The Outsourcing/H-1B/L-1 Connection
The Outsourcing/H-1B/L-1 Connection
Date: Tuesday, July 22, 2003 3:11 PM
JOB DESTRUCTION NEWSLETTER
www.ZaZona.com
Dr. Norman Matloff and I disagree on outsourcing. In his opinion it
hasn't been a major factor in job losses for IT workers while I feel
that outsourcing has destroyed huge numbers of jobs across a broad
range of careers.
We both agree on the most important outsourcing issue, and Matloff has
stated this many times lately:
The H-1B/L-1 visa programs are vital to the offshoring
process, as typical offshoring projects retain 20-40% of
their personnel in the U.S. as H-1Bs and L-1s.
If Matloff is correct, then nonimmigrants are the glue that bind
outsourcing operations together. If we eliminated these visas it would
be impractical to export so many white collar jobs.
These two articles may not seem connected, and yet the give us valuable
clues to research Matloff's thesis.
Tom Lynch, the company's incoming employee relations director gave us
this valuable tidbit:
Lynch seemed particularly worried about how IBM employees
would react when directed to train the foreign workers who
would soon be replacing them. "That's going to raise a lot
of tensions," he said, "as you're training someone to do a
job that you know is no longer going to be yours at the end
of some fixed period of time."
The second article is about Fidelity and it gives us this helpful piece
of information:
Fidelity is now repeating the same strategy as it looks to
open an outsourcing facility in India. In this case, the
firm will move an Indian employee, currently working in the
United States, to India for a few years. When the employee
has the Indian operation up and running, the executive will
return to the United States.
Conclusion: Matloff's thesis is indeed correct. If we want to stop
outsourcing we must stop the nonimmigrant visa conduit.
http://www.techsunite.org/news/techind/030722_ibm.cfm
July 22, 2003
sf IBM Plans to Accelerate Offshore Outsourcing
By D. David Beckman
WashTech News
Earlier this year, two of IBM's high command presided over an internal
summit broadcast live over the Internet to the computer giant's 2,000
human resource managers around the world. The topic was the planned
move of thousands of white-collar U.S.-based IBM jobs overseas highly
skilled, high-paying jobs that will likely never return to these
shores.
Outgoing Director of Employee Relations Harry Newman sounded both
ambivalent and wistful about the move that would have been unheard off
during the company's earlier times.
"We spend a great deal of time trying to create an environment between
managers and employees that is conducive to overall business success,"
Newman said. "That is what we are really all about."
Newman's ethic, however, apparently will leave the company with him.
Once the icon of American mega-business, the company often referred to
as Big Blue plans to step up efforts to replace thousands of
engineering, software development, and other highly-skilled U.S. jobs
with counterparts in developing countries at wages that amount to a
fraction of those paid in the U.S.
"This challenge really hits us squarely between the eyes," said Tom
Lynch, the company's incoming employee relations director. "We don't
want to sit back and say 'Don't do it' because it's going to be a
problem. Our competitors are doing it and we have to do it."
"On the other hand," Lynch continued, "it raises significant employee
relations concerns."
The discussion was recorded by IBM last March and stored on an internal
company web site. An IBM employee upset about the company's plans
provided a copy of the digitized audio file to WashTech.
Those whose jobs are being replaced say the move by IBM and other
companies such as Microsoft, Oracle, and Hewlett-Packard is
short-sighted and holds dangerous implications for the flagging U.S.
economy.
"Sending many of the country's best paying and highest skilled jobs
overseas is a dire economic threat to employees and their families,"
says former IBM employee Lee Conrad. "It jeopardizes the financial
well-being of middle-class professionals."
Conrad says he wonders how an economic recovery can begin at home if
high-tech companies such as IBM are laying off U.S. workers to create
more jobs overseas.
At least two U.S. congressmen share his concern. Rep. Adam Smith and
Rep. Jay Inslee, both Washington Democrats whose urban districts in the
Puget Sound region have been savaged by high-tech job losses, called
upon the General Accounting Office last week to investigate to what
extent offshore outsourcing affects the U.S. economy.
An oft-cited study by Forrester Research predicts that 3.3 million
high-tech, financial, and other white-collar service sector jobs will
have been outsourced offshore in just over a decade, up from just under
half a million jobs sent abroad this year.
During the hour-long discussion, the IBM executives conceded their
actions would be difficult for the company's' displaced workers, that
it would create a "dignity issue."
"The economy is certainly less robust than it was a decade ago to move
jobs offshore in that environment is going to create more challenges
for the re-absorption of the people who are displaced," Lynch said.
Lynch seemed particularly worried about how IBM employees would react
when directed to train the foreign workers who would soon be replacing
them. "That's going to raise a lot of tensions," he said, "as you're
training someone to do a job that you know is no longer going to be
yours at the end of some fixed period of time."
The executives also pondered how the U.S. government would react to the
job drain, once colorfully described by 1992 U.S. presidential
candidate and businessman Ross Perot as a "giant sucking sound."
"It's hard for me to imagine any country just sitting back and letting
jobs go offshore without raising some sort of concern and
investigations," said Lynch.
Ultimately, however, he seemed unconcerned that government officials
could do anything to stop the trend.
"It's hard to fight globalization," Lynch said, adding that he believes
governments are going to find that they are limited in what they can
do.
Executives were more concerned about efforts by union groups. Lynch
predicted union activity will grow as a result of domestic job losses
due to offshore outsourcing. He mentioned Alliance@IBM and the
Washington Alliance of Technology Workers, or WashTech, both affiliated
with the Communications Workers of America, as the probable source of
union activity.
"There are indications that union organizing will become more
aggressive over the coming months," Lynch warned his human relations
audience. "We're calling on all of you to stay engaged on this, to
watch this as your businesses face these challenges in looking at work
to move offshore."
A new study by Chicago-based outplacement firm Challenger, Gray &
Christmas shows that as offshore outsourcing gains public recognition,
public sentiment is leaning heavily in favor of action by government
and industry to keep jobs within domestic shores.
Already, the numbers of college students studying computer science has
declined as jobs open to graduates become scarcer. This trend, says the
Challenger report, will only cause a greater reliance on foreign
technology workers.
The Challenger study says 67 percent of respondents to their survey say
that American companies rely too heavily on foreign workers and are not
doing enough to cultivate domestic talent.
http://www.wallstreetandtech.com/story/mag/WST20020716S0012
Offshore Score
By Anthony Guerra , Wall Street & Technology Online
Jul 16, 2002 (1:30 PM)
URL: http://www.wallstreetandtech.com/story/mag/WST20020716S0012
Financial institutions, feeling the crunch of lower trading volumes and
reduced commissions, are using every trick in the book to cut costs and
boost profits. Offshore outsourcing is the latest answer to reduced
technology budgets. More and more, when executives at U.S. financial
institutions find newspapers plastered with headlines about heightened
tensions between Indian and Pakistan, and the nightmarish threat of
nuclear war between the long-feuding Asian neighbors, they not only
consider what such a conflict would do to the people of the region but
also to their businesses.
That's because U.S. firms are increasing their involvement with
offshore outsourcing: the practice of either establishing an
application-development and maintenance facility in another country or
hiring a third-party provider to build software based on established
specifications. Offshore outsourcing is on the rise and reaching new
levels of popularity because the economy, lower trading volumes and
reduced commissions are putting a hurt on the financial-services
industry.
The only way to relieve some of that pain, until the market picks back
up again, is to cut costs. Offshore outsourcing can help a firm do that
because, in certain countries around the world, technical expertise is
just as high while compensation is much lower.
"In 1999 and into 2000 it was difficult to recruit," says Dave Pett,
senior vice president/division executive, Fidelity Investment
Institutional Brokerage Group. "It will get that way again in the long
term. The U.S. technology market isn't growing as fast as the demand,
so we have to tap into other markets for talented people."
Compensation, however, isn't the only area where firms can save money
by going abroad. Real estate, including facilities, is also often
cheaper elsewhere.
As one would expect, offshore outsourcing is most popular in countries
with a high degree of proficiency in English, such as India. Any
language barrier, in addition to the barriers of communicating highly
technical computer and business processes, may be too much to bear for
the offshore-outsourcing newcomer.
One firm that certainly has its feet wet in the world of offshore
outsourcing is Fidelity, which initiated its first offshore venture in
Ireland in 1995. For Fidelity, however, the jump wasn't all that far,
as it had a base of operations in the United Kingdom. The company hired
a local Irish manager to start up the operation, which was then staffed
with local people.
Fidelity is now repeating the same strategy as it looks to open an
outsourcing facility in India. In this case, the firm will move an
Indian employee, currently working in the United States, to India for a
few years. When the employee has the Indian operation up and running,
the executive will return to the United States.
Fidelity, however, won't only go it alone, says Pett, but will employ a
dual strategy of establishing its own operations centers and working
with third-party providers to build a solid offshore presence.
Right now, Fidelity is in the process of receiving about 12 requests
for proposal that it has solicited from third-party
offshore-outsourcing providers - firms like Infosys, Tata Consultancy
Services, Accenture, IBM Global Services and Wipro.
Nandan M. Nilekani, chief executive officer, president and managing
director, Infosys, says that offshore-outsourcing providers should not
only be evaluated on the basis of cost but also in terms of the
high-level software-development work they provide. He says that whether
it be application development, package implementation or integration,
companies like Infosys can help bring a project in on time and on
budget, something U.S. firms must deliver now more than ever.
"In the past, financial institutions could spend millions and millions
on technology projects - not today," says Nilekani.
Once concern with sending development work overseas, says Principal
Consultant with the Investment Management and Capital Markets
Consulting (IMCAP) group at PricewaterhouseCoopers Blair Kanter, is
that foreign-technology providers will not truly grasp the business
functionality that the software should provide.
"Business-analysts types of people have to translate the functionality
and system requirements into specifications that foreign programmers
need in order to develop the system," says Kanter.
Nilekani says that Infosys has people in just that role, called domain
consultants or management/technical consultants, whose job it is to
make sure a project is being developed in line with a firm's mandate.
Also, Infosys has a team of customer-facing salespeople who highlight
the vendor's "detailed-project methodology," adds Nilekani.
Pett says that Fidelity will examine the RFPs it has received from 12
vendors and select somewhere between two and five to work with. That
will be a considerable reduction from the almost 20 different
offshore-outsourcing vendors that different branches of Fidelity
contract work out to today. Pett explains that different branches of
Fidelity are at different levels in their development. Some, he says,
are almost like startups, while others are more mature. The vendors
selected as a result of the RFP solicitation will function as a small
stable of pre-approved offshore-outsourcing providers which Fidelity
businesses can turn to for service.
Since Sept. 11, one of the main focuses of financial institutions has
been business-continuity planning. When it comes to offshore
outsourcing, it is even more important to make sure a firm, or the
third-party provider it has chosen, has sound disaster-recovery plans
in place. Nilekani says India-headquartered Infosys touts its BCP plan
when speaking with prospective clients.
"We have a very high level of business-continuity planning," he says.
"If something happens, we can move from one development center to
another. We have comprehensive business-continuity plans which we share
with our customers." Infosys does most development work at its
headquarters but also has offices in Toronto, Chicago and Dallas.
Nilekani says that about 30 percent of the project-development work,
comprising initial assessment and final implementation, is done at a
location near the customer, while the other 70 percent that takes place
in between those stages, is likely handled in India.
Many agree that, as with outsourcing in general, the best types of
projects to send across the seas, or at least to Canada (Pett notes
that Canada poses no significant language, cultural, or time-zone
barriers, while costs can be 50 percent lower than in the United
States), are those which the firm does not see as a real differentiator
between itself and its competitors.
As far as what to outsource is concerned, Pett says that Fidelity will
send off both application development and maintenance work. "Right now
we're in the learning process at Fidelity," says Pett. "We're starting
by outsourcing technology projects that are clean cut and then we will
move to more stand-alone apps and then to more tightly integrated
apps."
Sending application-development work overseas may, someday soon, no
longer be a choice but a necessity. It all depends on the amount of
technical expertise in the United States and how much it costs to tap
it. During the boom days of the late 1990s prognosticators were saying
that the well of IT professionals in America was about to dry up - and
to a large extent, it did. Techies found themselves in a position to
name their price and firms awash with IPO money were more than happy to
oblige.
Given the massive number of layoffs in financial services over the past
two years (many of them in technology) the IT well is once again on the
rise. That, however, may not be the case for long.
In general, Pett says that he is a big fan of outsourcing offshore. "I
think there is mythical loss of control that occurs when doing this
type of outsourcing. I've had few projects go as smoothly as the ones
I've had (offshore-outsourcing firms) do for me."
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Rob Sanchez is board member of NAEA - www.NAEA.US
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