We agree, so for our Face Of The Year, we have selected Kiran Karnik, a man trying to direct the path of the offshoring tsunami.
As president of the National Association of Software and Service Companies, or NASSCOM, Karnik is in a unique position to do just that. NASSCOM is the self-proclaimed voice of the Indian information technology industry. Its charter is to promote India's technology strength to the world, and to foster a business-friendly environment for companies setting up shop there.
And a lot of foreign companies are doing just that. Over the last few years, many crucial "white collar" tech jobs such as application development, database design, integration and services have moved to India. Tech currently accounts for some 3% of India's gross domestic product, or $16.5 billion, up from just $1.7 billion nine years ago. The big driver? Exports of software and services to the United States.
By 2015, experts predict that 3 million U.S. white collar jobs will be farmed out to other countries, up from about 300,000 today. Whether that is good or bad news for the U.S. economy long term is a matter of considerable debate, but it could already be having an impact. Consider that in the third quarter, U.S. GDP grew 8.2% but the unemployment rate dropped only two-tenths of 1%.
"Offshore outsourcing was triggered by the intention to cut costs, but now it's not just driven by cost factors," says Karnik, 56. "We are helping [U.S. companies] tap into talent that is scarce in the United States."
It's the "scarce" part that grates on some American captains of industry, such as Intel's (nasdaq: INTC - news - people ) Andrew Grove and IBM's (nyse: IBM - news - people ) Sam Palmisano. Both have pointedly expressed fear that the Unites States is losing its technical edge to other countries. Palmisano says that IBM will pledge $200 million to train employees for jobs that might otherwise leave the country. (It's somewhat ironic, since unconfirmed reports recently said that IBM will send up to 4,700 software jobs outside the United States.)
A backlash may already be beginning. Both Dell (nasdaq: DELL - news - people ) and Lehman Brothers (nyse: LEH - news - people ) recently elected to bring back some jobs to the United States.
Karnik acknowledges the rumblings. "We began to see some concern [about loss of U.S. jobs] in 2003 that has not been there in the past, but by and large, that is not the mainstream view."
In the meantime, Karnik says it's his goal to more than double India's share of the global software production to 6%.
Dennis McGuire, too, acknowledges growing protectionism but says U.S. companies will search the world for whatever makes them more competitive. McGuire is president of TPI, a Houston-based consultancy focusing on outsourcing deals. He says companies need to outsource commodity processes so they can focus on their own competencies. "Does it matter if you have world class accounts payable?"
Karnik, who is a physicist by training and spent two decades with the Indian space agency, is keening aware of an impending shortage of sciences and engineering-based talent in the United States.
India, with a population topping one billion, turns out 75,000 IT graduates annually, by far its most popular area of study. In the United States, the number of students graduating with computer and information science degrees have grown more than 70% since the mid-nineties but are still far outpaced by business, social science and education degrees.
Offshore outsourcing has been quietly building up for years but 2003 will likely be remembered as the year that it burst into the mainstream. Despite concerns in the United States about unemployment and lost innovation, there is no turning back. The pressure on U.S. companies to cut costs and compete globally is too compelling.
Will India continue to receive the lion's share of outsourced jobs from U.S. companies? Probably, but Karnik needs to be aware of growing competition from professionals in China and Russia. Skilled labor there is equally plentiful, and equally cheap. And equally hungry.
Says McGuire, "China has seen the Indian miracle, and they want a piece of it."
Here is a good example of the situation about Off-shore programming. It is a fact that India still has the bigger part of the cake, but Russia and China are just behind with a lot of very good skills.
Hope this will help the world to share its money amoung all the countries.
People
Face Of The Year
Lisa DiCarlo, 12.19.03, 7:00 AM ET
NEW YORK - Recently, our readers voted "offshoring"--the movement of traditionally high-paying jobs from rich countries to poorer ones--the most significant business trend of 2003. We agree, so for our Face Of The Year, we have selected Kiran Karnik, a man trying to direct the path of the offshoring tsunami.
As president of the National Association of Software and Service Companies, or NASSCOM, Karnik is in a unique position to do just that. NASSCOM is the self-proclaimed voice of the Indian information technology industry. Its charter is to promote India's technology strength to the world, and to foster a business-friendly environment for companies setting up shop there.
And a lot of foreign companies are doing just that. Over the last few years, many crucial "white collar" tech jobs such as application development, database design, integration and services have moved to India. Tech currently accounts for some 3% of India's gross domestic product, or $16.5 billion, up from just $1.7 billion nine years ago. The big driver? Exports of software and services to the United States.
By 2015, experts predict that 3 million U.S. white collar jobs will be farmed out to other countries, up from about 300,000 today. Whether that is good or bad news for the U.S. economy long term is a matter of considerable debate, but it could already be having an impact. Consider that in the third quarter, U.S. GDP grew 8.2% but the unemployment rate dropped only two-tenths of 1%.
"Offshore outsourcing was triggered by the intention to cut costs, but now it's not just driven by cost factors," says Karnik, 56. "We are helping [U.S. companies] tap into talent that is scarce in the United States."
It's the "scarce" part that grates on some American captains of industry, such as Intel's (nasdaq: INTC - news - people ) Andrew Grove and IBM's (nyse: IBM - news - people ) Sam Palmisano. Both have pointedly expressed fear that the Unites States is losing its technical edge to other countries. Palmisano says that IBM will pledge $200 million to train employees for jobs that might otherwise leave the country. (It's somewhat ironic, since unconfirmed reports recently said that IBM will send up to 4,700 software jobs outside the United States.)
A backlash may already be beginning. Both Dell (nasdaq: DELL - news - people ) and Lehman Brothers (nyse: LEH - news - people ) recently elected to bring back some jobs to the United States.
Karnik acknowledges the rumblings. "We began to see some concern [about loss of U.S. jobs] in 2003 that has not been there in the past, but by and large, that is not the mainstream view."
In the meantime, Karnik says it's his goal to more than double India's share of the global software production to 6%.
Dennis McGuire, too, acknowledges growing protectionism but says U.S. companies will search the world for whatever makes them more competitive. McGuire is president of TPI, a Houston-based consultancy focusing on outsourcing deals. He says companies need to outsource commodity processes so they can focus on their own competencies. "Does it matter if you have world class accounts payable?"
Karnik, who is a physicist by training and spent two decades with the Indian space agency, is keening aware of an impending shortage of sciences and engineering-based talent in the United States.
India, with a population topping one billion, turns out 75,000 IT graduates annually, by far its most popular area of study. In the United States, the number of students graduating with computer and information science degrees have grown more than 70% since the mid-nineties but are still far outpaced by business, social science and education degrees.
Offshore outsourcing has been quietly building up for years but 2003 will likely be remembered as the year that it burst into the mainstream. Despite concerns in the United States about unemployment and lost innovation, there is no turning back. The pressure on U.S. companies to cut costs and compete globally is too compelling.
Will India continue to receive the lion's share of outsourced jobs from U.S. companies? Probably, but Karnik needs to be aware of growing competition from professionals in China and Russia. Skilled labor there is equally plentiful, and equally cheap. And equally hungry.
Says McGuire, "China has seen the Indian miracle, and they want a piece of it."
Some precisions about Russia as an offshore programming contry Vs India :
It is interesting to notice that Russia and satellit countries have definitely a huge amount of very good developers for same or better prices than India.
In developed economies there is a large—and growing—gap between the demand for and supply of software engineers. In the U.S. alone, the Information Technology Association of America, an industry trade group, estimates that some 840,000 IT jobs stand unfilled. The Gartner Group predicts that 40% of U.S. software projects will have to be curtailed or canceled if the gap is not closed. The problem bedevils technology companies in Europe and parts of Asia as well.
Meanwhile, talented computer engineers in many developing countries go begging for work. But the industrialized countries' governments restrict the number of work visas that can be issued to foreign IT workers. Hence the outsourcing solution: contracting programmers in Ireland, India, Israel—and now, Russia—to develop software at home and ship it over the Internet to customers in the developed world.
India is the reigning king of software outsourcing, but its advantage is beginning to fade: An Indian computer programmer earns, on average, $4,000 to $7,000 a year, whereas the same level of talent can be purchased in Russia's outlying regions for about $3,000 (Moscow techs earn about the same as Indian). And the heavily populated parts of Russia are much closer to the West than India is, making it easier to do business.
Outsourcing is perfect for Russia. Every year the country's elite universities graduate 100,000-plus students with degrees in computer science, engineering, physics and math. There is also a vast network of applied scientists and academics who were laid off after the collapse of communism. These tech workers are great problem solvers. "Life in Russia is difficult; we have to solve problems every day of our lives,"says Anatoly Gaverdovsky, the Moscow-based vice president of R&D for VDI. "This makes us good at working in an undefined environment—which means we can take an idea and turn it into a program. I don't think Indians are as good at that."
Philip Myers, founder of Typhoon Software in Santa Barbara, California, tells about the first technicians he hired in St. Petersburg in 1992. He gave them a three-month project using Microsoft Windows but had heard nothing after two months. When he investigated, he found out that the Russians had no Windows manual and had reverse-engineered the software to learn how it was written.
Software development could be a huge growth business for Russia. Right now, about 500 small Russian software outsourcing firms employ 10 to 200 programmers, but there are also thousands of independent code writers scattered across the country. Russia's software exports are growing 60% a year, about the same as India's—although from a much smaller base.
It is interesting to notice that Russia and satellit countries have definitely a huge amount of very good developers for same or better prices than India.
In developed economies there is a large—and growing—gap between the demand for and supply of software engineers. In the U.S. alone, the Information Technology Association of America, an industry trade group, estimates that some 840,000 IT jobs stand unfilled. The Gartner Group predicts that 40% of U.S. software projects will have to be curtailed or canceled if the gap is not closed. The problem bedevils technology companies in Europe and parts of Asia as well.
Meanwhile, talented computer engineers in many developing countries go begging for work. But the industrialized countries' governments restrict the number of work visas that can be issued to foreign IT workers. Hence the outsourcing solution: contracting programmers in Ireland, India, Israel—and now, Russia—to develop software at home and ship it over the Internet to customers in the developed world.
India is the reigning king of software outsourcing, but its advantage is beginning to fade: An Indian computer programmer earns, on average, $4,000 to $7,000 a year, whereas the same level of talent can be purchased in Russia's outlying regions for about $3,000 (Moscow techs earn about the same as Indian). And the heavily populated parts of Russia are much closer to the West than India is, making it easier to do business.
Outsourcing is perfect for Russia. Every year the country's elite universities graduate 100,000-plus students with degrees in computer science, engineering, physics and math. There is also a vast network of applied scientists and academics who were laid off after the collapse of communism. These tech workers are great problem solvers. "Life in Russia is difficult; we have to solve problems every day of our lives,"says Anatoly Gaverdovsky, the Moscow-based vice president of R&D for VDI. "This makes us good at working in an undefined environment—which means we can take an idea and turn it into a program. I don't think Indians are as good at that."
Philip Myers, founder of Typhoon Software in Santa Barbara, California, tells about the first technicians he hired in St. Petersburg in 1992. He gave them a three-month project using Microsoft Windows but had heard nothing after two months. When he investigated, he found out that the Russians had no Windows manual and had reverse-engineered the software to learn how it was written.
Software development could be a huge growth business for Russia. Right now, about 500 small Russian software outsourcing firms employ 10 to 200 programmers, but there are also thousands of independent code writers scattered across the country. Russia's software exports are growing 60% a year, about the same as India's—although from a much smaller base.
Monday, January 26, 2004
In France, Outsourcing and offshoring are rising, but abit slowly. But I am sure this will gorw and grow again in the next 2 years. The cost effectiveness and US example will lead to such an increase.
Here is an article about that point in France. Hope this will be easy to read for everybody.
La délocalisation des services informatiques s'accélère... doucement
Boris Mathieux, 01 Informatique, le 09/01/2004 à 00h00
Afin de rester compétitives, les SSII s'orientent davantage vers la main-d'oeuvre offshore. En fin 2003, elles précisaient leurs objectifs pour les prochains mois.
Pour redresser leurs marges tout en s'adaptant aux besoins d'économie de leurs clients, les grandes sociétés de services informatiques multiplient les implantations dans les pays à faible coût de main-d'oeuvre. D'abord taboue, l'approche offshore est progressivement devenue un avantage concurrentiel à mettre en avant. Les annonces de plans de délocalisation se sont ainsi multipliées tout au long de l'année 2003, avant d'être précisées en fin d'année. Nombre de projets d'implantation offshore ont ainsi été revus à la baisse ou décalés dans le temps, d'autres étant plus rarement confirmés.
Dans la plupart des cas, l'Inde apparaît encore comme la destination privilégiée. Le sous-continent fournit, en effet, une part croissante de la main-d'oeuvre des sociétés de services informatiques. Accenture, par exemple, y créera 5700 emplois au cours des douze prochains mois, estimant pouvoir atteindre un effectif de 10 000 personnes à la fin de l'année. Selon Business Week, IBM Global Services atteindra le même effectif, mais d'ici à 2005. Tandis qu'EDS comptera autour de 3 500 salariés indiens dès cette année.
Destinations : Mexique, Brésil, Argentine, Bulgarie...
Bien sûr, l'Inde est loin d'être la seule destination à bas coûts pour les SSII. Entre ses activités de services applicatifs et de BPO (Business Process Outsourcing), EDS s'est donné pour objectif de compter 14 300 employés nearshore et offshore d'ici à la fin de 2004. Or, une bonne partie des employés de ce programme dit « best shore » seront localisés au Mexique, au Brésil et en Argentine. De même, CSC, qui abrite environ 10 % de son effectif total dans ses centres nearshore et offshore, est implanté aussi bien dans différents pays asiatiques qu'au Canada, en Australie, en Irlande ou en Bulgarie.
En France aussi, les grandes SSII affinent leur politique de « multisourcing » en complétant leurs centres de compétence en région par des implantations offshore. Ainsi Cap Gemini Ernst & Young (CGE&Y) dénombrait 1 500 informaticiens à Bombay à la fin 2003, contre un millier seulement trois mois plus tôt. Le groupe compte, en outre, développer cette année un nouveau site à Bangalore. Une ville investie par Valtech depuis mai 2003, avec déjà une centaine d'employés. Atos Origin bénéficie, lui, de la présence historique d'Origin à Bombay (1 000 personnes) et au Brésil (600 personnes). Plus récemment, Atos Origin s'est implanté en Chine (100 personnes) et en Pologne (100 personnes), alors que la fusion en cours avec SchlumbergerSema devrait encore changer la donne au cours des prochains mois.
Cependant, si le marché français de la sous-traitance offshore décolle actuellement, sa progression ne doit pas faire oublier sa jeunesse. Il représentait à peine 1 % de la sous-traitance possible en offshore en 2002, contre 9,4 % aux Etats-Unis, selon Pierre Audoin Consultants (PAC). Et plu-sieurs freins permettent de douter d'un quelconque rattrapage. D'abord, le « delta » du coût de main-d'oeuvre entre la province et l'Inde demeure très inférieur, par exemple, à celui constaté aux Etats-Unis ou au Royaume-Uni. « Pour la tierce maintenance applicative, la province demeure compétitive par rapport au prix du marché » , illustre Francis Meston, président d'EDS France. Ensuite, sur un marché du travail informatique déjà fortement dégradé, « la vision de l'offshore comme étant potentiellement destructeur d'emplois (...) peut avoir un certain écho auprès des syndicats , explique ainsi Elisabeth de Maulde, de Pierre Audouin Consultants. Limitant ainsi son usage. » Enfin, les réservoirs francophones de main-d'oeuvre informatique off-shore Maroc, Roumanie, etc. étant beaucoup moins importants que leurs équivalents anglophones, la langue demeurera un frein majeur.
Lire l'article et d'autres liens
Here is an article about that point in France. Hope this will be easy to read for everybody.
La délocalisation des services informatiques s'accélère... doucement
Boris Mathieux, 01 Informatique, le 09/01/2004 à 00h00
Afin de rester compétitives, les SSII s'orientent davantage vers la main-d'oeuvre offshore. En fin 2003, elles précisaient leurs objectifs pour les prochains mois.
Pour redresser leurs marges tout en s'adaptant aux besoins d'économie de leurs clients, les grandes sociétés de services informatiques multiplient les implantations dans les pays à faible coût de main-d'oeuvre. D'abord taboue, l'approche offshore est progressivement devenue un avantage concurrentiel à mettre en avant. Les annonces de plans de délocalisation se sont ainsi multipliées tout au long de l'année 2003, avant d'être précisées en fin d'année. Nombre de projets d'implantation offshore ont ainsi été revus à la baisse ou décalés dans le temps, d'autres étant plus rarement confirmés.
Dans la plupart des cas, l'Inde apparaît encore comme la destination privilégiée. Le sous-continent fournit, en effet, une part croissante de la main-d'oeuvre des sociétés de services informatiques. Accenture, par exemple, y créera 5700 emplois au cours des douze prochains mois, estimant pouvoir atteindre un effectif de 10 000 personnes à la fin de l'année. Selon Business Week, IBM Global Services atteindra le même effectif, mais d'ici à 2005. Tandis qu'EDS comptera autour de 3 500 salariés indiens dès cette année.
Destinations : Mexique, Brésil, Argentine, Bulgarie...
Bien sûr, l'Inde est loin d'être la seule destination à bas coûts pour les SSII. Entre ses activités de services applicatifs et de BPO (Business Process Outsourcing), EDS s'est donné pour objectif de compter 14 300 employés nearshore et offshore d'ici à la fin de 2004. Or, une bonne partie des employés de ce programme dit « best shore » seront localisés au Mexique, au Brésil et en Argentine. De même, CSC, qui abrite environ 10 % de son effectif total dans ses centres nearshore et offshore, est implanté aussi bien dans différents pays asiatiques qu'au Canada, en Australie, en Irlande ou en Bulgarie.
En France aussi, les grandes SSII affinent leur politique de « multisourcing » en complétant leurs centres de compétence en région par des implantations offshore. Ainsi Cap Gemini Ernst & Young (CGE&Y) dénombrait 1 500 informaticiens à Bombay à la fin 2003, contre un millier seulement trois mois plus tôt. Le groupe compte, en outre, développer cette année un nouveau site à Bangalore. Une ville investie par Valtech depuis mai 2003, avec déjà une centaine d'employés. Atos Origin bénéficie, lui, de la présence historique d'Origin à Bombay (1 000 personnes) et au Brésil (600 personnes). Plus récemment, Atos Origin s'est implanté en Chine (100 personnes) et en Pologne (100 personnes), alors que la fusion en cours avec SchlumbergerSema devrait encore changer la donne au cours des prochains mois.
Cependant, si le marché français de la sous-traitance offshore décolle actuellement, sa progression ne doit pas faire oublier sa jeunesse. Il représentait à peine 1 % de la sous-traitance possible en offshore en 2002, contre 9,4 % aux Etats-Unis, selon Pierre Audoin Consultants (PAC). Et plu-sieurs freins permettent de douter d'un quelconque rattrapage. D'abord, le « delta » du coût de main-d'oeuvre entre la province et l'Inde demeure très inférieur, par exemple, à celui constaté aux Etats-Unis ou au Royaume-Uni. « Pour la tierce maintenance applicative, la province demeure compétitive par rapport au prix du marché » , illustre Francis Meston, président d'EDS France. Ensuite, sur un marché du travail informatique déjà fortement dégradé, « la vision de l'offshore comme étant potentiellement destructeur d'emplois (...) peut avoir un certain écho auprès des syndicats , explique ainsi Elisabeth de Maulde, de Pierre Audouin Consultants. Limitant ainsi son usage. » Enfin, les réservoirs francophones de main-d'oeuvre informatique off-shore Maroc, Roumanie, etc. étant beaucoup moins importants que leurs équivalents anglophones, la langue demeurera un frein majeur.
Lire l'article et d'autres liens
BANGALORE, Jan 24 (Reuters) - India's software industry association on Saturday criticised a United States Senate bill that imposes curbs on overseas outsourcing of government business, calling it an attack on free trade.
"We are dismayed to learn about the Bill in the U.S. Senate that restricts offshoring of work contracted by the U.S. government," Kiran Karnik, president of the National Association of Software and Service Companies (NASSCOM), said in a statement.
Indian newspapers prominently displayed on their front pages the passage in the U.S. Senate on Thursday a federal spending bill, which includes clauses restricting outsourcing.
"The bill is yet to become law, and we hope that wiser counsel will prevail," Karnik said.
However, NASSCOM said the business impact of planned U.S. restrictions on outsourcing would be "very small" as the share of U.S. federal government contracts in Indian software exports was less than two percent.
India's software service industry and an accompanying sector that runs call centres and back-office work conducted over high-speed telecoms have been growing aggressively, triggering protectionist talk in the west.
The industry's exports based on strong English language skills and cheaper wages grossed $9.5 billion in the year to March 2003, and are expected to grow at least 26 percent in the current fiscal year to March, 2004.
While recent state-level bills in the U.S. have been minor irritants for India, the federal bill this week in an election year for both United States and India caused unease between the two nations warming up as strategic partners.
Alarm bells have been sounded in the U.S. over a potential loss of jobs in the services sector to India, while China is already seen as having taken a huge chunk of manufacturing jobs.
On the Indian side, where a huge economy has become increasingly globally integrated due to a decade of reforms, fresh fears have arisen over whether Washington is unfair in trade.
Karnik said India's government had itself awarded computerization contracts for its income-tax department to U.S.-based companies, raising a hint there was scope for retaliatory trade action.
"Such a Bill is not in keeping with the increasing globalisation of trade, which benefits all countries, and is contrary to the spirit of free trade being promoted by the World Trade Organisation and long espoused by the United States," the statement said.
Bangalore-based companies like Nasdaq-listed Infosys Technologies Ltd (nasdaq: - news - people) and New York-listed Wipro Ltd (nyse: INFY - news - people) have been among leading gainers from outsourcing by U.S. Fortune 500 giants.
Copyright 2004, Reuters News Service
--> read the article on Forbes :
www.forbes.com
"We are dismayed to learn about the Bill in the U.S. Senate that restricts offshoring of work contracted by the U.S. government," Kiran Karnik, president of the National Association of Software and Service Companies (NASSCOM), said in a statement.
Indian newspapers prominently displayed on their front pages the passage in the U.S. Senate on Thursday a federal spending bill, which includes clauses restricting outsourcing.
"The bill is yet to become law, and we hope that wiser counsel will prevail," Karnik said.
However, NASSCOM said the business impact of planned U.S. restrictions on outsourcing would be "very small" as the share of U.S. federal government contracts in Indian software exports was less than two percent.
India's software service industry and an accompanying sector that runs call centres and back-office work conducted over high-speed telecoms have been growing aggressively, triggering protectionist talk in the west.
The industry's exports based on strong English language skills and cheaper wages grossed $9.5 billion in the year to March 2003, and are expected to grow at least 26 percent in the current fiscal year to March, 2004.
While recent state-level bills in the U.S. have been minor irritants for India, the federal bill this week in an election year for both United States and India caused unease between the two nations warming up as strategic partners.
Alarm bells have been sounded in the U.S. over a potential loss of jobs in the services sector to India, while China is already seen as having taken a huge chunk of manufacturing jobs.
On the Indian side, where a huge economy has become increasingly globally integrated due to a decade of reforms, fresh fears have arisen over whether Washington is unfair in trade.
Karnik said India's government had itself awarded computerization contracts for its income-tax department to U.S.-based companies, raising a hint there was scope for retaliatory trade action.
"Such a Bill is not in keeping with the increasing globalisation of trade, which benefits all countries, and is contrary to the spirit of free trade being promoted by the World Trade Organisation and long espoused by the United States," the statement said.
Bangalore-based companies like Nasdaq-listed Infosys Technologies Ltd
Copyright 2004, Reuters News Service
--> read the article on Forbes :
www.forbes.com
Thursday, January 22, 2004
Making Sense of Offshore Initiatives
By Jon Huntress
Kip Martin is Vice President of Outsourcing and Service Provider Strategies at the META Group. Kip said the main purpose of his talk was to make sense of outsourcing, since he gets many questions from people looking for the right outsourcing “answer.” But there isn’t one, he said, “The magic slide doesn’t exist in this PowerPoint presentation”.
Kip’s primary concern is with the outsourcing of applications. He explained that applications are straightforward. They are the fundamental software that businesses run on, and outsourcing just means that someone else runs that application. But applications affect a business, and that means business processes are inherent in them. Outsourcing your processes is not a straightforward endeavor.
Outsourcing isn’t about location, and picking a region isn’t the first step. The outsourcer is what’s key. Outsourcing means that something is leaving you, and therefore managing it from afar is going to involve more work than if it stayed in-house. There are a lot of variables in outsourcing, location being one of many.
There is high interest in offshore now, and a lot of money is being made and saved. Kip explained that the offshore market became important because of Y2K, when businesses first used outsourcing to help alleviate the problem. The 2001 economic downturn increased interest in offshore to save costs. Users are asking when, where, and how to make outsourcing initiatives work. Offshore vendors are presenting strong cases to CIOs on how to save money, and CIOs are actively investigating whether this is a viable option.
Kip said the critical issues are:
•Dealing with the perceptions and misperceptions of offshore sourcing and compare them with real-world results.
•Developing models to determine offshore compatibility and mitigate potential risks.
•Mapping the shifting sands of the service provider and the offshore vendor landscapes.
There are many misperceptions about going offshore. The first is the cost savings that can be realized by IT organizations through offshore outsourcing. There are real savings, but there is also a price to pay. Another misperception is that the development cycles at Capability Maturity Model (CMM) Level 5, can be achieved by using an offshore vendor with that level. A third misperception is that offshore vendors are increasingly able to provide facilities management and operations support. Kip dissected each of these misconceptions and added that offshore vendors can provide many benefits, but none of them appear automatically, or “auto-magically”, as he put it.
Potential savings do exist. Direct labor savings can be as high as 40% - 50%, but offshore is a “code factory” concept, which requires a different operating model. The best things to outsource are stable applications that don’t change much, and don’t need tweaking. The lowest costs come out of places like China and Vietnam, but they come with their own set of problems. Kip said that in China, the demand for skilled workers is so great that you could lose people who are specifically trained for your project to a poacher. There are no fixed prices either, only baselines. As your technology changes, so do the prices.
CMM Level 5 is a major asset, but you can’t take advantage of it unless your business processes are at least CMM Level 2. If your systems and processes are a mess, then you are paying your outsourcer to clean it up. Most offshore vendors are CMM Level 5 but the average ITO shop doesn’t need that level, nor can they make use of Level 5 skills. The majority of outsourced projects are being performed at Level 3, which is still a challenge. The ability and risk of internal change is a major consideration when choosing offshore options, and both IT and a business’s ability to change need to be considered.
Kip recommends that IT organizations include CMM transformation with the outsourcing services.
Kip compared the transition to outsourcing to a long-term relationship or marriage. It takes a good 18 months to establish. And it will take another 18 months to bring it back in-house if you change your mind. The average cost savings for IT organizations is 15% to 20% during the first three years.
Offshore is ideal for routine maintenance and support. Applications that have well-defined end-user requirements and common business knowledge are the best candidates. Other good areas to outsource include call centers and help desks; these are proven and effective. E-business development and integration are becoming increasingly mainstream, but facilities management and operations work are still experimental and involve high risk and uncertainty.
Operations generally lack adopted process models, making it more difficult to outsource. Kip advises carefully evaluating any outsourcing of proprietary knowledge. Offshore best practices include ramping up internal operations to comply with CMM processes and choosing applications that best align with the offshore model.
The offshore market is becoming homogeneous. Pure-play offshore providers and their domestic offerings are getting increased competition from domestic vendors expanding their offshore capabilities. Pure-play vendors are increasing their local skills and knowledge with domestic talent and are expanding into new service areas. Kip says that by 2005, a few offshore vendors will emerge as full-service outsourcing providers.
In summary, Kip restated the need to develop realistic expectations about offshore opportunities and capabilities. Can your IT organization adopt CMM principles and can your business units allow a “process” culture? Determine which applications are candidates for offshore sourcing.
Expect the line between domestic and offshore vendors to continue to blur. Domestic vendors will always have broader offerings, but you need to know the quality of their subcontractors. You have to stay current in your research, and have your own people on site regularly to ensure quality. There are a lot of benefits to outsourcing, but it takes work and commitment to get there.
By Jon Huntress
Kip Martin is Vice President of Outsourcing and Service Provider Strategies at the META Group. Kip said the main purpose of his talk was to make sense of outsourcing, since he gets many questions from people looking for the right outsourcing “answer.” But there isn’t one, he said, “The magic slide doesn’t exist in this PowerPoint presentation”.
Kip’s primary concern is with the outsourcing of applications. He explained that applications are straightforward. They are the fundamental software that businesses run on, and outsourcing just means that someone else runs that application. But applications affect a business, and that means business processes are inherent in them. Outsourcing your processes is not a straightforward endeavor.
Outsourcing isn’t about location, and picking a region isn’t the first step. The outsourcer is what’s key. Outsourcing means that something is leaving you, and therefore managing it from afar is going to involve more work than if it stayed in-house. There are a lot of variables in outsourcing, location being one of many.
There is high interest in offshore now, and a lot of money is being made and saved. Kip explained that the offshore market became important because of Y2K, when businesses first used outsourcing to help alleviate the problem. The 2001 economic downturn increased interest in offshore to save costs. Users are asking when, where, and how to make outsourcing initiatives work. Offshore vendors are presenting strong cases to CIOs on how to save money, and CIOs are actively investigating whether this is a viable option.
Kip said the critical issues are:
•Dealing with the perceptions and misperceptions of offshore sourcing and compare them with real-world results.
•Developing models to determine offshore compatibility and mitigate potential risks.
•Mapping the shifting sands of the service provider and the offshore vendor landscapes.
There are many misperceptions about going offshore. The first is the cost savings that can be realized by IT organizations through offshore outsourcing. There are real savings, but there is also a price to pay. Another misperception is that the development cycles at Capability Maturity Model (CMM) Level 5, can be achieved by using an offshore vendor with that level. A third misperception is that offshore vendors are increasingly able to provide facilities management and operations support. Kip dissected each of these misconceptions and added that offshore vendors can provide many benefits, but none of them appear automatically, or “auto-magically”, as he put it.
Potential savings do exist. Direct labor savings can be as high as 40% - 50%, but offshore is a “code factory” concept, which requires a different operating model. The best things to outsource are stable applications that don’t change much, and don’t need tweaking. The lowest costs come out of places like China and Vietnam, but they come with their own set of problems. Kip said that in China, the demand for skilled workers is so great that you could lose people who are specifically trained for your project to a poacher. There are no fixed prices either, only baselines. As your technology changes, so do the prices.
CMM Level 5 is a major asset, but you can’t take advantage of it unless your business processes are at least CMM Level 2. If your systems and processes are a mess, then you are paying your outsourcer to clean it up. Most offshore vendors are CMM Level 5 but the average ITO shop doesn’t need that level, nor can they make use of Level 5 skills. The majority of outsourced projects are being performed at Level 3, which is still a challenge. The ability and risk of internal change is a major consideration when choosing offshore options, and both IT and a business’s ability to change need to be considered.
Kip recommends that IT organizations include CMM transformation with the outsourcing services.
Kip compared the transition to outsourcing to a long-term relationship or marriage. It takes a good 18 months to establish. And it will take another 18 months to bring it back in-house if you change your mind. The average cost savings for IT organizations is 15% to 20% during the first three years.
Offshore is ideal for routine maintenance and support. Applications that have well-defined end-user requirements and common business knowledge are the best candidates. Other good areas to outsource include call centers and help desks; these are proven and effective. E-business development and integration are becoming increasingly mainstream, but facilities management and operations work are still experimental and involve high risk and uncertainty.
Operations generally lack adopted process models, making it more difficult to outsource. Kip advises carefully evaluating any outsourcing of proprietary knowledge. Offshore best practices include ramping up internal operations to comply with CMM processes and choosing applications that best align with the offshore model.
The offshore market is becoming homogeneous. Pure-play offshore providers and their domestic offerings are getting increased competition from domestic vendors expanding their offshore capabilities. Pure-play vendors are increasing their local skills and knowledge with domestic talent and are expanding into new service areas. Kip says that by 2005, a few offshore vendors will emerge as full-service outsourcing providers.
In summary, Kip restated the need to develop realistic expectations about offshore opportunities and capabilities. Can your IT organization adopt CMM principles and can your business units allow a “process” culture? Determine which applications are candidates for offshore sourcing.
Expect the line between domestic and offshore vendors to continue to blur. Domestic vendors will always have broader offerings, but you need to know the quality of their subcontractors. You have to stay current in your research, and have your own people on site regularly to ensure quality. There are a lot of benefits to outsourcing, but it takes work and commitment to get there.
