18Dec

Offshore Outsourcing

Filed in Economy | International Politics | Management | Technology | USA politics

As I look at predictions for 2004, one area where consensus abounds and debate increases is “Offshore Outsourcing”, the movement of knowledge worker jobs offshore. There is abundant agreement that this will continue, even accelerate.

At the same time there is widespread disagreement as to whether this is a good thing for US and European economies. Here are some articles and papers on the issue.

In this paper, McKinsey estimates for every dollar of US work outsourced to India, the return to the US is between $1.12 and $1.14. India stands to increase their GDP by $0.33.
Offshoring: Is it a Win-Win Game?
McKinsey Global Institute
August, 2003

India and Software
A number of articles in the Wall Street Journal and New York Times on the Indian software industry.
Emergic.org

Offshoring – Relocating the back office
Dec 11th 2003 From The Economist print edition

The Organizational Implications of Offshore Outsourcing
24 October 2003
Diane Morello
Acrobat Version

The Irony of Outsourcing
By Kevin Laws on November 18, 2003 09:03 PM
Supports the argument that economic activity flowing to the most efficient provider creates the greatest total value and in the long run the greatest value for each country involved. He points out the engineers who “thought” manufacturing workers out of jobs are now seeing their own jobs reduced and sent offshore.

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10Dec

Offshore IT Services Requires Local Handholding

Filed in Economy | Management | Technology

At a time when offshore IT companies continue to post excellent results, these firms seem to confirm there is a requirement to have good solid account relationships based near the customer. The Economist November 20, 2003 “Bangalore, Texas”

A study of the value chain suggests this is a very intelligent move by the offshore firms. The standardization of IT development processes reduces the development time and improves the quality of the code and for all players. It is clear the only sustainable superior position is to be the low-cost provider. With operating margins often in the 20% range, there is plenty of room for other offshore firms in the same region or in lower cost regions to offer lower prices.

As the process standardization has moved from programming processes to design techniques, these activities have also moved to the low-cost provider. Will this continue right up the value chain to business strategy and financial advisors? Not likely. Oh, it will happen in a few isolated situations and there will be parts of the process, such as research and graphics production capabilities, which will move to lower cost providers.

The activities from business strategy through business rule verification will continue to be provided locally with lots of interation with the client. Offshore companies must develop this capability before their current business becomes a pure commodity. Local organizations should develop offshore capabilities or build relationship with several smaller offshore firms in order to provide a range of application development alternatives for their clients. There are numerous offshore companies seeking just such relationships.

Local companies will have difficulty moving from a fully integrated model to one based on development partners, as it means slow or negative growth for their local application development capabilities. An unenviable position at best. This opens the opportunity for a new breed of IT strategy consulting which provides application development through several relationships with local and offshore firms.

Offshore IT Article
IT Careers Caught in a Cross-Current
November 10, 2003
By Sharon Gaudin

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