IT Job Outsourcing

As we start to learn about outsourcing, its impact				declining satisfaction among outsourcing clients
and the way it is perceived by society and the				published on ZDnet talks about Diamond Cluster
Information Technology industry, we come across				International's study, which found out that the
some issues that seem to define outsourcing. Some				number of buyers satisfied from their offshoring
of the issues are positive about outsourcing and				provider has dropped from 79% to 62%. Also the
some are negative. One negative issue has been				number of buyers terminating their offshoring
identified as the problem statement for this study.				contracts prematurely has doubled and reached 51%.
The outsourcing industry in United States has been a				(Frauenheim, 2005, p.2)
target of political ideologues and a fair amount of				Security Risks In Outsourcing
fear. During the course of this study we will try to				This declining rate of satisfaction will not be helped
explain the social and political environment that				by recent reports on security breaches at the call
affects outsourcing. Also, many American companies				centers in India. It was reported on the BBC by
have suffered losses in outsourcing because the				Zubair Ahmed that some employees of Indian call
infrastructure in the host nation is not up to the				center Mphasis in Pune transferred large sums of
standard. We will attempt to address that issue too.				money to the fake account they created from the
History of Outsourcing				accounts of American customers of Citibank, whose
Looking at the history of human development, the				call operations were handled by the company. This
history of outsourcing dates back to the industrial				incident has brought into focus the lack of integrated
development that began in the late 17th century. For				security management system in India's call centers.
instance, the making of America's covered wagon				The industry is still in the growing stage, and not
covers and clipper ships' sails was a job outsourced				much attention is paid to ensure that proper security
to workers in Scotland, with raw material imported				procedures are followed. It's only after this incident
from India. England's textile industry became so				that the companies have started doing background
efficient in the 1830s that eventually Indian				checks on the employees and have made the
manufacturers couldn't compete, and that work was				background checks a norm in their hiring process. This
outsourced to England. (Kelly, 2003, p.3) The ancient				incident raises many questions regarding the safety
Chinese empire and the Japanese were also adept at				and security of data when processes are outsourced;
outsourcing to their conquered nations. Looking at				also the capacity of Indian companies to handle data
recent times, in the USA many computer companies				securely is in question. (Ahmed, 2005, p.2)
used to outsource their payroll processing in the				Social Effects of Outsourcing
1970s and 1980s. Learning that outsourcing existed				While data security in outsourcing is being questioned,
since the early days of our civilization, one may				there is a question about the social effects of
wonder why no one talked about it, let's say, 10-15				outsourcing too. This issue has largely being sidelined
years back? The reason outsourcing stayed out of				because the industry is mostly concerned with the
the news is because it used to happen on a small				more visible effects of outsourcing like the cost
scale and was concentrated in some specific regions,				saving and profits, rather than look for the slow but
like the USA, Europe. But now outsourcing is a $400				steady social change outsourcing is causing. Kaushik
billion a year industry and the world cannot afford to				Basu talks about this issue in his article, "The Politics
ignore it. Globalization, explosive growth of Internet,				of Business Outsourcing," published on Project
and the development of information society in every				Syndicate's website. In his article he says that job
region of the world has made outsourcing an integral				loss due to outsourcing may lead to protectionism
part of the world economy.				and nativism. In the long run this can lead to racism
In our study we are focused on Information				and other discriminatory practices. So it's very
Technology (IT) outsourcing. IT outsourcing gained				important to help the laid off workers so that they
momentum after the Internet started bringing				do not develop these kind of feeling toward the
together every corner of the world, and globalization				country where his job went. (Basu, 2004, p.9)
brought down national barriers. Nowadays American				Unions Opposing Outsourcing IT
companies such as Intel and Sun Microsystems have				Unions in America have looked at one side of the
larger research and development outside the United				social effects of outsourcing -- job loss and the
States than within the nation, Citibank has card				effect it has on the family and society. They are
processing outsourced to India, and customer				protesting against outsourcing and pushing the
support at Dell comes from the Philippines.				Government to pass laws to ban outsourcing. In his
Some look at outsourcing as a way in which				report "Unions step up anti-outsourcing efforts," Juan
developing nations can have access to the new				Carlos Perez says that Information Technology
technology enjoyed by the developed nations and a				Unions are fighting to keep American jobs in America.
way towards economic and social empowerment.				Leading this struggle is the International Federation of
Relevant Research on Outsourcing				Technical and Professional Engineers (IFPTE), which is
The most relevant research conducted is that done				trying to convince the United States Congress to
by LOMA, which explores the pros and cons of				pass laws that will protect jobs from being
outsourcing and offshoring. The focus of the				outsourced. The Union is also lobbying hard to get
research report is on information technology (IT)				the working visa, especially H1B regulations tightened
outsourcing and offshoring to IT service companies in				so that whatever jobs stay in America goes to
the Unites States and India. Sources for the report				Americans. (Perez, 2005, p.4) Although it concerns us
include SEC filings, Internet sites, press reports, and				that the Unions are painting outsourcing as the sole
government research. The topics in the report				reason for job losses in the IT industry, while they
include: a) Explanation of Outsourcing, b) Explanation				turn a blind eye to other reasons like stagnating
of Offshoring, c) Process of Selecting Providers, d)				industry, high costs and increasing competition from
Reasons Why Outsourcing and Offshoring Are Rising,				foreign-based companies. It would be better for the
e) Evidence of Impact of Outsourcing and Offshoring				industry and also for the IT professionals if they
on Jobs.				start looking at the whole picture instead of targeting
However, it must be stated here that we found a				outsourcing as the sole evil.
lack of theoretical research on outsourcing. The				Depleting IT Talent Pool in USA
knowledge base of the industry does not focus on				To understand why outsourcing is happening we
theoretical research but on financial data and global				must realize that the USA has a fast depleting talent
economic and political trends. What we have				pool in technical fields like Computer Science and
observed is that the IT industry is looking at				Physics. So the companies are forced to seek talent
outsourcing as an economic phenomenon and is not				outside the country or to send the job to country
focusing on research the way it has for the field of				where there is a large talent pool. India and China are
software, microprocessors, the Internet etc.				the best examples for this. India has a large
Why is outsourcing an important issue? Referring to				population of engineering graduates who have refined
our problem statement, we would like to stress that				technical skills and are able to do the job for less.
the problem is significant not only because of its				Also China produces largest number of Computer
impact on IT outsourcing industry but also because				engineers every year. So to compete against them
of its impact on the global economy as whole. We				United States should try to encourage its students to
know that outsourcing is a $400 billion a year industry				enter technical fields and should also introduce
and IT outsourcing is a vital part of the industry. A				courses in schools and universities to increase
slump in IT outsourcing would mean a loss for the				technical skills. The report "Inside the Debate over
global economy.				Outsourcing Information Technology Service Jobs
Since the problems facing IT outsourcing (such as				Overseas," published by Manufacturing News, talks
political pressure in the USA and lack of infrastructure				about the issue of talent shortage in America. The
in the host developing countries) can seriously slow				reports also discusses about the rising number of job
down the growth of IT outsourcing, the problem				protection groups, some of whom have websites;
facing this industry is significant.				although these groups are trying to bring into focus
In conclusion, we would like to state that nothing				the job loss and economic hardships caused to the
should be judged in a void. If we judge outsourcing				American workers by outsourcing, some of their
by itself we would not be able to say whether it is				sites have included racist and biased remarks. And
good for society or not, but if we view outsourcing				instead of using reasons they are resorting to
from the perspective of the global economy,				insulting the foreigners who are talking their job
increasing globalization, rising cost of production in				overseas. (Manufacturing News, 2005, p.6)
USA, and lower costs in developing countries, we can				Having discussed in length about the issues in
see that outsourcing has a positive side too. Although				outsourcing like security concerns, questions on job
fewer than 20% of the total American software				loss, depleting talent pool in America, and others, we
companies outsource their jobs, in general offshore				now move our discussion to the outsourcing
outsourcing ("offshoring") is seen as something bad				destinations and the IT infrastructure in those
for America. We hope that with this study we would				destinations. Outsourcing Destinations India and China
be able to present a balanced picture of outsourcing.				have emerged as the leading destination IT job
Inside The Outsourcing Debate: How DuPont				outsourcing. For out study we did an analysis of China
Benefited from Outsourcing to China				as an outsourcing destination.
When we began looking at the debate surrounding				The report "Country Analysis: China" talks about
outsourcing, we came across DuPont, which has				China as an outsourcing destination. The highlights of
outsourced its project of creating online database of				the report have been summarized as follows: The
fabrics to China. The report published in Outsourcing				software outsourcing market in China is a US$1.5
Asia's website said that by outsourcing to China the				billion market with annual growth rate of about 35%.
company was able to create a 24/7 operation and				The present position of China is where India used to
complete the project before schedule. The report				be 12 years ago. The growth in this sector is fuelled
also pointed out why the company had selected				by the large supply of low-cost and qualified
China as its destination and also talks about China's				manpower and a large internal market. Although the
future as outsourcing destination. (Rosenthal, 2005,				Chinese market is promising it is suffering from some
p.6)				serious problems like the lack of English language
How US Government Can Benefit From Outsourcing				proficiency among the programmers and managers,
Looking at the example of DuPont, where				the Chinese companies do not have established
outsourcing helped the company to complete a				quality control procedure like their Indian counterparts.
project in time and also saved costs, we decided to				Also the large problem of software piracy in China is
look at how outsourcing might help the government.				not helping it to become a credible destination for
We came across a report on the US government's				software development. The Chinese government is
IT challenge and how outsourcing can be of help in				launching programs to encourage and develop the
Outsourcing Asia's website. The report said that, in				software industry. But it does not have a good
the year 2005, 50 percent of the federal				international image because of its un-democratic style
government's 70,000 IT workers would become				of governance and many European companies and
eligible for retirement, according to a 1999 study.				US companies are hesitant of doing business in China
Also, the Government's IT legacy systems have also				because of this.
aged. So even if young people join the work force				Although China has a large supply of IT professionals,
they are not trained in the old system. They have to				those qualified in software engineering and software
be trained, which means increase in cost and				are very limited because the Chinese universities still
expenses for Government. This gap has opened				emphasize the traditional engineering fields like
doors to the suppliers to offer outsourcing as a				mechanical engineering and electrical engineering. Also,
solution to the problem. (Harney, 2005, p.2) The				China has made great improvements in the
report mentioned that many Unions and Government				telecommunication infrastructure but the
workers are against outsourcing because they fear				developments are concentrated in the big cities and
that it will raise unemployment in USA. Although there				near the costal regions. The heartland and the rural
is a general fear of outsourcing among the public, we				areas are still far behind. This limits the Chinese
believe that if we are able to create a mutually				market for software sales and development. We can
beneficial outsourcing relationship between the two				see that China is a promising destination for IT
parties and show the benefits to the people, they will				outsourcing, but then it has some problems too. The
begin to feel positive about it.				country is trying to take the position India has in the
Creating A Mutually Beneficial Outsourcing Relationship				outsourcing market, which it may be able to if we
The report titled "Creating a Win-Win Culture" in				look at the IT infrastructure and other surrounding
Outsourcing Journal talks about QinetiQ which was				issues affecting IT development in the South Asian
reaching the end of an existing outsourcing contract				market.
and realized the need to have a single source solution				A report titled "Struggling with the Digital Divide,
to provide a wide range of services and also reduce				Internet Infrastructure, Policies and Regulations,"
its total cost for IT services. In the year 2003, the				published in South Asia Net, talks about the problems
company signed a contract with Accenture to				facing the South Asian IT industry. The highlights of
provide broad range of applications; hardware and				the report can be summarized as follows:
data center services, as well as purchasing and				The Internet made way to the South Asian region in
program management. To achieve early savings, the				the late 1980s through bulletin boards, government
two companies bought into a structure and effective				and non-government initiatives. In India, in the year
governance along with establishing good relationship				1995 government-owned VSNL started offering
at all levels at both the organizations. They were able				Internet access to the public. Private companies
to exceed the savings target in the first year of their				entered the market in 1998. In Nepal, the Internet
partnership with the help of open communication,				was introduced in 1993 and in 1996 the people were
continuous innovation and win-win based solutions.				given access to the World Wide Web. In the
Looking at the example of QinetiQ and Accenture				beginning only the big cities in the region had access
we can say that good outsourcing relationships can				to the Internet, but now Internet usage has spread
create a win-win culture, which can benefit both				to the rural areas too. For example: In India many
sides. More and more companies are trying to copy				villages' government agencies have set up their own
the success of these two companies. (Garner, 2005,				websites and offer many of their services online.
pp.4)				Although the Internet is spreading in South Asia, the
Having discussed about the positive side of				lack of infrastructure, antiquated legislations, language
outsourcing, the benefits it can offer to the business				barriers and the high cost of Internet access are
and the Government, we now turn our discussion to				hampering growth. We can see that the South Asian
the negative side of outsourcing namely declining				IT infrastructure is facing problems, but the industry
satisfaction among the outsourcing clients, security				is trying to overcome it and keep its position as a
risks, social effects and public opposition. Declining				favored outsourcing destination. (Rao, Bhandari, Iqbal,
satisfaction among outsourcing clients Report on				Sinha & Siraj, 1999, p.

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IT Job Outsourcing