SF Chronicle Series on Outsourcing
SF Chronicle Series on Outsourcing
Date: Monday, June 02, 2003 10:14 AM
JOB DESTRUCTION NEWSLETTER
www.ZaZona.com
Universities are probably very happy that American students don't read
newspapers because this is the kind of news they would rather hide.
This detailed two part article on outsourcing is a must read for anyone
who is considering getting a college degree in Computer Science.
In Part 2 of the article Daniel Soong is interviewed. You may remember
Soong if you saw the H-1B segment of the CNN/Moneyline Lou Dobbs series
called "Exporting America".
The series ends with an opinion by a spokesman for the Indian owned
bodyshop Wipro: "We know how this movie ends, if a decade ago we
discovered that manufacturing can be done anywhere, in this decade we
are learning that knowledge can be learned anywhere." Obviously Wipro
has a self-interest in convincing the American public that outsourcing
is inevitable and cannot be stopped.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2003/06/01/BU106520.DTL
Overseas tech jobs proliferate
More Silicon Valley companies find cheaper labor in other countries
Sam Zuckerman, Chronicle Economics Writer
Sunday, June 1, 2003
)2003 San Francisco Chronicle | Feedback
First of two stories on companies shifting business operations overseas
.
Forget the technology crash. For Atul Vashistha, it's still 1999.
At NeoIT, Vashistha's San Ramon consulting company, sales are rising at
a dizzying 150 percent annual pace in the teeth of a tech depression.
NeoIT is growing so fast because it is in the thick of one of Silicon
Valley's hottest trends -- the movement of technology operations
offshore, usually to developing countries where salaries are dirt
cheap.
NeoIT advises companies on how to relocate a wide range of
computer-based tasks -- everything from managing data networks to
billing customers and processing payments. Last year, the company
served as an intermediary in deals worth $275 million. This year, it
surpassed that figure in March.
"The offshore business is absolutely booming," Vashistha said.
As recession-battered U.S. companies have searched harder for ways to
save money, the trickle of technology projects leaving Silicon Valley
for the developing world has turned into a veritable flood.
The trend is radically changing the Bay Area's technology sector.
Silicon Valley is preserving its place as the command center of the
global tech business. But the region's role as a software workshop is
diminishing.
The research firm Forrester estimates that 3.3 million service-sector
jobs will leave the United States for countries such as India, Russia,
China and the Philippines by 2015, including about 473,000 positions in
the computer industry.
"It's no longer economic to do low-end software development in Silicon
Valley," said AnnaLee Saxenian, a professor of regional planning at UC
Berkeley who has studied Silicon Valley's development.
The valley will continue to grow, she said. But "we will not see
employment growth on the scale we saw in the 1970s, 1980s and 1990s."
Virtually every major player in the valley, including Intel, Hewlett-
Packard, Oracle and PeopleSoft, is rapidly expanding research, design
and support activities overseas, even in some cases as they pare back
U.S. operations. Smaller firms are following suit, usually by hiring
technology vendors such as India's Wipro or Tata Consultancy Services.
BANDWAGON EFFECT
"Offshore is going mainstream," said Frances Karamouzis, an analyst
with Gartner, a Connecticut technology research firm. "Companies are
jumping on the bandwagon."
In India, the country that is the biggest beneficiary of the offshore
technology explosion, sales of software and services to foreign
customers have grown from a few million dollars in the early 1990s to
$13 billion in the 12 months ended in March, according to India's
National Association of Software and Service Companies.
Meanwhile, China is making substantial investments in its software
industry with an eye to siphoning off some of that business. And,
because English is spoken widely there, the Philippines is getting a
growing share of the technical support and call center business India
has become known for.
For the United States, most experts expect job losses will be limited.
But a few take a more extreme view.
Marc Hebert is executive vice president of Sierra Atlantic, a Fremont
outsourcing firm that carries out software development and support
projects in India for U.S. corporations.
"Within a few years, half of all Silicon Valley software companies will
be maintaining 80 percent of their technical staffs offshore," he said.
"The top 20 percent of software technicians will continue to provide
that function based here in the valley, while the other 80 percent who
support and maintain software will see their functions exported," he
said.
LOOKING AT THE BOTTOM LINE
It's no mystery what's driving the migration. Companies that move
technology functions overseas stand to save a bundle.
In Silicon Valley, salary and benefits for a programmer with a few
years' experience run about $75 to $80 per hour. A third-party provider
in the United States charges about $125 per hour for the same service,
according to Karamouzis.
Leading Indian firms, such as Wipro, ask only $20 to $25 per hour, she
said.
And second-tier Indian companies can be found that will do the work for
as little as $15.
Still, the offshore trend is no longer just a cost story. The computer-
science skills that can be found in places such as India, China and
Russia are becoming world class.
Cadence Design Systems, the San Jose maker of software for designing
semiconductors, has carried out research and development in India since
the late 1980s.
"The early move for us to India was primarily driven by cost
motivations," said Chief Executive Officer Raymond Bingham. "We could
find very qualified engineers at a quarter of the cost. But the view
was that they were not as productive as what you could find in the
West."
Now, he noted, software engineers in India and China "are just as
productive and significantly less expensive."
WINNERS AND LOSERS
The offshore trend is sparking a debate that has been heard over and
over in the age of globalization: Who wins and who loses as technology
work moves to the developing world? And do the economies of the United
States and the Bay Area stand to gain or suffer?
For years, groups representing tech workers have fought hard to limit
visas for foreign employees in the United States. Now they are
belatedly concluding that the shift of operations offshore represents a
greater threat.
"As companies decide to invest in overseas operations, fewer jobs are
created here," said Marcus Courtney, president of Washington Alliance
of Technology Workers, a Seattle tech-sector labor group. "Moving
America's best- paying, high-skilled jobs overseas strictly due to
labor costs poses a serious economic threat to American workers."
But defenders of the practice argue that in a global economy, work will
inevitably go to places where it can be performed most cheaply. That
strengthens U.S. businesses, they say, fueling domestic as well as
foreign expansion.
"It's not a zero-sum game that, because there is growth in other parts
of the world, we have to stop growing here," said UC Berkeley's
Saxenian. "U.S. companies are benefiting from the fact they can
outsource. And the valley can continue to flourish to the extent that
you see innovations emerging."
Those who watch Silicon Valley's ebbs and flows note that the tech
sector has lived through such transformations before.
During the 1970s and 1980s, for example, most computer and
semiconductor manufacturing operations fled the United States for
places such as Taiwan and Southeast Asia. Yet the Bay Area's influence
as a tech center continued to grow as factory jobs were replaced by
engineering, marketing and management positions.
"What's happening today is very analogous to what happened in
manufacturing, " said Chris Brahm, a vice president in the San
Francisco office of the consulting firm Bain & Co.
This time, though, the jobs that are going away are the high-paying
white- collar positions that have long made this region a computer
programmer's mecca.
Software engineers who perform relatively low-level tasks, such as
maintenance of older applications, "are going to have to figure out
what to do with the rest of their lives," said Forrester analyst John
McCarthy.
EXPANSION SPEEDS UP
One thing that is clear is that the financial pressures created by the
recession have prompted a big acceleration in the flow of technology
jobs offshore. In India, big U.S. tech companies are rapidly expanding
existing operations.
Oracle, which opened its first Indian development center in 1994, now
carries out 14 different functions, including software development and
support,
at six sites in that country. The Redwood City maker of business
software expects to increase its Indian staff from about 3,000 to 4,000
by the end of the year.
The company is increasing its presence overseas to build
round-the-clock operations in many time zones, Oracle spokesman Dave
Samson said. Cost savings are secondary, he insisted.
Gartner says it has not been able to find any examples of companies
that have successfully built 24-hour operations on specific projects by
coordinating offshore and U.S. development teams.
Pleasanton's PeopleSoft, which has seven software laboratories in North
America, is building its eighth in Bangalore, India, and plans to
employ 300 people there.
Cadence is expanding its support center in Noida, India, from 400 to
650 employees by 2006. Growth in India and China "will be significantly
higher" than in the United States, Bingham said.
It's not easy to link offshore growth with specific jobs losses in the
United States. For example, both Oracle and PeopleSoft say offshore
expansion is not coming at the expense of U.S. employees.
"I'm not planning on moving jobs from here to India," said Ram Gupta,
PeopleSoft's executive vice president for products and technology.
STAFFING FORMULA
>From time to time, though, offshore moves are overt enough or companies
are candid enough to make the connection clear.
Bank of America, for example, has set up the Global Delivery Center, a
central office for managing offshore technology work performed by three
vendors. For example, it has farmed out maintenance of a proprietary
commercial credit card software system through the center.
The bank uses a staffing formula of 80 percent internal employees and
20 percent offshore workers for many software maintenance and
development projects. That will reduce jobs in the bank's 21,000-member
technology and operations division by between 1,000 and 1,100 in the
next few years, spokeswoman Lisa Gagnon said.
WatchMark, a Seattle-area company that makes software for wireless
networks,
has seen revenue fall during the telecommunications industry's slump.
Earlier this year, it fired 60 employees, most of them members of a
product-testing group whose jobs disappeared when the company hired an
Indian outsourcing firm to do their work.
"This was done at the end of the day for bottom-line reasons," said
WatchMark spokeswoman Heather Knox. "We have good cash reserves, and we
want to be around as long as possible."
'FAD MENTALITY'
Despite the current rush overseas, experts say moving technology
operations offshore frequently doesn't make sense.
"There's just a fad mentality now," said University of Southern
California business school Professor Ravi Kumar.
"Companies aren't thinking through whether long term this is going to
be a viable business strategy. It's not easy communicating and
coordinating with people of other cultures and other places."
In particular, sensitive software-development projects depend on close
interaction among colleagues. "You need to be able to go down the hall
at the spur of the moment and say, 'Hey, aren't we making a mistake
here?' " said UC Davis computer scientist Norman Matloff.
When the dust settles, experts say, it's likely that routine
maintenance and testing will be prime candidates for movement offshore,
while advanced development work will typically be done close to home. .
In Monday Business: The unprecedented level of outsourcing of
technology work to distant lands has provoked a groundswell of anger
among stereotypically mild-mannered techies.
Chronicle staff writer Carrie Kirby contributed to this report. /
E-mail Sam Zuckerman at szuckerman@sfchronicle.com.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2003/06/02/BU270141.DTL
Techies see jobs go overseas
Opposition to offshore outsourcing beginning to grow
Carrie Kirby, Chronicle Staff Writer
Monday, June 2, 2003
)2003 San Francisco Chronicle | Feedback
Daniel Soong waited in line at the dingy, low-ceilinged Employment
Development Department in Pleasant Hill, hoping to find some clerical
work or any kind of work at all.
At 30, this is not where the thin, neatly dressed computer programmer
expected to be. Nor did he expect, after seven years in the technology
industry, to have to move back into his parents' Pleasanton house.
"I would like to meet a girl and start a family, but that's not really
possible unless you have a good job," he said.
Unlike many people who have lost their jobs during the economic slump,
Soong does not hold out much hope that his career will get back on
track when the economy picks up. He belongs to a growing contingent of
technology professionals who believe that prospects for their field
have permanently dimmed because companies are sending work overseas.
Soong and others like him are forming the beginning of an anti-
offshoring movement. In California, Connecticut, New Jersey and
Washington, groups of computer professionals are searching for ways --
from legislation to tax incentives -- to somehow slow the flow of
high-paying jobs overseas.
"There are millions of people like me now who are realizing (their)
job's gone, and it's never coming back," said Soong. "I'll try to find
something in another profession, but, oh -- those jobs are gone too."
Cost cutting and improved technology have led more and more U.S.
companies to send skilled work like computer programming overseas.
Forrester Research estimates that 3.3 million service-sector jobs will
have left the United States by 2015.
In the 1980s and 1990s, workers marched the streets to protest trade
agreements such as NAFTA and the movement of manufacturing jobs from
the United States to Mexico and Asia. Now that the jobs of more
educated, nonunionized computer professionals are going to India, China
and other lower- cost economies, there is another backlash.
"There will be some marches, demonstrations," said Barry Taylor, a
managing director with Menlo Park venture capital firm Warburg Pincus,
at a recent panel on the subject. "But . . . I don't see this really
halting the momentum" of offshoring. Warburg Pincus has funded
companies that specialize in offshore outsourcing.
PROTESTS IN CYBERSPACE
So far, opposition to offshore outsourcing has taken place more in
cyberspace than on the streets. In dozens of online discussion groups
and on Web sites, workers trade stories of jobs lost and impending
layoffs.
They are quick to make the connection between the layoffs and the same
companies' expansion in low-cost overseas centers. They e-mail members
of Congress and distribute electronic petitions in an effort to halt
the practice.
"This time corporations went after the middle income, Internet-savvy
people like us," Soong said. "What they don't realize is we're very
good with technology, and we're using it to get people together."
Soong says he lost a contract programming job last year at
ChevronTexaco, another company that has made use of IT contractors
based in India. Since then,
he's survived with on-and-off temporary work ranging from desktop
publishing to testing video games.
Not everyone who has suffered because of offshoring is ready to join
the movement.
"I've heard about people trying to fight it, but I'm already dealing
with so much stress right now," said one programmer. His job at Bank of
America in Concord was sent overseas after he had worked there for 24
years. "I'm glad that people are fighting it, and I'm still thinking
about it, but somehow that brings me back to that feeling that I got
when I got laid off. It was the lowest point in my life. I really
thought I was going to retire there," said the worker, who declined to
give his name because he feared he might endanger his severance pay.
Those who are fighting outsourcing warn that as opportunities for
computer professionals wane, American students will have no incentive
to enter the field, leaving the United States unable to continue
leading the world in tech innovation. They predict a lack of American
know-how that could cause a national security crisis. They also fear
that rampant U.S. job losses will decimate the tax base and damage the
economy.
ALTERNATIVE VIEWS
Most experts don't share that doomsday view. Some even say getting IT
work done cheaply overseas will benefit the U.S. economy by allowing
companies to become more competitive.
"There is going to be movement of information, people and goods across
international borders in a global economy," said Rep. Zoe Lofgren,
D-San Jose. "The question is, is it a natural economic flow or dramatic
amounts of outsourcing to lower salaries?"
"Even if we said, 'This is something we don't want to see,' it's not
clear that it is controllable," Lofgren added.
Soong and others like him are determined to try.
Like many tech workers, Soong had been politically active. On Thursday
he spent the morning driving his teal Nissan Altima from the Danville
library, where he used the computer to look for jobs, to the career
center in Pleasant Hill and to a temp service without turning up any
opportunities.
Then he drove to the Walnut Creek Marriott for an organizational
meeting with other tech workers who want to fight offshore outsourcing.
Political organizing in the physical world does not come naturally to
these computer experts. At the hotel, a woman appeared to be searching
for someone. Group organizer Pete Bennett suggested someone ask her if
she was there for the meeting, which had been arranged via e-mail.
Soong hesitated, looking down shyly at the cuffs of his Dockers, and
the others held back as well.
The informal group discussed joining the more established Organization
for the Rights of American Workers, set up in December by
similar-minded techies in Connecticut. That group, whose 120 members
pay $25 a year in dues, is planning to protest at an outsourcing
conference in New York City in June.
LOBBYING CONGRESS
Others, including Seattle tech workers union WashTech and professional
organization the Programmers Guild, are lobbying Congress to do
something about the tidal wave of offshoring.
"We've launched a national campaign calling for a Congressional General
Accounting Office study into the whole trend about what offshoring
means for tech workers around job security, wages and job creation,"
said Marcus Courtney, WashTech president.
WashTech also supports a bill in the New Jersey state Legislature that
would prevent taxpayer-funded projects from being sent overseas.
The Programmers Guild is lobbying for a federal law requiring companies
to notify customers if an overseas contractor has access to financial
or personal data. This would apply to the growing number of companies
using customer service agents and back-office processing based
overseas.
Another professional group, the Institute of Electrical and Electronics
Engineers-USA, favors a different approach.
"The battles with the industry in my mind aren't always very
productive," said the group's former president, Paul Kostek, who is
drafting its policy on offshoring. His group is looking into getting
help for IT professionals who want to retrain for fields where
offshoring is less prevalent, or persuading Congress to offer tax
incentives to encourage companies to keep some work on these shores.
SUICIDE BLAMED ON LAYOFF
In the Bay Area, opponents of outsourcing are calling attention to one
personal tragedy that has been blamed on offshoring: Kevin Flanagan, of
Pleasant Hill, reportedly shot himself in April in the parking lot
outside Bank of America's Concord office, where he had just received
his termination notice. In an interview with the Contra Costa Times,
Flanagan's father, Tom Flanagan, said his son's job loss and death were
the result of the bank's sending work offshore.
Bank of America spokeswoman Lisa Gagnon declined to comment on whether
Flanagan's job was one of the tasks the company has outsourced.
"We're deeply saddened by the tragedy, and we send our thoughts and
prayers to his family, his colleagues and his friends," she said.
Local opponents of offshoring want more than that. Bennett has posted a
document on his Web site (www.nomoreh1b.com) calling for Bank of
America Chairman and Chief Executive Officer Kenneth Lewis to apologize
to Flanagan's family.
To Bennett and others, Flanagan's death embodies a scourge that could
move across the U.S. economy, destroying lives in one field after
another. To proponents, his death is more of a sad side effect of
inexorable economic change.
"Whenever there's a structural shift, whether it's through a recession
or a . . . new loom that replaces hand weaving, there's nothing you can
say that takes away from the fact that there are individual personal
tragedies," said Vivek Paul, vice chairman and president of Wipro
Technologies, a company that specializes in taking IT projects to its
low-cost production center in India.
WORRIES ABOUT PROTECTIONISM
Seeing American companies' expansion in other countries as a loss to
Silicon Valley "leads to protectionism and ethnic bashing," said
Marguerite Gong Hancock, associate director of the Stanford Project on
Regions of Innovation and Entrepreneurship.
Most anti-offshoring activists say their anger is focused not on the
foreign workers, but on the corporations moving jobs offshore. They
also blame politicians who they suspect support the corporations
because they don't want to alienate campaign donors.
Although most opponents of offshoring also oppose the H-1B and L-1 visa
programs that have allowed hundreds of thousands of foreign workers to
compete with them for tech jobs in the United States, not all the
activists are opposed to immigration.
"I'm for a balanced global economy, but this is becoming a very
unbalanced global economy. A lot of things are just leaving this
country," said Soong, who is the son of immigrants from Taiwan.
One company that has shifted to offshore outsourcing says the trend is
beyond its control.
"We're being forced, in some cases painfully, as happened in ships and
shoes and sealing wax," said Raymond Bingham, CEO of Cadence Design
Systems, a San Jose company that makes software for designing
semiconductors.
"There is not a company in the valley that is not under serious margin
pressure," said John McCarthy, an analyst who studies outsourcing for
Forrester Research.
Because of those economic realities, Wipro's Paul is confident that his
business won't be hurt by a backlash even if it becomes much more
high-profile than it is now.
"We know how this movie ends," the executive said during an interview
in the company's U.S. headquarters in Mountain View. "If a decade ago
we discovered that manufacturing can be done anywhere, in this decade
we are learning that knowledge can be learned anywhere."
E-mail the writers at ckirby@sfchronicle.com and
szuckerman@sfchronicle.com., Chronicle reporter Sam Zuckerman
contributed to this article.
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