Mercury piece on overseas outsourcing
Mercury piece on overseas outsourcing
Date: Tuesday, October 22, 2002 2:21 PM
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I decided to forward you this newsletter because Dr. Matloff has a different
slant on the outsourcing issue.
Bank of America is mentioned in the article.
Another interesting tidbit is that the journalist Jennifer Bjorhus has left
the Mercury to work for the St. Paul Pioneer Press in Minnesota. I don't
have word yet why she left but it's no secret that the Mercury tends to be
in favor of open border immigration and H-1B. She had a difficult time
getting her articles printed about the H-1B controversy at Sun Microsystems.
-----Original Message-----
Date: Monday, October 21, 2002 10:56 PM
The industry lobbyists have always threatened, "If Congress doesn't
allow us to bring more H-1Bs from there to the U.S., we will send jobs
there." (The "there" is India. Though only about half of all H-1Bs are
from India, 89% of the computer-related H-1Bs are from there, according
to INS data.)
As many of you know, I consider this to be an bogus threat. I discuss
this in detail in Section 9.5 of my updated congressional testimony. It
is certainly true that the amount of work being sent overseas in
increasing, but the actual percentage is small and should remain small.
In addition, most of the outsourcing work is not programming. It is mainly
stuff like call centers. Indeed, the same Stephanie Moore quoted here told
Information Week (http://www.informationweek.com/story/IWK20020116S0003)
"[The business world] can look for an increasing amount of application
development and business-process outsourcing to be sent offshore,
particularly areas like call-center and transaction processing." I
certainly don't mean to say that no software development work at all
is being sent overseas; on the contrary, hardly a week goes by without
my hearing from a programmer whose employer is planning to move his/her
job overseas. I am simply saying that the percentage is small, and
should remain so.
Norm
Posted on Mon, Oct. 21, 2002
Slowdown sending tech jobs overseas
By Jennifer Bjorhus
Mercury News
The U.S. economy might be stalling, but at least one niche is hot: shipping
technology jobs offshore.
The economic slowdown is speeding up the export of jobs, experts say. As
executives face smaller budgets and more pressure for profits, they find it
much cheaper to send work to contractors overseas. More U.S. companies are
following Silicon Valley's lead by shifting engineering and other
technology-related jobs to places such as China, Ireland, India and the
Philippines to cut costs.
The drift of jobs is worrying engineering groups, renewing fears that
white-collar tech jobs in the United States are going the way of blue-collar
manufacturing jobs: over the border and across the seas.
A major engineering group has asked Congress to investigate whether the
offshore trend, combined with U.S. companies importing foreign engineers on
H-1B visas, is partly to blame for high unemployment among U.S. engineers.
About 200 of the Fortune 500 companies now ship software work overseas,
according to Stephanie Moore, an outsourcing expert at Giga Information
Group in Cambridge, Mass. Fortune 1000 companies are quickly following.
Moore estimates that global revenue from offshore software work will hit
$7.68 billion this year, up 20 percent from 2001. Forrester Research
estimates that corporate budgets for offshore software outsourcing will
probably more than double by 2004.
Valley technology companies pioneered the concept of going offshore for tech
talent more than a decade ago, along with General Electric and Microsoft.
But now the practice is becoming common outside the technology industry.
The list of companies contracting for offshore tech services reads like a
corporate ``Who's Who'' list: Target, Visa International, Gap, Boeing,
Citigroup, Nordstrom, Bank of America and, of course, Oracle, Cisco Systems,
Hewlett-Packard and Microsoft.
San Francisco brokerage Charles Schwab last year moved part of its
information technology division to a contractor in Bangalore, India, where
about 150 people do programming for Schwab's internal computer networks and
Web site. The move followed a 25 percent companywide layoff. Schwab
spokesman Greg Gable said the layoffs included an unspecified number of
contract engineers in its tech division.
Franklin Templeton Investments in San Mateo, too, has shifted about 20
percent of its tech work to service providers in India and elsewhere.
Even the state of California has contracts worth $76.6 million with five
tech services firms that outsource some tech work overseas, according to
records maintained by the state's Department of General Services. A
department spokesman said he didn't know whether the work on those contracts
was being done overseas. The state has no rules about it, he said.
Some experts say the growth in offshore tech services is less about
increased U.S. demand than about aggressive marketing by Indian firms. Some
of the biggest are Infosys, Wipro Technologies and Tata Consultancy
Services, all based in India.
U.S. tech services companies are also in on the game. Tech consultants such
as IBM Global Services; Accenture, a Bermuda-based Arthur Andersen spinoff;
Electronic Data Systems; Computer Sciences; and PricewaterhouseCoopers are
all racing to set up overseas operations. Many go to India. Other hot spots
include Ireland, the Philippines, Eastern Europe and China.
Although most of the overseas software work remains basic maintenance and
applications development, vendors are moving up the value chain to software
architecture, strategy and systems design. The Philadelphia Stock Exchange
recently hired Cognizant Technology Solutions, which has a New Jersey
headquarters and 10 development centers in India, to build new software
architecture for its computer networks to run the exchange in real time.
Back-office work is moving overseas even faster, experts say. India's
leading software association expects the country's sizable share of
back-office work, such as handling customer service e-mails and payroll
processing, to surge more than 60 percent this year.
Shifting work to low-cost areas is a way to rein in costs in a tough market,
executives say. Tech executives surveyed last fall by Forrester reported
saving 25 percent on projects by going overseas. A software engineer fresh
from college in India might earn $5,000 a year, compared to about $50,000 in
the United States.
Not everyone agrees on how big a threat the drift poses to U.S. engineers.
Norman Matloff, a professor of computer science at the University of
California-Davis, argues that the actual number of software jobs being
shipped overseas is a fraction of the country's total. And it will remain
small, he argues, because nothing beats face time at the soda machine for
finishing engineering jobs right.
Still, the increase in overseas outsourcing is making hard-hit tech workers
anxious.
The jobless rate for all engineering doubled in the second quarter of this
year, from 2 percent to 4 percent, and increased even more for computer
scientists and electronics engineers, according to the IEEE-USA, the U.S.
arm of the Institute of Electrical and Electronics Engineers.
Some unemployed engineers express a deep sense of outrage and betrayal.
Echoing critics of globalization, they argue that companies are selling out
technology jobs that were supposed to be the future of the U.S. workforce.
Labor experts say no one knows how many engineering jobs the United States
has lost because of the recent uptick in offshore outsourcing. The bigger
issue, some say, is the U.S. tech jobs that fail to materialize because of
the overseas hiring.
``It's worrisome,'' said Terry Oldberg, a Los Altos Hills engineer and
organizer for the Programmers Guild. ``We're not organized to fight it.''
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