Tech & Work

Add value in an outsourcing economy

Low-cost foreign labor pools have created both opportunities and problems for CIOs needing to reduce costs while maintaining control of the business. Landgrave's View examines changes to consider when deciding to outsource.


By Tim Landgrave

In the boom of the late '90s, our economy grew so quickly that many industries found themselves in a perplexing situation. For large companies, the cost of hiring domestic employees for almost any blue-collar job became so prohibitive that they moved large numbers of manufacturing jobs, not only in textiles but also in electronics and other high-tech industries, into areas such as Mexico and Southeast Asia.

The other effect of the '90s economic boom is starting to hit now. Many foreign nationals—encouraged by the increased availability of H1-B work visas—came to America and learned the trades and skills of the blue-collar and white-collar workforce.

The "impossible" begins
I’ve sat in rooms with groups of programmers and network engineers who sympathized with the workers who lost their jobs as manufacturing moved overseas, but were confident that their jobs were impossible to outsource. Interestingly enough, many of these technical experts were themselves H1-B visitors who had come to this country to learn high-tech skills. They had hoped to improve their economic circumstances by coming to America.

What they’re finding now is that they can return home with a very valuable set of skills, a large number of American contacts, and a significantly lower cost of living without a corresponding drop in their quality of life. They use these assets to compete for work (very favorably) with their former American colleagues. This puts our technology workers at a significant disadvantage as long as the recession continues because there’s enormous pressure on most CIOs to reduce costs, and outsourcing key positions has become one of the easiest ways to do so.

It IS rocket science
Combine the outflow of the H1-B workforce and the increased number of technical professionals being produced by countries such as Russia, India, China, Korea, and Hong Kong, and the technical workforce overseas dwarfs that of the United States. Moreover, you can really hire a full-fledged rocket scientist—recently released from Russia’s space program—for less than $40,000 per year.

India has huge technology centers where well-trained, articulate programmers can be contracted for $1,000 to $5,000 per month without the overhead associated with U.S. workers (health care costs, insurance, hiring and firing costs, etc.). And major companies, including GE, IBM, and Microsoft, are all setting up "development factories" in emerging countries such as India. They do this not only to reduce their software development costs, but also to be in a position to take advantage of opportunities in those countries as their economies grow from the resulting influx of new capital.

It’s not just the big companies that are taking advantage of this phenomenon. I get at least two calls per week from companies offering to outsource the design and development of large business software systems for a third to half of what it would cost me to contract or employ the same resources here. Many consulting firms have begun replacing their development teams with high-level product and program management resources and contracts with offshore development groups to actually produce the final product.

The types of jobs being outsourced have begun to change as well. It used to be just software developers, but with the ubiquity of high-speed network access and the ability to move a packet of data or voice from anywhere to anywhere, companies are finding that they can outsource jobs that can be done at the other end of a piece of wire. The first jobs to move have been the help desk and customer support services for large manufacturing and technology companies. Companies have found that they can cut their cost per call by 50 to 90 percent by letting someone from India—who speaks better English than most Americans—take the customer support calls from their customers.

And as more Internet systems are configured to run remotely in large hosting facilities, why does it matter if the support engineers are located in the same city? The support can be just as efficient and much more cost-effective by having it monitored by highly trained and highly motivated engineering professionals from other countries who have access to the same high-speed connections (minus a few milliseconds) as their domestic competitors.

How do CIOs respond?
As a CIO, you’re in a difficult position. You have to find ways to continue to reduce your cost but do so without losing influence or control. You also have to assume that at some point your competitor will find ways to take advantage of the cheaper technical labor pool. Now is the time to begin focusing on the two things that are the most difficult to outsource: business analysis and pattern development. You should create an environment where everyone on your staff is encouraged to know the business first and the technology second. Understanding the business processes that can most efficiently deliver your company’s products and services is the most important skill that a technology professional—from the CIO to the existing help desk staff—can offer.

And even though much of the actual development and support can be moved to lower-cost providers, the ability to break business requirements down into repeatable and replicated technology elements is not so easy to move outside of the building. You can begin encouraging your staff to be intimately involved in the movement toward patterns-based systems and software development. In the next 10 years, it’s highly likely that most U.S. technology professionals will consider themselves business analysts and system designers only and will embrace the opportunity to have the “grunt programming and support work” moved overseas. But during the next 10 years, corporate information managers will have to either retrain their workers to think this way or replace them with people who do.

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