Globalization and the Offshore Outsourcing of Software Work

William Aspray

School of Informatics

Indiana University, Bloomington

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

ACM Report

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

• IP, privacy, security• Education• Policy

• Condensed version• Annotated

bibliography

Some Definitions

• Outsource

• Offshore

• Multinational or national/local

• Captive or independent

• Export or domestic market

• Globalization

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

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

Countries sending work

• US

• Western Europe (UK, Germany)

• Japan

• Australia

• India

Countries Doing Work

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

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

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

Economics of Offshoring

• Theory of Comparative Advantage

• Critics

• Long-term harm to innovative structure

• Saftey net for workers and communities

Data Issues

• Problems with definitions• Problems knowing which metrics• Problems with sources

– Government– Trade association– Consulting firms

• Projections v. current/past data• Vulnerability projections

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

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

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

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)

Why Companies Offshore

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

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

improvement

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

firm’s 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.

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

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

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– R&D funding

Policy: Low-Wage Country

• Regulation for FDI, trade

• Taxation

• Infrastructure

• Protect IP, privacy, security

• Education and training policy