Perot Systems, founded by an offshoring foe, increases offshoring

Perot says it plans to grow overseas and in the U.S.

IT outsourcing company Perot Systems Inc., which was founded by Ross Perot, the 1992 presidential candidate who warned that the North American Free Trade Agreement (NAFTA) would lead to a "giant sucking sound" of U.S. jobs over the border, is operating in a way similar to many outsourcing firms and is increasing use of overseas labor.

The company's outsourcing outlook was detailed in a Reuter's report this week out of Mumbai, India, in an interview with James Champy, Perot's chairman of consulting. Champy said that he sees the company's offshoring mix rising to 50% in the next five years.

"We will move more work to locations like India. Many of our clients who have resisted offshoring before will be more receptive now," Champy said, according to the report.

In an interview with Computerworld, Russell Freeman, Perot's chief operating officer, said he had not spoken with Champy, but said the company did not "specifically have" strategic plans in place to grow offshore headcount to 50% of its workforce. The company, however, is planning to increase its associate headcount in every jurisdiction it is in, he said. "It's our full intent to grow our U.S. headcount," he said.

Freeman said that clients "are looking for globalized delivery," and that "I think where people are located will be much less important to the clients."

Freeman said Perot's U.S. workforce has been growing even as it expands overseas. The company has 23,000 employees, 65% of whom are based in the U.S. The company expects offshore operations to grow as a result of business with clients based in India, China and other countries, but also because of new clients, he said.

But the importance of offshoring to Perot is clear in its financial reports. In early 2008,the company wrote in one U.S. Securities and Exchange Commission filing that "emerging offshore development capacity in countries such as India and China is increasing the degree of competition for our software development services." Its consulting and applications solutions line of business "is located primarily in India."

As it increases its overseas effort, most of Perot's revenue comes from its U.S. customers. By the end of 2007, Perot finished with $2.6 billion, with $2.3 billion earned domestically, or about 88%.

Freeman cited a number of ways that Perot will add employees in the U.S. and keep costs down as well, such as using lower cost areas for some of its work, including Lincoln, Neb., and Bowling Green, Ky.

The company also believes that the federal stimulus bill and its mandated health care improvements will boost Perot's bottom line, Freeman said. Approximately 47% of the company's revenue is from health care, and that's principally from U.S.-based hospitals and other health care providers. The stimulus is being finalizedin Congress.

There is some work that Perot must keep in the U.S. About 24% of its revenue is from the federal government, which include such customers as the Department of Defense and the Department of Homeland Security.

Eugene Kublanov, the CEO of NeoIT, said other IT companies are increasingly relying on overseas labor in response to client demand, and sees Perot as a laggard compared to some other larger firms, such as IBM.

"It has been clear to those companies for at least three years that clients will increasingly demand a global delivery model, not just for the cost savings but also for innovation, language capabilities and because doing business globally demands it," he said.

Freeman disputed that and said Perot had workers based in low cost countries before its U.S. peers.

Ron Hira, an assistant professor of public policy at the Rochester Institute of Technology and author of Outsourcing America, said Perot Systems' "increasing its aggressive offshoring shouldn't surprise anyone, since every IT services firm is following the same path."

But Hira said the more important lesson is what it says about corporate leadership. Citing Perot's campaign against offshoring, Hira said, "now, we have the firm he founded and bears his name, becoming a leading offshorer, destroying American jobs. If this doesn't tell us how corporate leaders view their responsibility toward America and its workers, I don't know what will."

Copyright © 2009 IDG Communications, Inc.

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