Exporting IT Jobs

The writing is on the wall. If you are a programmer or an application developer, or work on the IT help desk or in data center operations, your IT job is in jeopardy, and here's why.

In an unrelenting push to lower IT costs, more and more companies are tapping cheaper offshore labor to handle routine tasks such as application maintenance and help desk support functions. Even companies that farm out IT work under pay-as-you-go and other hosted computing models to U.S. outsourcers—such as IBM and Hewlett-Packard Co.—are contributing to the loss of jobs, because these domestic service providers are also shipping IT work abroad. IBM Global Services, for example, is India's fifth-largest employer.

By 2015, 3.3 million white-collar jobs—472,632 of them in IT and mathematics—and $136 billion in wages are expected to move offshore to countries like Russia, India, China and the Philippines, according to a November 2002 report by Forrester Research Inc. analyst John C. McCarthy.

In March, 212,000 U.S. computer and mathematical professionals were unemployed, according to the U.S. Bureau of Labor Statistics. Looking ahead, Meta Group Inc. analyst Maria Schafer predicts that up to 50% of U.S. IT employees could shift to contract work by 2007, as outsourcing in all forms continues to increase and as more salaried U.S. IT employees opt to work as contractors to take advantage of the flexible schedules and the opportunity to work on a variety of projects.

Some industry experts draw an analogy between the thousands of U.S. manufacturing jobs that were sent overseas 20 to 30 years ago and the impact that offshore outsourcing is now having on U.S. IT jobs. Still, there are subtle but important differences between the two. Among them is that the forces behind the shrinking IT workforce go beyond companies seeking lower costs. IT managers are also struggling to strike a balance between the skills they want to have in-house on salary and the talent they can contract for on an as-needed basis.

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"It's not just about low cost. CIOs are interested in specialization and reliability," says Mark Hauser, CEO of Cap Gemini Ernst & Young's Americas division. Going forward, CIOs say they want a different mix of skills. They want their salaried IT employees to include experienced project managers and business/IT liaisons who can effectively communicate and broker IT project requirements between business units and IT departments.

Packaged Software Improving

Another factor contributing to IT job loss in the U.S. is companies' growing preference for a buy-vs.-build approach to software development. Purchasing software means that fewer in-house programmers and developers are required than when systems are created from scratch—even when a fair amount of customization is done to the off-the-shelf software. Sophisticated software development techniques and improved global bandwidth and communications are making it possible for companies to have various pieces of development or integration projects conducted in India or China, with the final assembly completed in the U.S. That's why there will continue to be demand for superdevelopers and top-notch integration experts who are adept at managing and coordinating different phases of a development project and pulling together the various components into a cohesive package.

"If you buy the argument that a lot of IT has become commoditized, [then] we are becoming inventors, creators, integrators and architects, and we are going to send the production offshore," says Steve Andriole, a senior consultant at Arlington, Mass.-based Cutter Consortium and an MIS professor at Villanova University in Villanova, Pa. Under this scenario, argues Andriole, U.S. IT organizations will continue to partner with business units to conceptualize IT approaches to business challenges and execute on those projects domestically—even if part of the project development itself is conducted overseas.

To that end, more than a dozen CIOs at Fortune 1,000 companies and many other IT leaders at large IT organizations who were interviewed for this report say the IT worker they're looking for is someone who combines business savvy and broad technology acumen.

"We're trying to preserve the internal knowledge that's important to the business while leveraging lower labor rates and technological sophistication in different geographies," says Harriet Edelman, senior vice president and CIO at Avon Products Inc. in New York. The $6 billion beauty products company is in the early stages of creating its own network of regional development centers. It began by establishing a Web development hub in Hungary last year .

Global Exchange Services Inc. (GXS), a Gaithersburg, Md.-based spin-off of General Electric Co. that provides transaction management services to more than 60,000 retailers worldwide, pays about $30 per hour for programming work in its company-operated offshore centers in India and the Philippines . In the U.S., GXS's total hourly programmer cost is $110 to $120.

The economics give companies little choice but to export programming work, especially for software maintenance and support. But increasingly, they're also exporting application development and infrastructure support work, says Rita Terdiman, an analyst at Stamford, Conn.-based Gartner Inc.

"You have to do it, otherwise the competition is doing it for you," said Tasos Tsolakis, GXS vice president of global technology.

Workers Find Comfort in Groups

On the IT employee side, the offshore movement is changing workers' attitudes toward their employers. To protect their livelihoods, programmers and others are embracing strategies more common among blue-collar workers. These include joining unions and lobbying legislators. "Every day you go to work, you don't know if you are going to have a job that day," says Linda Guyer, president of Alliance@IBM, an Endicott, N.Y.-based union of roughly 5,000 IBM workers. "You don't know whether you are going to be required to train your replacement" from India (see "The New IT Worker: Angry and Proactive" QuickLink 37654).

The union was formed in 1999, when IBM made unpopular changes to workers' pension plans. Today, the union continues to play mostly an educational and informational role. For example, it lets employees know when IBM is hiring H-1B visa holders by posting on a Web site copies of the federal form that employers must file when hiring overseas workers.

Even though it has no bargaining rights, the union says it can still exert pressure as a voice of influence. "We're small, but we think we carry a lot of weight. The executives are aware we exist, and I think we are a very effective pressure point," Guyer says.

Some IT executives say they have no choice but to outsource. Sue Unger, senior vice president and CIO at DaimlerChrysler AG, says her company last year began to outsource maintenance for 150 core applications that support its engineering, manufacturing and sales activities to Infosys Technologies Ltd. and Syntel Inc., both in India. The move allowed DaimlerChrysler to cut loose high-priced U.S.-based consultants who were used for strategic projects and replace them with 100 DaimlerChrysler IT staffers and on-site contractors who had been doing maintenance work.

"Companies are in a death spiral if you try to do everything inside," says Unger.

William Belding is a beneficiary of that transition. Belding joined DaimlerChrysler in 1996 as a client/server programmer/analyst. He focused on quality reporting for the automaker's data warehouse. Since those tasks were sent to India last year, Belding has taken on responsibility for the security infrastructure of the company's Web-based Dealer Connect portal.

"It's a good opportunity for me to see something new, to extend my career in the right direction," says Belding.

But if the previous century's outsourcing of U.S. manufacturing jobs is any barometer, many more displaced IT workers may have to settle for less. Blue-collar manufacturing workers who lost their jobs typically faced a lower standard of living, and the same fate could face programmers and others, says Josh Bivens, an economist at the Economic Policy Institute in Washington. High-tech outsourcing isn't on the same scale as manufacturing's, "but it has a familiar feel to it," he says.

James Pace, a Connecticut IT mainframe consultant who had been working at an insurance company, lost his job in January. He says he believes it was a result of offshore outsourcing. Pace says IT workers affected by offshore outsourcing are taking lower-paying jobs, such as restaurant managers and police officers, and that decreases their spending power. "Everything is a trickle-down effect," says Pace.


Country specialization by niche

Source: Gartner Inc., Stamford, Conn., 2003

Please click on image above to view a readable version.


A look at programmers' annual salaries in various countries illustrates why offshore outsourcing is becoming popular among companies trying to cut costs. The average salary for a systems programmer in the U.S. is $63,331.

Poland and Hungary $4,800 to $8,000
India $5,880
Philippines $6,564
Malaysia $7,200
Russian Federation $5,000 to $7,500
China $8,952
Canada $28,174
Ireland $23,000 to $34,000
Israel $15,000 to $38,000

Note: Base annual salaries in U.S. dollars

Source: CIO Magazine, November 2002

Copyright © 2003 IDG Communications, Inc.

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