Outsourcing

November 2, 2003 by
Filed under: Agility, Project management, Quality 

It is impossible to pick up a business oriented trade journal these days without finding an article about the exploding phenomenon of IT outsourcing. Whether it is software development, maintenance, or call center support, moving some operations offshore is on everyone’s mind, either as an opportunity to streamline and cut costs, or as a nasty new attack that is placing further pressure on an already depressed sector of the economy.

Particularly in the US, many of the comments about outsourcing to the major destinations of India and China, or lesser markets such as Israel or Belarus, focus on the loss of local jobs and the damage to the economy. First the whole dot bomb thing, now this – what are we to do? If the history of globalization of other industries such as textiles or manufacturing can teach us anything, there will be more of a shift in demographics than an outright loss of jobs. Nike has used the offshore outsourcing model since inception, and (alleged child labour issues aside) is doing very well in Oregon. Where is your clothing made, what kind of car do you drive? The distinction with IT outsourcing is that we now have access to relatively low cost, highly educated white-collar labour pool, but we have a shift in the greater requirement for oversight of the relationship to ensure success. It is pointless to take the protectionist view and complain about outsourcing. It makes better business sense to understand how to leverage the available opportunities. Actually, we have helped the phenomenon grow with our focus on distributed collaborative software products in the past decade!

Offshore outsourcing is not for everyone. Many large companies that have had outsourcing success have moved the entire infrastructure for projects offshore – Microsoft and Motorola have complete divisions in India, which minimizes the challenges associated with distance, time zones, and cultures. Others that have succeeded have embraced outsourcing as a strategic initiative, and have invested the time to build a strong relationship with the outsourcing team. They have found that the overhead of establishing and managing the long distance relationship is more than made up by the reduced costs and process focus that are the value proposition of the leading outsourcing firms. In my experience, those that have attempted offshore outsourcing to sustain tactical peaks in demand have generally failed (…in hindsight, I would suggest that the failure lies primarily on the shoulders of the client organization). It is not an endeavour to take lightly.

There will always be a market for local software development resources at all skill levels. Particularly on the west coast, where there is a greater entrepreneurial sector, growing companies will always be better served by the local talent pool to sustain the quick buildup/buyout model that drives new ventures. Here in Canada with our dollar weak compared to the US, we can provide a value proposition for near shore outsourcing – while we may not win the cost argument, we can lean on our relatively close time zones and similar cultures to build a niche in between the traditional in-house model and the growing offshore outsourcing model. We will need to sharpen our message, though, and increase focus on our quality proposition as well.

Growth in offshore outsourcing will bring some changes, most of which are positive. It is one of the factors that will prevent us from seeing the outlandish heyday at the end of the 1990’s – and the corresponding crash. Fresh graduates with no industry experience will not be able to demand the starting salaries of 5 years ago, effectively shifting the entry-level jobs to more of a blue-collar status, and probably driving the industry to move towards an apprenticeship and licensing model, which is a step in the right direction. The educational institutions will need to adapt as well, and focus on developing graduates with broader skills and experience, rather than a cursory view of the overall development process and the ability to code in a variety of languages. Higher level degrees will become more of a differentiating factor as people enter the workforce.

Clearly, offshore outsourcing is here to stay, and over time a new equilibrium will be set. With care, many of us will be able to leverage the opportunities provided by the globalization we helped to create, and in time we will see this as a global win-win, rather than a barrier for the local economy. I know this industry certainly can benefit from the increased competition that outsourcing generates. – JB

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