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The World Gets Smaller Still

Savvy IT workers will turn globalization and an increased demand for IT skills to their advantage.

By Mary Brandel
July 17, 2006 12:00 PM ET

Computerworld - Randy Carter, CIO at Cabot Corp. in Boston, has a daughter and two sons, one of whom was a freshman in college during the dot-com boom, when many parents didn't think twice about urging their school-age kids to get into IT. Carter's son graduated as a computer engineer into the gloomy hiring climate of 2003, made even gloomier by the increasing practice of offshoring, which was taking hold at the time.

Now that his son is 25 years old and an IT security professional, Carter is seeing the industry change once again. Even with lower-level tech jobs continuing to move offshore, demand is up for IT professionals. But the domestic job openings are increasingly geared toward people with sophisticated technology skills, business acumen or project management capabilities. In fact, Carter is now advising his son to hone his ability to apply technology to the business. "It's ironic to see the industry change so quickly once again," Carter says.

Randy Carter, CIO at Cabot Corp.
Randy Carter, CIO at Cabot Corp.
Image Credit: Webb Chappell
In the upcoming four years, it's clear that the global marketplace will continue to deepen and expand with the burgeoning economies and skills development of countries like India, Brazil, China and Russia. Meanwhile, it will increasingly become an accepted fact that it's not economically sensible to hire high-wage U.S. workers to do jobs involving basic programming, tech support, quality assurance and testing.

But while globalization will continue to cause a sea change in the IT industry, the waves can be viewed not as damaging tsunamis, but as opportunities -- as long as you keep your eye on the horizon and maybe even learn how to surf.

"If you want to work within 15 blocks of where you were born, you'll see globalization as a threat," says John Wade, CIO at Saint Luke's Health System Inc. in Kansas City, Mo. "But IT isn't a U.S. industry anymore; it's a global industry. Would it be the worst thing in the world if you did your first three years of IT in Ireland, Germany, India or China?"

Indeed, Carter's 23-year-old daughter's experience is representative of the globalization of IT. Armed with an economics degree, she has been working with the U.S. Department of State to implement ERP systems in places such as Zambia, Mali, Bolivia and Bosnia. In all, she has traveled to seven Third World countries to do training and support.

And even with the outflow of lower-level tech jobs, IT professionals will still be in demand on the domestic front through 2010 and beyond. Some observers, like Edward Gordon, author of The 2010 Meltdown (Praeger Publishers, 2005) and president of Imperial Consulting Corp. in Chicago, see a worldwide IT skills crisis on the horizon. "I'm aware of older engineers who are out of work, either because they didn't know the latest software or their companies were looking to bring in cheap foreign labor," he says. "But those companies will regret it, because the economy is going to continue to grow. And as the baby boomers retire [in 2010], 79 million people will leave the workforce and only 49 million will enter."

Meanwhile, technology will infiltrate every aspect of life on a global scale, Gordon says, and "as we continue to expand our demand for sophisticated technology to drive every aspect of the economy, we need more people to design and manage those efforts, and we don't have enough to do that."

A Shifting World

So the first rule for the next four years is to not get too invested in your current worldview. With 20% to 30% growth among Indian-based IT services firms, including Tata Consultancy Services Ltd., Infosys Technologies Ltd. and Wipro Ltd., U.S. outsourcers such as IBM, Accenture Ltd. and Electronic Data Systems Corp. are facing some ferocious competitors, and it's not clear yet which companies will prevail.

"Years ago in the software area, there was one serious competitor -- the U.S. -- and that's changing," says Moshe Vardi, professor of computer science at Rice University in Houston and co-author of the "Globalization and Offshoring of Software," a report released by the Association for Computing Machinery. "We have to learn how to compete, and it's tough having competition."

The Indian firms are already starting to rival their U.S. competitors, according to Michael Corbett, executive director of the International Association of Outsourcing Professionals in LaGrangeville, N.Y. "I would not predict they'll knock IBM or EDS off their pedestals, but they'll win at least their fair share of the business," he says.

According to Paul Roehrig, an analyst at Forrester Research Inc. in Cambridge, Mass., Indian firms in the aggregate are currently winning more business from traditional players. "By 2010, we'll probably have fewer providers because of consolidation, but they will be on fire," he says. "The fat margins these firms now enjoy clearly can't last forever, but they can last long enough to continue to build strong businesses that can take more business from the traditional powerhouse companies."

Despite rising wages in India, there won't be a dramatic global shift in offshoring power away from the country by 2010, observers say. However, India's pace of growth will slow, and IT services firms in China, Eastern Europe and Latin America will start to make their presence felt, Corbett says. "We're seeing players in software development and testing emerge, but when you think about fully integrated technology and even business process capability, it's not there yet," he says.

Ultimately, Chinese companies will become full-blown competitors, Roehrig says, "but in the next few years, they will struggle to move into IT services en masse."

Meanwhile, the U.S. economy will continue to grow, but it will also be increasingly burdened by an aging population, growing national and personal debt, an increasing dichotomy between those with technical literacy and those without, war debt, and global ill will toward U.S. hegemony, Roehrig says.

Place Your Bets

Not that you should bet against U.S. companies yet. According to the World Economic Forum, the U.S. is currently ranked the second most competitive economy in the world and is also first in technology and innovation, technological readiness, company spending on research and technology, and the quality of its research institutions.

And the large U.S. outsourcing firms aren't taking the increased competition lying down. EDS has established a majority stake in Indian firm Mphasis BFL Ltd., and IBM recently announced plans to invest $6 billion over the next three years in its operations in India. Accenture has also been expanding aggressively in India.

Meanwhile, wages in India will continue to rise. According to neoIT, wages for Indian engineers rose 10% to 15% during 2004 and will continue on an upward trend of 8.7% annually through 2010. This narrowing wage gap could discourage some companies from Indian-based offshoring.

"Five years ago, employing an engineer in China cost one-tenth of what it cost in the U.S., and today it costs just half," Gordon says. "So if your main focus is low cost, you're going to find out in the next few years that India and China no longer offer a rock-bottom wage structure that makes up for the many other problems companies have offshoring to China and India."

There are also signs of a renewed innovative spirit from Silicon Valley and other technology hotbeds. Vardi sees a wave of start-ups emerging from Silicon Valley geared around Web 2.0 and the Semantic Web, projects that aim to make Web pages understandable by computers so that they can search Web sites and perform actions in a standardized way. "We're going to see another wave of innovation generating lots of jobs," Gordon says.

He adds that countries such as China and India will soon experience a skills crisis that won't be easily solved because the countries' educational systems are fragile and underdeveloped. "There are huge disparities in infrastructure that will significantly hobble China and India if they're not careful," Gordon says. He points to the 18% illiteracy rate in China and the 42% rate in India, plus the countries' high percentages of people living in poverty with little or no access to education.

"If you told someone in India that the U.S. is afraid of them, they'd laugh," Vardi agrees.

As for China, "they have the bulk, the smarts and the will to succeed, but they are handicapped by infrastructure problems, lack of natural resources and political considerations," Roehrig says. According to Forrester, 54% of Chinese firms plan to increase their new IT investments, but 83% of their overall IT spending will go to ongoing maintenance and support, leaving limited budgetary leeway for investments in new technology.

The Asian skills crisis will affect the U.S., whose own workforce will stop growing by 2008, Gordon says. There simply won't be enough IT talent to go around because of a number of factors, he says: Foreign nationals are returning to their places of birth, where there economic opportunities are increasing; enrollments in computer science and math programs are decreasing in the U.S.; and employers are reluctant to invest in worker retraining.

There's another way that globalization will increase IT demand, Corbett says: As you lower costs through offshoring, there's more to invest in technology projects.

But the types of jobs that will be created will be different from those in the past. One growth area will be in aggregating service management across multiple internal and external providers, Roehrig says. "This is going to put a higher burden on executive- and senior-level management and sourcing governance," he says.

There will also be strong demand for project managers and business analysts, Carter says. "I'm telling my managers if they've got an opening, those are the skills I'm looking for, and that if they need a developer, get a contractor, not an employee."

Experience managing global projects will also be a plus. Robert Half Technology recently managed a search for a director of quality assurance with experience in offshore efforts, says Jeff Markham, division director at the staffing firm.

Demand for certain skills will also grow, particularly in the areas of Web applications, wireless Web connectivity and security, Vardi says. "Any IT worker who's not upgrading his skills on an ongoing basis is falling behind," he says.

To some people, that pressure will represent a threat. But to others, it will spell opportunity. "The issue of globalization as a threat is a perception that people have put in their heads, and it's having consequences that aren't the best for the U.S.," Wade says. "We have to realize that we've moved from the Information Age into the Global Age."

And that requires action, Corbett says. "We have to invest in our people and our infrastructure and have a strong focus on really understanding where the U.S. companies can create a unique advantage for themselves," he says. "We have to believe we can win."

Brandel is a Computerworld contributing writer. Contact her at marybrandel@verizon.net.

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