International Outsourcing

International Outsourcing

The use of outsourcing is seen by accountants as means of reducing costs and improving profit margins. Line managers see it as the way to improve operating efficiency by freeing their organisation to concentrate on its core business activities. At the shop floor level it is seen as a threat to job security unless the outsourcing Contract contains guarantees of employment to the displaced staff. Where such staff are utilised in the new environment, or found gainful employment elsewhere via re-organisation or re-training, the overall effect is often negligible and the economics of the region are kept in balance.

However, when activities are relocated outside of the region, or even outside of the country, the effects are far more disruptive and call into play factors beyond the purely social or economic. For example, the practice of relocating software development from the USA into Asia is causing ripples of discontent throughout the IT industry especially amongst developers who see their work being exported in the cause of cost reduction to support thinning margins. Nothing is left behind to make use of their specialist skills and in the current clime of slowing economic growth a difficult situation is being made even harder to survive. The resulting growth in the redundant population, they say, will eventually reduce the level of consumption to the point where the errant producers will be forced to cease trading. But this scenario is only valid if the producers are reliant on single, narrowly defined markets with no hope of expansion elsewhere.

Affected technicians also complain that their counterparts in foreign climes, for whom English is a second language, often misinterpret specifications leading to code re-writes. Distance is also called into the case for the defence, citing conference calls across multiple time zones as no substitute for face to face meetings. Managing projects between countries has the potential to keep the Project Manager on the go almost twenty four hours a day, co-ordinating one part of the team while the other is asleep and never finding sufficient time in the middle to lay his or her head upon the pillow. Anecdotal evidence also exists that customers with follow the sun 24 hour support agreements will deliberately withhold problem reports until support staff within their own geography are on duty. Believing that locally trained personnel are better suited to handle their issues than foreigners of perceived lesser competence who live half way across the globe.

Finally, when arguments of economics and customer behaviour are exhausted the focus swings around to humanitarian concerns, the vision of the Asian sweat shop driving poorly paid programmers through sixty and seventy hour weeks. No chance of any time off, weekends a distant memory, and no hope of buying the sporty cars or trendy trainers that were once the hall mark of Silicon Valley. How can we possibly send work out to countries where analysts and developers are treated so badly? Where the profit margins of the capitalist west are being inflated on the backs of the downtrodden poor of struggling third world countries? A national disgrace, a scandal, any CEOs who outsource work to these dens of oppression should be severely castigated by their shareholders. Or should they?

I have worked with so called foreign programmers who without exception were all competent, well educated individuals who were highly motivated and produced code that met my needs. Yes, we did have misunderstandings, but no more than I would expect in a project even when some of the work was farmed out to their home base in India at times of peak loading. None of them seemed to have any linguistic problems and meetings went as smoothly as any assembly could go in an international environment. I did have a concern that many of them seemed to be resigned to having to work away from their families for extended periods; anything up to six months. I also gleaned from conversations, although everyone was guarded on this point so a totally accurate assessment was impossible, that they were being paid significantly less by their Indian sub-contractor than local staff. However, as one of the programmers told me, he will work this way for three years, save as much of his income as he can, then return to India, buy a house for his family complete with servants, and start up his own software house. The down side was that if too many of his relatives had a wedding or a funeral requiring his attendance during that period, the air fares home would wipe out his savings over night.

As for the sweat shop view of Asian software houses, I have not seen or heard of any instances where this has been the case. Admittedly the pay has not been as high as we would expect in the west but then again the cost of living is much lower. So much lower in fact that discussions I have seen around this subject highlight that many of these software professionals can afford family sized homes, reasonable cars and servants to look after them. How many developers in the west can claim to afford that scenario? As for long hours, I have been in the office during the week, leaving after sunset and seeing the same personnel in place the next morning still tapping away at their terminals as though they had never gone home. Weekend working was also normal, the only difference being that sweats and tee shirts were more in evidence as staff dropped by to or from the gym or the supermarket to put in that extra morning or afternoon to keep up with project schedules and deadlines. Was this happening in some poor oppressed third world sweat shop? No, it was a regular occurrence in silicon valley while I was working for one of the larger software companies.

So should the producers be concerned that they will eventually destroy their home markets by sending work abroad? Unless they are local companies who only sell within their national boundaries I would say that they have no concerns at all, at least as far as the software applications market is concerned. Apart from perhaps Ecommerce where Europe is still lagging, the market for standard commercial applications has matured in the west and the next round of growth will come from the east. For example, the Chinese economy with a population of over 1.2 billion (source: news.bbc.co.uk) is projected to grow by over 7% this year (source: www.china.org.cn). So will software producers really worry that they are putting a dent in their relatively stagnant domestic markets when opportunities for growth, mimicking the heady days of the seventies and eighties, exist elsewhere? I don't think so. After all these companies are not charities, and have shown no compunction over hiring and firing as the fortunes of their enterprises ebbed and flowed with the fashions and vagaries of the customer base.

Strangely enough the area that I would have thought should promote the greatest concern is national security. Not just in defence or advanced weapons systems, but in the area of commerce generally. Billions of lines of code are being developed abroad, and when a problem occurs or a bug surfaces the end user can call the authors who wrote the code to get almost immediate resolution. For minor bugs this is a convenience, for major problems this is a necessity. In a factory making essential parts for the nation, military or civil, the ability to get problems fixed with minimal interruption to the production flow is vital. So what happens in times of conflict when lines of communication could so easily get disrupted - we have seen many examples caused by new generations of viruses - and mission critical services become compromised by lack of access to the code originators? Will the software producers have up to date source code to review? Will they be able to interpret it quickly enough to respond to priority one issues or cyber attack in a war time situation? This is not fantasy or alarmism - read the newspapers.

So where does this leave us? An industry searching for growth and competitive advantage obtained at the expense of its own people. Rewarding loyalty with disdain and showing no consideration for the hard working personnel who sustained its growth in the early years. Compromising national security and integrity in the interests of increased profits, higher share prices, and fat cat bonuses. Bringing growth and prosperity to countries who are in need of modern infrastructure, leading their populations into the twenty first century on the back of modern information technology. Giving previously isolated communities the ability to communicate with the outside world - government restrictions willing - and promoting greater global understanding. Building bridges with previously isolated countries which has the potential to engender a new era of international co-operation. The answer depends on where you sit, how good your redundancy terms were, and how you regard people who speak funny and live in far away countries.



	The use of outsourcing is seen by accountants as means of reducing costs and improving profit margins. Line managers see it as the way to improve operating efficiency by freeing their organisation to concentrate on its core business activities. At the shop floor level it is seen as a threat to job security unless the outsourcing Contract contains guarantees of employment to the displaced staff. Where such staff are utilised in the new environment, or found gainful employment elsewhere via re-organisation or re-training, the overall effect is often negligible and the economics of the region are kept in balance. However, when activities are relocated outside of the region, or even outside of the country, the effects are far more disruptive and call into play factors beyond the purely social or economic. For example, the practice of relocating software development from the USA into Asia is causing ripples of discontent throughout the IT industry especially amongst developers who see their work being exported in the cause of cost reduction to support thinning margins. Nothing is left behind to make use of their specialist skills and in the current clime of slowing economic growth a difficult situation is being made even harder to survive. The resulting growth in the redundant population, they say, will eventually reduce the level of consumption to the point where the errant producers will be forced to cease trading. But this scenario is only valid if the producers are reliant on single, narrowly defined markets with no hope of expansion elsewhere. Affected technicians also complain that their counterparts in foreign climes, for whom English is a second language, often misinterpret specifications leading to code re-writes. Distance is also called into the case for the defence, citing conference calls across multiple time zones as no substitute for face to face meetings. Managing projects between countries has the potential to keep the Project Manager on the go almost twenty four hours a day, co-ordinating one part of the team while the other is asleep and never finding sufficient time in the middle to lay his or her head upon the pillow. Anecdotal evidence also exists that customers with follow the sun 24 hour support agreements will deliberately withhold problem reports until support staff within their own geography are on duty. Believing that locally trained personnel are better suited to handle their issues than foreigners of perceived lesser competence who live half way across the globe. Finally, when arguments of economics and customer behaviour are exhausted the focus swings around to humanitarian concerns, the vision of the Asian sweat shop driving poorly paid programmers through sixty and seventy hour weeks. No chance of any time off, weekends a distant memory, and no hope of buying the sporty cars or trendy trainers that were once the hall mark of Silicon Valley. How can we possibly send work out to countries where analysts and developers are treated so badly? Where the profit margins of the capitalist west are being inflated on the backs of the downtrodden poor of struggling third world countries? A national disgrace, a scandal, any CEOs who outsource work to these dens of oppression should be severely castigated by their shareholders. Or should they? I have worked with so called foreign programmers who without exception were all competent, well educated individuals who were highly motivated and produced code that met my needs. Yes, we did have misunderstandings, but no more than I would expect in a project even when some of the work was farmed out to their home base in India at times of peak loading. None of them seemed to have any linguistic problems and meetings went as smoothly as any assembly could go in an international environment. I did have a concern that many of them seemed to be resigned to having to work away from their families for extended periods; anything up to six months. I also gleaned from conversations, although everyone was guarded on this point so a totally accurate assessment was impossible, that they were being paid significantly less by their Indian sub-contractor than local staff. However, as one of the programmers told me, he will work this way for three years, save as much of his income as he can, then return to India, buy a house for his family complete with servants, and start up his own software house. The down side was that if too many of his relatives had a wedding or a funeral requiring his attendance during that period, the air fares home would wipe out his savings over night. As for the sweat shop view of Asian software houses, I have not seen or heard of any instances where this has been the case. Admittedly the pay has not been as high as we would expect in the west but then again the cost of living is much lower. So much lower in fact that discussions I have seen around this subject highlight that many of these software professionals can afford family sized homes, reasonable cars and servants to look after them. How many developers in the west can claim to afford that scenario? As for long hours, I have been in the office during the week, leaving after sunset and seeing the same personnel in place the next morning still tapping away at their terminals as though they had never gone home. Weekend working was also normal, the only difference being that sweats and tee shirts were more in evidence as staff dropped by to or from the gym or the supermarket to put in that extra morning or afternoon to keep up with project schedules and deadlines. Was this happening in some poor oppressed third world sweat shop? No, it was a regular occurrence in silicon valley while I was working for one of the larger software companies. So should the producers be concerned that they will eventually destroy their home markets by sending work abroad? Unless they are local companies who only sell within their national boundaries I would say that they have no concerns at all, at least as far as the software applications market is concerned. Apart from perhaps Ecommerce where Europe is still lagging, the market for standard commercial applications has matured in the west and the next round of growth will come from the east. For example, the Chinese economy with a population of over 1.2 billion (source: news.bbc.co.uk) is projected to grow by over 7% this year (source: www.china.org.cn). So will software producers really worry that they are putting a dent in their relatively stagnant domestic markets when opportunities for growth, mimicking the heady days of the seventies and eighties, exist elsewhere? I don't think so. After all these companies are not charities, and have shown no compunction over hiring and firing as the fortunes of their enterprises ebbed and flowed with the fashions and vagaries of the customer base. Strangely enough the area that I would have thought should promote the greatest concern is national security. Not just in defence or advanced weapons systems, but in the area of commerce generally. Billions of lines of code are being developed abroad, and when a problem occurs or a bug surfaces the end user can call the authors who wrote the code to get almost immediate resolution. For minor bugs this is a convenience, for major problems this is a necessity. In a factory making essential parts for the nation, military or civil, the ability to get problems fixed with minimal interruption to the production flow is vital. So what happens in times of conflict when lines of communication could so easily get disrupted - we have seen many examples caused by new generations of viruses - and mission critical services become compromised by lack of access to the code originators? Will the software producers have up to date source code to review? Will they be able to interpret it quickly enough to respond to priority one issues or cyber attack in a war time situation? This is not fantasy or alarmism - read the newspapers. So where does this leave us? An industry searching for growth and competitive advantage obtained at the expense of its own people. Rewarding loyalty with disdain and showing no consideration for the hard working personnel who sustained its growth in the early years. Compromising national security and integrity in the interests of increased profits, higher share prices, and fat cat bonuses. Bringing growth and prosperity to countries who are in need of modern infrastructure, leading their populations into the twenty first century on the back of modern information technology. Giving previously isolated communities the ability to communicate with the outside world - government restrictions willing - and promoting greater global understanding. Building bridges with previously isolated countries which has the potential to engender a new era of international co-operation. The answer depends on where you sit, how good your redundancy terms were, and how you regard people who speak funny and live in far away countries.