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Globalization and the Offshore Outsourcing of Software Work William Aspray School of Informatics Indiana University, Bloomington ACM Job Migration Task Force • • • • Moshe Vardi and Frank Mayadas, co-chairs John White, ACM, ex officio William Aspray, executive consultant 30 members from US, UK, India, Germany, Sweden, Israel, Japan, China • computer scientists, social scientists • Delivery January 2006 • International perspective, analysis not recommendation, no new research, expert testimony, lit review, expert members ACM Report • • • • • • Executive summary Big picture Economics Countries Firm case studies Research • IP, privacy, security • Education • Policy • Condensed version • Annotated bibliography Some Definitions • • • • • • Outsource Offshore Multinational or national/local Captive or independent Export or domestic market Globalization Work We Include • programming, software testing, and software maintenance • IT research and development • high-end jobs such as software architect, product designer, project manager, IT consultant, and business strategist Work We Exclude • physical product manufacturing: semiconductors, computer components, computers • business process outsourcing/IT enabled services/knowledge process outsourcing (e.g. processing insurance claims, reading X-rays) • call centers and telemarketing Countries sending work • • • • • US Western Europe (UK, Germany) Japan Australia India Countries Doing Work • • • • Cost and capacity Language skills Nearsourcing High-end niche • • • • India, China Phillipines Canada, Czech R. Israel Drivers of Offshoring • • • • • • • Telecommunications Standardized IT Pace of innovation Downsized corp. Champions Venture capital Forced re-engnring • • • • • • • Intermediaries Work process Higher ed Free market Immigration English language Aging population Economics of Offshoring • • • • Theory of Comparative Advantage Critics Long-term harm to innovative structure Saftey net for workers and communities Data Issues • Problems with definitions • Problems knowing which metrics • Problems with sources – Government – Trade association – Consulting firms • Projections v. current/past data • Vulnerability projections data • US – 12-14M vulnerable – 2 to 3% loss per year maximum – BLS ten-year projection • India – 10 to 40% increases per year • UK and Germany • Global US IT Jobs 1999/2003 (BLS) Programmers ********* 529 403 SE applications 289 410 SE systems 209 293 Computer support 463 481 Computer systems analysts 428 486 Database administrators ******** 101 97 Network and systems admin 205 245 Network & data communications analysts 98 156 Computer systems managers ******** 281 257 Hardware engineers 60 70 Total 2688 2922 Country Perspective • Relationships – US-India – Western-Eastern Europe – Japan-China • India v. China – – – – Infrastructure, policy experience, industry maturity Research Domestic v. export market Education • Private, access, quality control • Central planning, academic-industry relationship Firm Perspective • Developing Entrepreneurial (TCS, Softtek) • Developed Software Package (Adobe, SAP) • Developed Software Service (IBM Global Services, Siemens Business Services) • Developed High-Tech Startup (Hellosoft, Netscaler, Ketera) • Developed Established Non-IT (Agilent, Citicorp) Why Companies Offshore • • • • • Reduced Costs Access to skills Experience Time Shifting Time to Market • • • • Market access Ramping Up/Down Capital burn rate Process improvement Reasons not to Offshore Work • Job process is not routinized. • Job cannot be done at a distance. • The infrastructure is too weak in the vendor country. • The offshoring impacts negatively on the client firm’s workplace. • There are risks to the client company in offshoring the work. • There are not workers in the offshore company with the requisite knowledge. • Cost of opening or maintaining the offshore operation is prohibitive. Research • Globalization, not offshoring • Close relation between PPP GDP and IT Research - some countries high (Sweden, Israel), some low (Mexico, Indonesia) • Rapid growth in globalization • Home country vs. satellite • Winners and losers • Inventor migration healthy - even if net loss Risks and Exposures • Heightened risk - longer chains, legal systems, COTS • Vulnerability to governments – IT-enabled systems (power, telephone), citizen confidence • Vulnerability to companies – Data privacy, IP and other trade secrets, business continuity • Vulnerability to individuals – Identity theft • Business opportunities Policy: High-Wage Country • • • • • Protectionist rules and tariffs Safety net for workers and communities Level playing field (tax, currency) Visa Innovation – – – – Foreign students and workers Enhance education system Promote indigenous careers R&D funding Policy: Low-Wage Country • • • • • Regulation for FDI, trade Taxation Infrastructure Protect IP, privacy, security Education and training policy