Outsourcing, Offshoring, BPO…

Americans are loosing jobs and corporate America is showing no signs of stopping this trend!!! Untill now all corporates invested heavily in the US universities. Now Intel, AMD and even Google is setting up R&D labs around the world. They need qualified people to work in these labs. And places like India, China and Mexico are able to give it at a lower cost.

Over the last three years I have heard so much about outsourcing benefits and defects that I think I can write an entire book on this subject now.

First let us start with the definitions

v : obtain goods or services from an outside supplier; to
contract work out; “Many companies outsource and hire
consultants rather in order to maintain a flexible


<business> Paying another company to provide services which a
company might otherwise have employed its own staff to
perform, e.g. software development.

Most of my views would be based on my experiences and sites I visit often. This particular write-up is more from what I have read on SFGate which is a local San Francisco paper. One of my clients in the Bay Area had once sent a link to me about an article on outsourcing from SFGate. From then on, I have been a regular with this paper. What I like about this paper is that when CNN reports about Iraq Prisoners abuse, SFGate reports on the Ford Mustang turning 40. It is a welcome break to see this. Ofcourse they carry regular news of death and war too.

SFGate is carrying out a special report of outsourcing. I’ll pick some of the good ones here. Let’s start with  Straight from the mouth: Executives speak out which has views of some of the CEO’s of companies in the Bay Area. The best I liked was the comment from Scott McNealy –

You sound like a piano player in the old days when there were 35,000 piano players playing in the front of every movie theater when they had silent movies. You’re saying, ‘Who’s going to employ all of us now that they have sound embedded in the films?’ Gang, we’ve got brains. There will be lots to do. What’s an American company? We do half our business internationally. Does that make us an international company or a U.S. company?Global companies grow globally. Shouldn’t India be a little upset that we have most of their software programmers here? Who’s making the value judgments here?

Scott McNealy
Chairman and CEO
Sun Microsystems

He has made some very good points – 1) Creative destruction and 2) Think global.
One has to be competitive globally and not locally which in the end means using resources all around the world to get the best products and services at the best price.
Creative destruction is a phenomenon which takes place in every industry. All chariot makers lost their jobs, due the emergence of the auto industry. The floppy drive industry is almost dead. Optical media has more dominance and it is a matter of time before the magnetic media completely dies. Every industry goes through this shift and so would the software industry. In the software industry, the market is still alive but to get competitive, the delivery model has changed to a combination on offshore and onsite.

Most of the bigger companies today in the US are global giants and not local companies. They have clients and offices all around the world. When they get revenues from all parts of the world, how does one expect them to spend it only in the US. This is something that is true for all cooperates. Toyota for example has factories in the US. The Toyotas sold in the US are made by Americans. However, Toyota is a Japanese company. Now if the Japanese complain that the manufacturing should be done in Japan, then Toyota would cease to grow at the rate it is today. All my childhood I used to think that brands like colgate, dettol , bata are Indian. That is the extent to which most of the companies have localized today. Software is no exception. MS has a windows version in German for the German market for which they need Germans.

Bottom line … One has to sell and source globally in today’s world.

Another important aspect which in my opinion is a major problem in the US today is higher education. US has some of the best universities in the world. But most of the Americans do not have degrees.

“…..Truthfully, over the long term, the greater threat is the source of well-educated labor. And if you look at the number of college- educated students that China graduates every year, it’s close to 40 million. The law of large numbers is fairly compelling.”
Carly Fiorina
Chairman and CEO

This is something every American should be worried about. Take a look at the the National Institute of Literacy and one would get a fair idea. Here is a white paper for 1999 National Literacy Forum.

There was a time when the US needed doctors but not many Americans went to med. schools. As a result most of the doctors in the US are of foreign origin. The same has happened in many other professions. The IT industry faced the same problem but it has one difference the company does not have to get the foreigners to work in their office in the US. All they have to do is outsource.

I am sure even today there would be no Berkeley or MIT engineer who is jobless. Even a total outsourcing company would grab such people who are talented whatever be their race or color. The US gave to the world BSD but Finland gave to the world Linux.

Let’s see the picture in another way. India got independence in 1947. Back then we lacked doctors, engineers … well we had one of the lowest literacy rates in the world. The result was everything in India was imported. How could we make cars without engineers. The things remained the same for many years and all we had on Indian Roads was a Morris, Fiat and Jeep modified. We outsourced the entire technology sector those days. Indians did not stop the import of technology. However, we did focus on improving education in India. With time Indians got the expertise to make our own cars and today we have quite a few cars which are made from scratch in India.

Bottom line… when the demand cannot be met locally it has to source it globally.

There are so many points that we can pick up when we discuss outsourcing and I really don’t think I can pick it up in one session. So I’ll be writing a series of articles on this topic exclusively.

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