SIIA survey on offshoring

Date: Wednesday, January 17, 2007 1:09 AM

<<<<< JOB DESTRUCTION NEWSLETTER No. 1624 -- 1/17/2007 >>>>>

One thing you count on is that the latest survey on offshoring by the
Software & Information Industry Association will soon be quoted in every
major newspaper and TV news show in the U.S.

The fact that it's a survey and not a scientific study will quickly be lost
as the press jumps on this feel-good spin. Just how unscientific is the
survey? Let's all thank the Indian press for revealing the answer!
Apparently the BS factor in this survey is so high most companies don't
even want to be indentified.

While responses were confidential, the survey was sent to software
companies on SIIA's membership list, including Sun Microsystems,
Oracle and IBM. Executives from 114 companies responded to the
survey.
Of those 114 companies, 68 have offshore operations.

In case you want to review the entire report, it can be purchased for $395
by going to this web page. Shipping is included in the cost, so it's quite
a bargain.

http://www.siia.net/estore/10expand.asp?ProductCode=GBL-06

Some astonishing facts are revealed in the survey, like for instance:

* There is a lot of negative talk about offshoring but it's mostly not
true.

* Companies are not using offshoring to displace American workers, even
though foreign workers are much, much cheaper.

* In Silicon Valley the unemployment rate for engineers is almost zero.

* It is hard to attract highly skilled SAP programmers to work in Omaha,
Nebraska. This is a big driver for outsourcing in general and offshoring in
particular.

* There are legacy skills that companies can't find in the U.S.. As an
example: many programmers in the U.S. are getting old and retiring so there
aren't enough left that know how to program in Cobol.

* Companies are offshoring mainly because they can't get enough H-1B visas.

* In the U.S. it simply takes too long to assemble teams of workers. China
and India on the other hand have workers that are ready to hit the ground
running at a moment's notice.

* There is a lack of talent in the United States.

Articles Used for this Newsletter

http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9008119&source=NLT_XSP&nlid=52
Survey: Offshoring does not cost developer jobs

http://www.internetnews.com/stats/article.php/3653536
The Bottom Line of Offshore Development

http://weblog.infoworld.com/realitycheck/archives/2007/01/does_offshoring.html
Offshoring: Money talks, programmers walk

http://www.zdnetindia.com/news/software/stories/167568.html
Survey: Software companies increasing offshoring work

+++++++++++++++++++++++++++++++++++++++++++++++++++

http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9008119&source=NLT_XSP&nlid=52

Survey: Offshoring does not cost developer jobs

Paul Krill

January 16, 2007 (InfoWorld) Offshoring of software development by

software companies is not costing Americans jobs, according to a recent
report by the Software & Information Industry Association.

The SIIA released its Global Software Development Survey Report (available
to nonmembers for $395), which surveyed 114 U.S.-based software companies
last year. In a conclusion that stateside developers probably would not
find surprising, the SIIA found that software companies are increasing
offshore software development efforts. However, companies are not looking
to displace American workers, said David Thomas, executive director of the
SIIA.

"[Offshoring] was used almost entirely as a form of expansion, not as a
replacement," Thomas said.

"There's a lot of negative talk," particularly within politics, about
offshoring costing Americans jobs, Thomas said. "That's not really the
case," argued.

The biggest challenge software companies faced was that they could not
build development teams fast enough in the U.S. because of a shortage of
both engineers and H-1B visas, Thomas said. Offshoring provided a way to
leverage existing developer teams, he said.

The SIIA found that 57% of offshore participants have significantly
increased offshore work in the past 18 months. Many plan to continue to do
so.

Sixty-eight of the companies surveyed had offshore operations, while 46 did
not.

Growth was cited as an important or critical driver for 84% of respondents
doing offshoring; increasing speed to market and productivity were the next
most important drivers.

According to the SIIA, the survey respondents claimed to be meeting 80% to
100% of their cost-saving goals. But gains in productivity appeared to be
less than expected.

Seventy-three percent of respondents reported a positive impact on profits,
and two-thirds claimed that the quality of work has been above average
compared with that of onshore staff. Twenty-five percent rated the quality
as excellent or outstanding.

The research found that some companies underestimate what is needed to
succeed and how much effort is necessary for adaptation. This situation is
exacerbated by a tendency to think in the short term, focusing on goals
such as cost-cutting.

No single business model was cited as being optimum for offshore
development. About half of respondents said they were working with an
offshore provider, while a third were operating a subsidiary or captive. A
quarter were using a hybrid model of both approaches, the SIIA said.

Companies not doing offshore development cited concerns such as lower
product quality, loss of control, fear for intellectual property and
negative impact on internal staff morale. Some 91% of those not offshoring
said loss of control was somewhat important or very important in their
decision to not take the offshore route.

The SIIA is a trade association for the software and digital content
industry.

+++++++++++++++++++++++++++++++++++++++++++++++++++

http://www.internetnews.com/stats/article.php/3653536

The Bottom Line of Offshore Development
By Andy Patrizio
January 12, 2007

The trend toward farming out development work to overseas firms has yielded
bottom-line profits to most of the firms that have taken the leap of faith,
according to an industry survey.

The Software & Information Industry Association (SIIA) surveyed 114
software companies on the subject of offshoring their development efforts.
It found 68 of the firms have offshore operations while 46 have quit or
have not done it yet.

For those companies offshoring their work, it's been a boon, with 75
percent of companies reporting a positive impact on revenues and 88 percent
reporting a positive impact on profits.

Companies move projects offshore, largely to India and China, for cost
savings, but also for time to market, according to David Thomas, executive
director of the SIIA. It simply takes too long to hire and build a team in
the U.S., especially when a team of 50 or 100 is assembled and ready to go
in Bangalore or Shanghai.

"They know if they built a whole new team it would take too long.
[Offshore], there was a team at an outsourcer ready to go and they could
increase their speed to market. If you can get a product to market
one-and-a-half to two years earlier, that's a significant improvement in
revenues," he told internetnews.com.

The lack of talent is also a factor. The U.S. can't produce enough talent,
Congress keeps dragging its feet on H1-B visas and with Google on a
vertical growth ramp, it's literally grabbing every Java programmer in the
Silicon Valley it can get.

"Offshoring is not costing people jobs," said Thomas. "In the Silicon
Valley, the unemployment rate among engineers is about zero. There was a
lot of concern it would be the other way around but we're just not seeing
that."

Companies that quit often did so because they didn't get the immediate cost
savings they assumed would come from moving from a large U.S. city to India
or China. "Many entered into it thinking they would get a five-times cost
savings. Very rarely do you save money -- especially the first few years --
because there's a lot of investment in money and bringing people up to
speed," said Thomas.

Other issues included language, cultural barriers, the time difference,
and, in some cases, the quality of the product wasn't very good. And while
India and China have come a long way, they've still got a long way to go,
too.

"A lot of infrastructure has to be built; that's why a lot of companies
gave up," said Thomas. They thought they could wave a magic wand and have a
bunch of engineers working for them. Then they found out they had to get a
place, invest in computers, infrastructure, and so on."

The companies that refused to go mostly cited fear of a loss of control of
their software or outright theft of their intellectual property. "There
really haven't been any instances of that. That fear really didn't
materialize, particularly since it was such a big concern," he said.

But Jim Duggan, research director at Gartner who follows development
issues, said it has been a problem. "They're [SIIA] not looking very hard
as far as I can tell. The typical stories you get back from India from
packaged software vendors is they had to use pretty heavy encryption keys
and copy protection to avoid employees taking copies outside the company,"
he said.

Usually the businesses are mindful of intellectual property; it's the
individuals with the sticky fingers, he said.

Duggan said that outsourcing has been great for small and medium-sized
companies that needed the extra set of hands, as Thomas described it. "The
top-tier guys are every bit as good as anyone you'd find in the world," he
said. "They have great education, great facilities and good business
practices."

Still, while he's mostly positive on outsourcing, he also thinks the well
may run dry for the U.S.

"Long-term, one of the things we expect is both Indian and Chinese capacity
will get sopped up writing software for India and China," he said. "We're
already hearing from Indian clients that they are reaching capacity, and
internal projects are competing for staff."

+++++++++++++++++++++++++++++++++++++++++++++++++++

http://weblog.infoworld.com/realitycheck/archives/2007/01/does_offshoring.html

January 12, 2007

Offshoring: Money talks, programmers walk
Filed under: None

The hot debate currently going on in the online pages of InfoWorld Talkback
in response to our news story "Survey: Offshoring does not cost developer
jobs" misses the point.

The TalkBack pages are filled with comments from software engineers and
programmers relating how they or people they know were laid off because the
company they worked for took its software development off shore.

The question everyone should be asking is not are jobs in the U.S. at stake
-- because employers probably don't really care if they are -- but rather
does it make economic sense for a company to take its software development
offshore?

I spoke with Barry Rubenstein, program manager for application outsourcing
at IDC to see what he had to say.

Rubenstein's comments shot down the claim of the Software & Information
Industry Association [SIIA] that offshoring is not costing jobs.

"Cost is a primary driver," for going off shore, said Rubenstein. "That is
the main reason."

If cost is the "main reason," logically, that means that companies are
comparing what the cost of hiring U.S. workers is versus the cost of hiring
workers from Inida, Russia, or China. And if they decide to go offshore,
they have obviously decided not to hire U.S. professionals.

Rubenstein added that if you just compare labor rates, then offshoring is
"absolutely" less expensive. However, Rubenstein also said, "When you look
at the added overhead to manage an offshore team, things get more
complicated."

And this is exactly what I've been told time and time again by many
companies that have taken their development off shore. It even gets to the
point where some have brought it back in house because the cost of overhead
outweighed the initial lower costs of labor.

Nevertheless, Rubenstein said there are reasons other than cost why some
companies go off shore, citing a mid-sized manufacturer in the Midwest that
uses SAP on the backend.

"It is hard to attract highly skilled SAP programmers to, say, work in
Omaha, Nebraska. This is a big driver for outsourcing in general and
offshoring in particular."

In some situations, there are also skills that companies can't find here,
in particular intimate knowledge of legacy applications.

As older programmers retire, for example, Cobol programmers,
especially in the public sector, are hard to find, said Rubenstein.

(Why there are more experts in Cobol elsewhere eludes me. However, perhaps
there is an explanation.)

"And these programs [like Cobol] have incredibly poor documentation, and
companies have no choice but to turn to outside resources."

Nevertheless, I believe it would be foolish and even mendacious to say that
no jobs are lost in the States due to offshoring.

The argument that "offshoring is used almost entirely as a form of
expansion, not as a replacement," as David Thomas, executive director of
SIIA said, is false on its face.

For every job placed outside of the United States, there has to be someone
Stateside who is not being hired.

Again, the real question is, does offshoring make economic sense for
companies? And is there no value to be gained by hiring local talent
whenever it is possible?

+++++++++++++++++++++++++++++++++++++++++++++++++++

http://www.zdnetindia.com/news/software/stories/167568.html

Survey: Software companies increasing offshoring work

Offshoring work at software companies continues to rise, according to the
results of a new online survey.
By Candace Lombardi,, January 12, 2007

Offshoring work at software companies continues to rise, according to the
results of a new online survey.

Of the respondents, about 57 percent of software companies that have
offshore operations said they increased offshoring work significantly
within the past 18 months, according to the report by the Software &
Information Industry Association (SIIA).

While responses were confidential, the survey was sent to software
companies on SIIA's membership list, including Sun Microsystems, Oracle and
IBM. Executives from 114 companies responded to the survey. Of those 114
companies, 68 have offshore operations.

Of those respondents, 48 percent said their company had started "global
software development initiatives" within the past one to three years,
compared with 19 percent that began projects within the past three to five
years and 18 percent more than five years ago. About half the offshore
outsourcing companies used an offshore provider, while about one third
operated through a subsidiary and a quarter used both. (For some questions,
multiple responses were possible.)

Of the companies that looked overseas, 84 percent said growth was one of
the most important incentives for offshoring; productivity and "increase
speed to market" were the next biggest incentives.

India was the country that respondents listed most often, at 65 percent, as
a current or potential offshore partner. That was followed by Eastern
Europe/Russia at 29 percent and China at 21 percent.

Moving operations overseas didn't guarantee profits, the survey found. Of
companies that did see a gain, their profits were in the 10 percent to 20
percent range--not the wider margins seen by manufacturing outsourcers,
according to David Thomas, executive director of the software division for
SIIA. The reasons given for this were higher than expected salary costs,
turnover rates and infrastructure costs.

"The real drivers in terms of people moving to a multishore model are speed
to market, not necessarily cost savings anymore," said Thomas.

In recent years, many tech companies have said that a lack of qualified
U.S. workers has forced them to hire educated non-U.S. citizens to stay
competitive. The U.S. government, however, restricts the number of visas it
gives to qualified college-educated foreign workers, a source of tension
and controversy among tech companies, the U.S. government and qualified
American workers.

Many executives interviewed by Thomas specifically cited a shortage of
available H-1B visas as one of the reasons for hiring offshore workers.
Executives said it could be faster to set up a team with foreign workers
overseas than in the U.S.

"They told me speed to market would sometimes take two to three years" in
the U.S. "Some of them told me 'By leveraging a provider and having 200
workers overnight, I could get my product out in just over a year,'" Thomas
said of the executives he interviewed.

He said he found two vastly different responses regarding cultural
adjustments.

"For some, the cultural difference and time difference didn't get in the
way and, in fact, made things faster because they managed the processes so
they could have 24-7 development by having teams hand off to each other.
Others said the cultural and time differences were insurmountable," said
Thomas.

"Companies that had good business processes and development processes in
place found that it worked. The companies that were creative and from the
hip with their development, but didn't really have the discipline just
found it a disaster. So...make sure you have your house in order and your
force in place before you attempt to do this," said Thomas.

In fact, one of the main reasons given by companies that stopped offshoring
was a loss of control over their teams because of the time differences and
challenges of managing people remotely.

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