Globalization and the Offshore Outsourcing of Software Work

1
Globalization and the Offshore Outsourcing of
Software Work

• William Aspray
• School of Informatics
• Indiana University, Bloomington

2
ACM Job Migration Task Force

• Moshe Vardi and Frank Mayadas, co-chairs
• John White, ACM, ex officio
• William Aspray, executive consultant
• 30 members from US, UK, India, Germany, Sweden,
  Israel, Japan, China
• computer scientists, social scientists
• Delivery January 2006
• International perspective, analysis not
  recommendation, no new research, expert
  testimony, lit review, expert members

3
ACM Report

• Executive summary
• Big picture
• Economics
• Countries
• Firm case studies
• Research

• IP, privacy, security
• Education
• Policy
• Condensed version
• Annotated bibliography

4
Some Definitions

• Outsource
• Offshore
• Multinational or national/local
• Captive or independent
• Export or domestic market
• Globalization

5
Work We Include

• programming, software testing, and software
  maintenance
• IT research and development
• high-end jobs such as software architect, product
  designer, project manager, IT consultant, and
  business strategist

6
Work We Exclude

• physical product manufacturing semiconductors,
  computer components, computers
• business process outsourcing/IT enabled
  services/knowledge process outsourcing (e.g.
  processing insurance claims, reading X-rays)
• call centers and telemarketing

7
Countries sending work

• US
• Western Europe (UK, Germany)
• Japan
• Australia
• India

8
Countries Doing Work

• Cost and capacity
• Language skills
• Nearsourcing
• High-end niche

• India, China
• Phillipines
• Canada, Czech R.
• Israel

9
Drivers of Offshoring

• Telecommunications
• Standardized IT
• Pace of innovation
• Downsized corp.
• Champions
• Venture capital
• Forced re-engnring

• Intermediaries
• Work process
• Higher ed
• Free market
• Immigration
• English language
• Aging population

10
Economics of Offshoring

• Theory of Comparative Advantage
• Critics
• Long-term harm to innovative structure
• Saftey net for workers and communities

11
Data Issues

• Problems with definitions
• Problems knowing which metrics
• Problems with sources
• Government
• Trade association
• Consulting firms
• Projections v. current/past data
• Vulnerability projections

12
data

• US
• 12-14M vulnerable
• 2 to 3 loss per year maximum
• BLS ten-year projection
• India
• 10 to 40 increases per year
• UK and Germany
• Global

13
US IT Jobs 1999/2003 (BLS)
Programmers 529 403
SE applications 289 410
SE systems 209 293
Computer support 463 481
Computer systems analysts 428 486
Database administrators 101 97
Network and systems admin 205 245
Network data communications analysts 98 156
Computer systems managers 281 257
Hardware engineers 60 70
Total 2688 2922
14
Country Perspective

• Relationships
• US-India
• Western-Eastern Europe
• Japan-China
• India v. China
• Infrastructure, policy experience, industry
  maturity
• Research
• Domestic v. export market
• Education
• Private, access, quality control
• Central planning, academic-industry relationship

15
Firm Perspective

• Developing Entrepreneurial (TCS, Softtek)
• Developed Software Package (Adobe, SAP)
• Developed Software Service (IBM Global Services,
  Siemens Business Services)
• Developed High-Tech Startup (Hellosoft,
  Netscaler, Ketera)
• Developed Established Non-IT (Agilent, Citicorp)

16
Why Companies Offshore

• Reduced Costs
• Access to skills
• Experience
• Time Shifting
• Time to Market

• Market access
• Ramping Up/Down
• Capital burn rate
• Process improvement

17
Reasons not to Offshore Work

• Job process is not routinized.
• Job cannot be done at a distance.
• The infrastructure is too weak in the vendor
  country.
• The offshoring impacts negatively on the client
  firms workplace.
• There are risks to the client company in
  offshoring the work.
• There are not workers in the offshore company
  with the requisite knowledge.
• Cost of opening or maintaining the offshore
  operation is prohibitive.

18
Research

• Globalization, not offshoring
• Close relation between PPP GDP and IT Research -
  some countries high (Sweden, Israel), some low
  (Mexico, Indonesia)
• Rapid growth in globalization
• Home country vs. satellite
• Winners and losers
• Inventor migration healthy - even if net loss

19
Risks and Exposures

• Heightened risk - longer chains, legal systems,
  COTS
• Vulnerability to governments
• IT-enabled systems (power, telephone), citizen
  confidence
• Vulnerability to companies
• Data privacy, IP and other trade secrets,
  business continuity
• Vulnerability to individuals
• Identity theft
• Business opportunities

20
Policy High-Wage Country

• Protectionist rules and tariffs
• Safety net for workers and communities
• Level playing field (tax, currency)
• Visa
• Innovation
• Foreign students and workers
• Enhance education system
• Promote indigenous careers
• RD funding

21
Policy Low-Wage Country

• Regulation for FDI, trade
• Taxation
• Infrastructure
• Protect IP, privacy, security
• Education and training policy