| You can hardly open an IT magazine today without seeing
at least one headline about outsourcing. Outsourcing (even
the offshore variety) isn’t new to IT, but until recently
it had not enjoyed the wide-spread attention it commands
these days, from IT’s corner offices and boardrooms
to cubicles and water-coolers.
The boom
The IT industry was heavily taxed by two recent events:
the Y2K clean up and the crash of the “dotcoms”.
Those companies, and managers, who survived had to contend
with smaller budgets and increased expectations and accountability
for what they deliver in terms of return on investment.
Cutting costs (without cutting corners) has become imperative
for IT companies in order to survive in a global world
that is more fluid and competitive than ever before.
IT and non-IT companies alike had to concentrate on their
core competencies and had to become more efficient at
doing what they were doing best. Thus, the offshore outsourcing
boom was born.
The attractiveness of outsourcing IT operations offshore
lies in the fact that the costs associated with application
development and maintenance could be slashed up to 40%
(depending on the specifics of the each project) by assigning
the work to qualified but much cheaper programmers located
in countries like India, Russia, Eastern Europe, China
or the Philippines. The end of the bipolar world, the globalization
of the economy, and the Internet have made offshore outsourcing
not only feasible but profitable for the labour intensive
variety of IT work.
Offshore outsourcing works best when the infrastructure,
language and culture are not barriers between the two parties
involved. This explains why India is currently the most
popular destination for offshore outsourcing, to the point
that some experts foresee the demand will push rates up
to the point that countries such as Russia and China will
become the new darlings, despite poorer infrastructure
and language skills. This underlines the fact that the
cost of labour, more than anything else, is at the center
of the outsourcing paradigm. And that’s where the
boomerang aspect kicks in.
The boomerang
No doubt, the offshore economies benefit from this trend:
segments of the population are employed, they have disposable
income that sustains the local economy, and there is
a flow of technology and business expertise trickling
in. Then, in order to better represent themselves, the
providers of outsourced services open offices in North
America.
But how does this affect the growing number of local unemployed
IT workers? A lot of this has to do with how the companies
that outsource offshore handle the issue. Since the approach
varies from asking existing staff to train their replacements,
to relying on attrition and avoiding lay-offs, the response
from those impacted varies too. It is difficult to elicit
co-operation and goodwill for the greater good of the company
from workers who see their jobs in jeopardy. So, neither
for management nor for employees is this an easy process.
Another major concern is that the short term benefit of
cost cutting is in fact being traded for the long term
problem of potentially exporting strategic technological
know-how, and thus creating competition and even security
risks, to companies where this was not the intention. Right
now, all major software development firms originate, and
are headquartered in, North America. But for how long can
this continue, given the global, technologically open world
we are living in?
Our own yard
An interesting dynamic is presented by Canada vs. the US
in respect to offshore outsourcing. While in the US the
issue is heating up and turning into a political one, Canada
seems to be quietly enjoying a privileged position due to
the so-called “near shore” flavour of outsourcing.
In the US, having a much larger IT population and industry,
the current crisis of the sector has radicalized unemployed
IT workers who are not being absorbed by other sectors of
the economy to the point of lobbying their politicians to
introduce laws that will make exporting IT jobs less attractive
to companies. On the other hand, Canada, with its geographical
proximity, similarity in business practices and lower exchange
rate is a very popular destination for US companies who
outsource. While there are no firm studies available yet,
it is believed in the Canadian IT industry that the influx
of jobs thus created offsets the number of jobs lost to
offshore outsourcing by Canadian companies.
History has demonstrated that things happen for a reason,
understood or not, and there is little that individual
acts or legislation can do to change its course. Only time
(and Internet-years are indeed short) will tell which direction
the outsourcing boomerang will take.
Tatiana Andronache is IT technical staff
for a large information technology company in Toronto, Canada.
She can be reached at tatiana.andronache@sympatico.ca
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