Exporting jobs saves IT money
March 23, 1999
by Julia King
(IDG) -- India, Ireland, Israel, Barbados, Bulgaria.... More U.S. companies are shipping more software projects to these and other offshore sites in the ongoing scramble to beat information technology skills shortages, visa caps and ever-rising labor costs.
In the past year, U.S. IT projects shipped to India alone ballooned by almost 60%, according to India's National Association of Software Service Companies. That represents nearly 200,000 jobs and will account for a software export market of about $4 billion by year's end.
And it's not just Cobol coding work. Mission-critical projects ranging from real-time stock trading applications to electronic-commerce systems are moving offshore to third-party service providers and new software development facilities established abroad by U.S companies.
One big reason is it's a lot cheaper.
For example, software teams with a ratio of 25 on-site workers to 75 workers offshore in India can expect to pay a blended hourly labor rate of about $37, compared with an average rate of $75 to $100 for an all-U.S. team, according to Chris Kizzier, an offshore outsourcing consultant in Portland, Ore.
Other big factors contributing to the offshore boom include the ever-increasing speed and reliability of communications technology and better project-management discipline.
It's a small world
"With advancements in communications and the Internet, the world has shrunk down to the size of a pea, and the fact that you might be 9,000 miles away is irrelevant once you put the right project management disciplines in place," Kizzier said.
In the past 15 months, five U.S. companies, including Boston-based Liberty Mutual Insurance Co., have opened IT research and development centers in and around Belfast, Ireland. So far, Liberty Mutual has hired 70 Irish software developers — all of whom receive six months of training at Liberty's offices in the U.S. — to work on C++ and Java-based applications, among others.
"There's definitely a [labor] cost savings, plus there are tax incentives [for locating] in Ireland," said Chris Gravel, U.S. operations manager at Liberty's Belfast-based software center.
Meanwhile, Guy Carpenter & Co., a $450 million New York reinsurance company, has outsourced development of a Web-based insurance brokerage system to PRT Group Ltd., which operates out of a 55,000-square-foot development center in Bridgetown, Barbados.
"We have half the team on-site and half the people in Barbados," said John Gropper, CIO at Guy Carpenter. The two groups are connected via a T1 communications link, and Barbados is a four-hour flight from New York.
With this kind of project management and communications in place, "there's very little difference in executing a project on the other side of the world vs. executing it on the other side of the street," Kizzier said.
That can even include the software developers.
Global Advance Inc., an offshore services company in Jerusalem, employs U.S. expatriates exclusively to work on projects outsourced to Global by U.S. companies. Its customers are primarily small and midsize companies, including Waxman Securities Inc., a privately held investment firm in West Hempstead, N.Y., and Leg Inc., a Reading, Pa.-based candy and toy company.
Home away from home
Global's policy of hiring U.S. expatriates means U.S. companies like Baltimore-based Wendell Textiles Inc. have access to skilled, English-speaking IT workers who are knowledgeable about U.S. business practices, but whose labor costs about 30% less than U.S.-based developers.
"I like the fact that there are Americans working on the projects because I think this whole thing is about communication," said company president Scott Wendell, who is in the process of choosing an offshore outsourcer.
"You have cultural differences and other things that come into play when you're trying to describe any business process," Wendell said. "Most of the people [Global employs] over there are replanted from New York [and] worked in financial markets or other sectors in the U.S."
Web not so U.S-centric anymore
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