Reality Check | Ephraim Schwartz » Offshoring: Money talks, programmers walk

January 12, 2007 | Comments: (0)

Offshoring: Money talks, programmers walk

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The hot debate currently going on in the online pages of InfoWorld Talkback in response to our news story "Survey: Offshoring does not cost developer jobs" misses the point.

The TalkBack pages are filled with comments from software engineers and programmers relating how they or people they know were laid off because the company they worked for took its software development off shore.

The question everyone should be asking is not are jobs in the U.S. at stake -- because employers probably don't really care if they are -- but rather does it make economic sense for a company to take its software development offshore?

I spoke with Barry Rubenstein, program manager for application outsourcing at IDC to see what he had to say.

Rubenstein's comments shot down the claim of the Software & Information Industry Association [SIIA] that offshoring is not costing jobs.

"Cost is a primary driver," for going off shore, said Rubenstein. "That is the main reason."

If cost is the "main reason," logically, that means that companies are comparing what the cost of hiring U.S. workers is versus the cost of hiring workers from Inida, Russia, or China. And if they decide to go offshore, they have obviously decided not to hire U.S. professionals.

Rubenstein added that if you just compare labor rates, then offshoring is "absolutely" less expensive. However, Rubenstein also said, "When you look at the added overhead to manage an offshore team, things get more complicated."

And this is exactly what I've been told time and time again by many companies that have taken their development off shore. It even gets to the point where some have brought it back in house because the cost of overhead outweighed the initial lower costs of labor.

Nevertheless, Rubenstein said there are reasons other than cost why some companies go off shore, citing a mid-sized manufacturer in the Midwest that uses SAP on the backend.

"It is hard to attract highly skilled SAP programmers to, say, work in Omaha, Nebraska. This is a big driver for outsourcing in general and offshoring in particular."

In some situations, there are also skills that companies can't find here, in particular intimate knowledge of legacy applications.

As older programmers retire, for example, Cobol programmers,
especially in the public sector, are hard to find, said Rubenstein.

(Why there are more experts in Cobol elsewhere eludes me. However, perhaps there is an explanation.)

"And these programs [like Cobol] have incredibly poor documentation, and companies have no choice but to turn to outside resources."

Nevertheless, I believe it would be foolish and even mendacious to say that no jobs are lost in the States due to offshoring.

The argument that "offshoring is used almost entirely as a form of expansion, not as a replacement," as David Thomas, executive director of SIIA said, is false on its face.

For every job placed outside of the United States, there has to be someone Stateside who is not being hired.

Again, the real question is, does offshoring make economic sense for companies? And is there no value to be gained by hiring local talent whenever it is possible?

Posted by Ephraim Schwartz on January 12, 2007 02:26 PM

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