outsourcing

Issue #44

Last Update March 2, 2006

Technology Outsourcing Knowledge Work by Sten Grynir The global economy has encouraged the movement of jobs from high-cost labor markets to lower-cost developing countries. Manufacturing that used to take place in New England and the American Mid-West, and then moved to the American South to avoid unions has shifted to Mexico, China, Southeast Asia and Eastern Europe in search of low-wage workers. The recent PC Expo/TechXNY at the Javits Center showed outsourcing in a different light.

One whole section of the Expo was devoted to outsourcing in the Information Technology (IT) world. Unlike previous shows, which featured the movement of chip and component manufacturing offshore, this Expo highlighted the export of knowledge jobs. Following in the footsteps of India, which has positioned itself as a low-cost labor market with a large number of highly skilled and well trained programmers, Bulgaria, Romania, China and Egypt, to mention a few of the exhibitors, are now contending for software development dollars.

Programming is an effort uniquely suited to this kind of outsourcing. Operating systems and software tools worldwide follow American standards. The internet ensures that a programming staff in Bucharest is as close in cyberspace to a customer in San Jose as a programming staff across the street would be. Testing and production from a remote country is not penalized by shipping time or shipping costs, the way production of tangible goods would be. With requirements and specifications done domestically, and sufficient quality control on the part of the customer, outsourced software becomes indistinguishable from in-house efforts

One issue that has been raised in this context is that of security and confidentiality. Other nations do not always operate under laws similar to ours as far as intellectual property is concerned, nor are their national interests identical to ours, raising the fear that trade secrets will be breached or hostile code inserted into outsourced software. Exhibitors at the outsourcing show at TechXNY point out that domestic programmers have equal opportunity to do damage; knowing your vendor and closely checking outsourced programs is a necessity whether the outsourcing is done overseas or domestically.

From the standpoint of the American worker, foreign outsourcing reduces jobs and puts downward pressure on salaries and benefits. From the standpoint of a software manufacturer, foreign outsourcing can reduce labor costs significantly. Unlike manufacturing, where labor costs are a small percentage of the total product cost, software labor is a major cost component. Consumers have benefitted from lower prices from off-shore manufacturing; perhaps they will benefit from lower software costs.

Before committing to outsourcing software creation, however, software manufacturers should consider another lesson from the manufacturing sector: outsourced labor has been the springboard to developing full-fledged manufacturing operations in many countries, which then compete with their erstwhile patrons. If domestic software companies want to maintain their competitive edge, perhaps they should forgo the cost advantages of outsourced labor in favor of keeping a domestic programming force at peak efficiency, familiar with the latest technologies, and able to take advantage of technological breakthroughs as they occur. Only then can they be assured of long-term survival.