Wednesday, July 27, 2005

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How offshore outsourcing has devastated the high tech sector -- part deux

Six months ago I posted on how the IT sector seemed to be thriving as of late despite the rise of offshore outsourcing.

Here's some more evidence from Thomas Hoffman at ComputerWorld:

A strengthening U.S. economy that's fueling increased IT spending and creating a tighter labor market has led to moderate pay gains for technical workers such as application developers and database administrators, according to new research and interviews with IT executives last week.

"There is a noticeable wage increase" for technical skills, said David Myers, director of project management at Solo Cup Co. in Highland Park, Ill.

Myers said he believes that the pay gains are the result of a general rise in IT capital spending, which has resulted in more projects being launched and a decreasing supply of available domestic IT labor....

A report released last week by Foote Partners LLC, a New Canaan, Conn.-based market research firm, found that pay for noncertified and certified technical skills has risen 3.8% and 1.3%, respectively, through the first six months of this year.

Pay raises this year have been particularly strong for people with skills in operating systems (up 8.2%), networking and internetworking (up 5.1%), and databases (up 4.3%), the report said.

The results, which are based on a survey of 1,800 North American and European organizations from April to July 1, suggest that the notion that lower-cost offshore outsourcing led to wage deflation for IT workers may have been overblown, said David Foote, president of Foote Partners.

Here's a link to the Foote Partners press release that's discussed above.

It's also worth noting that beyond offshore outsourcing, there was an excellent reason for the drop in wages that did take place among IT services between 2000-2003: reduced demand. According to the WTO's report on offshore outsourcing, the annual percentage change in the U.S. IT market in the early part of this decade was as follows:

2001: -4.5%
2002: -6.3%
2003: 0.4%

So it's a funny thing -- as demand has picked up in the US, the number of IT jobs and the level of IT wages has increased.

Oh, and for those IT readers of who complain about no jobs, I'll close with some anecdotal want-ads from the ComputerWorld story:

A tighter job market is making it particularly tough for Harrah's Entertainment Inc. to find experienced IT project managers, business systems analysts, data warehousing managers and other specialists, said Tim Stanley, senior vice president and CIO at the Las Vegas-based gaming and hospitality company. Harrah's is looking to fill 25 to 35 IT positions, he said.

Allan McLaughlin, senior vice president and chief technology officer at LexisNexis Group, a research provider in Dayton, Ohio, said hiring requests for IT workers are getting more specific -- another factor contributing to competition for technical skills.

LexisNexis has an increased need for networking specialists and plans to expand its five-person IT security team to nine or 10 people over the next six months, said McLaughlin.

posted by Dan on 07.27.05 at 12:56 AM


The company I work for, a financial computer services firm, is rearchitecting its core applications offshore. This will enable us to offer our customers significantly more value-added for less cost. Without offshoring development, we would not be able to grow our business at the rate we want to.

posted by: Scott Ferguson on 07.27.05 at 12:56 AM [permalink]


I happen to believe that outsourcing that inevitable and I've seen with my own eyes the extremely positive impact that it has had on India.

But really, don't you think your post's heading is way too sarcastic ? I know the anti-outsourcing types call you every name in the book, but there's no reason for you to give them more incentive.

Incidentally, the 2 anecdotal cases cited here may not be entirely representative. The demand for security experts is definitely up in the wake of Sarbanes-Oxley and this is one of the items that companies really don't like to send abroad. The other case cited refers to an LV company, which is one of the few regions where IT demand is growing strongly.

posted by: erg on 07.27.05 at 12:56 AM [permalink]

At a conference last week at Microsoft, Gates said they were hiring in India and China because they couldn't find enough qualified people in the US, NOT because it's cheaper.

posted by: dude on 07.27.05 at 12:56 AM [permalink]

So how come about one half of all outsourcing efforts are considered failures (Gartner Group)? How about Sears and their outsourcing effort; didn't last a year and they're into litigation?
Considering that a lot of bad publicity is mostly likely being suppressed; outsourcing is really not that great a deal? Most of the new jobs in Greenville are being generated by firms bringing back jobs from overseas (Met Life and United Health Care).
It will be a different story when they start outsourcing your job.

Outsouricing has been used for years by IT to accomodate peaks in demand for projects, but not as a way to cut your costs to zero.

How about that manufacturing outsourcing; that's going well.

Ross Perot was RIGHT.

posted by: Dan on 07.27.05 at 12:56 AM [permalink]

Sears outsourced, they didn't offshore. Far from the same thing. What that *typically* means is loss of some jobs and lower salaries/benefits for the people that move over to the outsource firm. MY guess is that the biggest issue with that one is that they inked the outsource deal just before being bought by K-Mart, which I believe has much more of an in-house philosophy. Not a good example.

That being said, I agree with erg's comments that these examples Dan cites are not necessarily indicative of the IT job environment in general. I've yet to be convinced by either side of the argument yet - still think we're too early into the post-dotcom collapse to say how damaging offshoring is to US jobs. HP job cuts and rumors around IBM's strategy don't exactly encourage me.

posted by: Tony Plutonium on 07.27.05 at 12:56 AM [permalink]

As a former Sears manager (before law school) let me assure you that you can't use that bunch as an example of anything. They could hose up just about anything, no matter how good it might otherwise be.

posted by: John Jenkins on 07.27.05 at 12:56 AM [permalink]

US - math tutors = India + $
By Priyanka Bhardwaj

NEW DELHI - One more area of outsourcing is about to take off in India- online math tutoring. In a recent feature, The Wall Street Journal ascribed two reasons for this curious trend. First, US students are faring poorly in mathematics, with American 15-year-olds ranked 24th among 29 industrialized countries in a study of mathematics skills released last year by the Organization for Economic Cooperation and Development (OECD). Second, there is an acute shortage of math teachers in the US.

The shortage of math teachers is attributed to the low regard for the profession, dismal pay and high turnover. It is estimated that there is a requirement for over half a million teaching instructors in the US, with a particular crunch in math and sciences. According to the National Commission on Teaching and America's Future, a third of new teachers in the United States leave the profession within three years, and half leave after five. According to the American Association of Employment in Education, nearly 40% of US high schools reported difficulty in filling openings this year with qualified instructors for mathematics....

posted by: No von Mises on 07.27.05 at 12:56 AM [permalink]

Dear Scott,
This is to inform you that your job has been ousourced to a buzzword generator.

Hey Dude,
When Gates said "qualified" you should have listened closer: He can't find enough right out of college no experience people to run through the Microsft Bill Gates Clone Generator v1.0 (TM).

posted by: Mark on 07.27.05 at 12:56 AM [permalink]

Yes, that's right; CSC doesn't have a presence in India:

I'm sure none of this work was headed that way.

posted by: Dan on 07.27.05 at 12:56 AM [permalink]

Dude, MS could get all the people they want, but they aren't willing to pay the market price for them. In addition, MS is sueing most folks who quit to work for a more exciting and lively competitor: Google.

When Bill Gates, or any other CEO, whine about the shortage of (insert profession), what they are wanting is government protection FROM the free market. They could get all they wanted: if they paid the market price. Student enrollment in CS is down 60% because students who can do the math can clearly see that, as a career, it is a money loser at today's wages.

MS is hiring in India and China because those countries have decided to reduce their IT costs by using Linux. By hiring large amounts of natives, they can they use those employees to lobby their governments to try to prevent those governments from using software that is in their best interest to use.

Scott: our tiny business did some offshoring because our clients were demanding that we engage in the same fashion trends that they are doing. We spent more time administering the project than if we did the job ourselves. But we had to show our clients that we too can wear bellbottom jeans and do disco.

posted by: Peter on 07.27.05 at 12:56 AM [permalink]

"MS is hiring in India and China because those countries have decided to reduce their IT costs by using Linux."
Sounds nice, but ain't necessarily true.

The offshore firm my employer is using is developing our applications in the .net framework using Microsoft development tools -- VASTLY superior for rapid development than anything available in the "open source" world.

Bill Gates made his fortune with DOS, but he's keeping it with his Visual development tools. It's one of the great untold stories of the software industry.

posted by: Scott Ferguson on 07.27.05 at 12:56 AM [permalink]

Flexible IT people can ALWAYS find work.
And yes, this is an anecdotal post.

I have been 'laid off' or 'right sized'
or 'riffed' [or even "FIRED!" :-}] 5
times during my 30-year IT career.

I always managed to find another spot.

Granted, the tools I use are different
from job to job. And the type of work:
'new development'; 'on-call support';
'program maintenance'; 'System Admin';
'... whatever ...' have also changed.

But the jobs have always been there.

In fact, my most recent search netted
me two offers ... including one from
an Indian Consulting firm that needed
coders here in Illinois.

So, from a long-term, personal perspective,
pruning IT workers to save dollars is a
time-honored tradition. And one not
likely to change soon.

The next part of the cycle will be more
"managers" complainging they can't find
'qualified' personnel ... at the salary
levels they are willing to pay.

... and so it goes ...

posted by: Ted on 07.27.05 at 12:56 AM [permalink]

My somewhat objective observation (I'm not a techie) is that the IT jobs market is improving for those under the age of forty.

Age discrimination in that field seems to be rampant (I am an expert in HR regulations).

posted by: save_the_rustbelt on 07.27.05 at 12:56 AM [permalink]

The research firm Gartner Inc. predicts that up to 15 percent of tech workers will drop out of the profession by 2010, not including those who retire or die. Most will leave because they can't get jobs or can get more money or job satisfaction elsewhere. Within the same period, worldwide demand for technology developers a job category ranging from programmers people who maintain everything from mainframes to employee laptops is forecast to shrink by 30 percent.

posted by: Scott on 07.27.05 at 12:56 AM [permalink]

Total employment in the Information sector of the economy is still down since the recession began in March 2001.

posted by: bhaim on 07.27.05 at 12:56 AM [permalink]


MS is offering new grads $85k, $30k more than average, and $10k more than any other company that I've heard of. So what's the market rate for programmers with a BS and no work experience?

From what I've heard, they've sued one person. How is that most people who leave MS? Has only one person left MS, ever?

posted by: danl on 07.27.05 at 12:56 AM [permalink]

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