The new era of Offshore IT Outsourcing.

Essay 4-101
Moushomi Sinha

The new era of Offshore IT Outsourcing

Information Technology outsourcing is the process of contracting out an organization's IT functions, eliminating the need to maintain on-site staff to perform those functions (Lieberman 7). These business functions are usually outsourced to companies in developing nations and have a very significant impact on the economic and social setup of both countries.

For centuries the production of goods and materials has been outsourced to countries like China. However, outsourcing of IT is a relatively recent phenomenon that started as the technology landscape in the United States became more and more competitive. Over the last few years software corporations have looked for ways to keep their profit margins high by reducing the costs. That combined with the evolution of technology industry in lesser developed parts of the world has given rise to the phenomenon of outsourcing.

Outsourcing software development, especially to India, has become extremely popular over the last few years, and picked up even more momentum lately. (Lieberman 21). The practice began with the development of India’s technology universities and training infrastructure. The programming skills needed in software development are readily available in countries like India and China. A company can hire well-trained, professionally educated IT workers from India at a significant savings over hiring IT workers in the west (Lieberman 16). A technology worker costs some five times less in India than in America, which is the primary incentive to outsource work. The global availability of digital internet connections, combined with communications tools such as email, instant messaging, faxes, videoconferences, and cellular phones has empowered the foreign worker to provide services that do not necessarily require direct physical contact (Lieberman 15). By hiring cheap, efficient labor in a digitally connected world, the corporations are able to conduct their business at a much lower cost. However, just like everything else in the world, outsourcing also comes with its own set of evils. This trend has harmed software workers in America who have lost jobs to their Asian counterparts.

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Take the case of Daniel Song, a computer programmer in America who followed his childhood ambition when he chose a career in the software field. From the early age of ten, he wrote software code and by the time he was in high school, he was taking classes in calculus and advanced mathematics. Daniel graduated from college with a computer science major in 1995, and took up a job as a software programmer at Intel Corporation. He then worked as a consultant at PricewaterhouseCoopers which was a dream job for him. It gave him the opportunity to travel the world. His career was flourishing when suddenly his company started outsourcing work to India. Since then, his career has been on the downslide. He has been struggling to find a secure, well paying job. The only jobs that he seems to find are the ever diminishing contracting opportunities. (Worthen 1) Like many other Americans, he was strongly opposed to the H1 visa program that allowed software engineers from India, China and other countries to work in the US. Such opposition and the high unemployment rate led the US government to slash the visa limit for skilled foreign workers in the US (Lochhead 1). This was a positive step for US technology workers like Daniel but wasn’t nearly enough to reduce the pace at which companies were sending jobs to countries like India and China.

In India, the software industry is booming and the picture looks bright and rosy for the Indian software engineer. The software parks in India house international software giants like Microsoft, Intel, and IBM etc. In these parks, the companies have created an ambience similar to that of the Silicon Valley of California or Northern Virginia. The streets there are immaculate and have gleaming, high tech buildings on both sides. The lawns are lush and well maintained. The parks also have outdoor cafeterias and entertainment joints bustling with people. A typical software engineer there earns about $11,000 annually – more than 22 times the per capita income in India (Pink 1). The high paying salary and trips to the US enable engineers there to maintain a comfortable lifestyle. A typical day at work is filled with meetings, writing code and emailing his clients in the US (Pink 1).

Indian investors have a different perspective on outsourcing. Take the example of Mr. Nagarjan, founder of 24/7, a customer call center in Bangalore. Nagarjan looks at outsourcing as globally beneficial phenomena, when he cites the example of his software company in India. He states that most of the IT infrastructures in his company have been exported from global giants. His company uses machines from Compaq, software from Microsoft, phones from Lucent, air conditioning from Carrier and bottled water from Coke. As a result, US exports to India have grown in recent years from $2.5 billion in 1990 to $4.1 billion in 2002. Also most of the shares of software companies are owned by American investors (Blumenfled 1).

Even though outsourcing involved low level, unsophisticated jobs in the beginning, encouraged by large cost savings and enabled by advances in IT, American corporations now offshore sophisticated work. The jobs being outsourced include knowledge services, decision analysis, design, engineering, research and development. Having grown familiar with their offshore partners, corporations are now handing over more complex work (Lieberman 13). This means increased number of job losses for the service sector in the US. Some consider outsourcing as a threat to the national security of America because of the nature of jobs that are getting outsourced. As firms export critical business and technical knowledge, they risk losing core competencies, in-house expertise, and future talent. The future of America’s competitive R&D prowess is being challenged because of outsourcing (Lieberman 23).

Outsourcing is increasingly taking stronger roots in America and around the world. The demand for cheap labor coupled with availability of skilled workers in less developed parts of the world has led to this phenomenon. Even though it continues to meet with resistance in countries where jobs are lost everyday, it hasn’t lost its momentum and is increasingly becoming an integral part of the way companies do business and stay competitive. This is changing the dynamics of the business industry and has a very strong impact on social and economic fabric of the countries around the world.

Works Cited

Blumenfeld, Samuel. “The Benefits of Outsourcing.” AmericanDaily.com. 5 Nov 2004. 15 Nov 2004. <>.

Lieberman Joseph. “Offshore Outsourcing and America’s competitive edge: Losing out in the high technology R&D and services sector.” Lieberman.senate.gov. May 11 2004. Nov 12 2004. <>.

Lochhead, Carolyn. “Congress cut visa for skilled foreign workers.” SFGate.com.
1 Oct 2003. Nov 14 2004.
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Pink, Daniel. “The New face of the Silicon Age.” Wired.com. Feb 2004. Nov 16 2004.
<>.

Worthen, Ben. “No Americans need apply.” CIO Magazine. 1 Sept 2003. Nov 16 2004 <>.