GLOBALIZATION AND OFFSHORE OUTSOURCING OF SOFTWARE SERVICES
"Globalization" has undoubtedly changed the face of the world. Enabled by a massive surge in user-friendly communication and technological innovations, the process of "Globalization" has enabled many a things, which were, just a few years ago, considered impossible. It has indeed changed the means, the method and medium in which individuals, corporations and governments, the world over, communicate, contact and interact with each other.
One of the outcomes of Globalization has been the "outsourcing" of services, which has, in the recent past, become very politicized. Economic necessity and reciprocity of interest fuelled by intense competition and cost-effective alternatives enabled by a drastic reduction in the costs of transport and communication has helped many a corporations in focussing on the "bottom lines" and maximizing profits. This "bottom-line orientation", led to the outsourcing of many a services to "low-wage countries" such as India and China, thereby putting the issue of job losses to "low-wage countries" at the top of the political agenda.
A recent international study organized by the computing professional society ACM on Globalization and Offshore outsourcing of Soft ware Services, tries to elaborate on the enablers and economics of offshore outsourcing, the reasons why companies send work to other countries, globalization of research - associated security and intellectual property risks, educational and policy responses to address the issue of job losses to "low-wage countries". Alerted by the issue of "Job losses", the ACM job migration task force consisting of thirty members from UK, India, Germany, Sweden, Israel, Japan, China and India attempted to analyze and review literature on the Outsourcing of software services to "low-wage countries" and the consequent job losses within a time frame of eighteen months.
The executive consultant of the study, Prof. Willaim Aspray, Rudy Professor of Informatics at the Indiana University School of Informatics said that the study aims to look at the issues from an international perspective and has come out with conclusions more "as analysis and not as recommendations". It must be noted that no new research has been done and that most of the conclusions have been drawn from collating secondary sources, expert testimony and literature review. Moshe Vardi and Frank Mavada are the co-chairs, John White, CEO of ACM is the Ex-officio chair.
While the United States of America, United Kingdom, Germany, Japan, and Australia are countries, which outsource work, the principal destinations to which the work is outsourced remain India and China. Many Indian companies like WIPRO, INFOSYS, TCS, Satyam (to name a few) have been able to establish themselves as global players in the realm of Software services because of the immense outsourcing of software services to India.
The study reports that, in the recent past, several companies in India have been outsourcing work to china as the wage rates are going up in India. A new trend that has been indicated has been the "near sourcing" of work by Indian companies by setting up satellite centres in countries like Poland, Czech Republic etc. to capture western markets.
KEY DRIVERS OF OFF-SHORE OUTSOURCING
The study lists out the key drivers of off shore outsourcing. The drastic reduction of costs in the telecommunications sector has been one of the key driver's of Globalization and the offshore outsourcing of software services. The fact that the cost of international telephony has dropped by more than eighty percent and that world-class communication facilities can be available at reasonably good prices has boosted the process of offshore outsourcing of services.
Intense competition brought about by globalization, coupled with "bottom-line" orientation of companies has led many a corporations to focus on core operations. This has led to the "downsizing" or "restructuring" of corporations thereby outsourcing of back end services to "low wage countries."
The move away from customized software to standardized IT platforms, the pace of innovation, the directional influence of thought leaders like Jack welsh in the business community, the emphasis of the venture capitalist community to push offshore outsourcing of software services to India and China to reduce the burn rate in the capital investments, increased willingness to divide work process, dramatic increase in the number of graduates in India with a large pool of English speaking skilled workers, the role played by well educated immigrant students from India and China who remain as "go-betweens," and their entrepreneurial endeavour, English as the primary language of work process, the opening up of the markets in India and china, ageing population in the west are some of the factors that the study claims, have driven the process of off shore outsourcing of software services. In addition, outsourcing of software services has not only occurred due to the cost and capacity, language skills or due to cultural proximity, but also due to a high-end niche of specific countries for example outsourcing of software services to Israel for security software.
Outsourcing has become politically sensitive due to the vulnerability predictions that are being made. It is estimated that in the United States, about twelve to fourteen million jobs are vulnerable with a maximum loss of around 2-3% per year over a period of ten years. However, the study predicts that there would be 40% increase in jobs per year over a period of ten years. The situation in Europe is not a gloomy one. It is estimated that Europe, overall is not losing jobs. In fact, in every country in Europe, with the exception of Denmark, business service job creation has been larger than IT service job loss. The number of jobs lost in Europe is going to be fairly low compared to the United States.
While the economics of globalization dictate off shore outsourcing of software services, safety net for workers and communities like wage insurance, retraining etc. prove to be very expensive and not politically and economically palatable.
Although many seem to argue for offshore outsourcing of software services, it does indeed come with a package of negatives. In some cases where job processes cannot be done at a distance or job process cannot be routinized, outsourcing can prove to be an unworkable strategy. Many a times, lack of appropriate infrastructure in the vendor country can impact negatively on the client firms.
There are inherent risks in "off shoring" of research due to globalization. The heightened risks due to data privacy, intellectual property and other trade secrets can have legal systems consequences, which may make the client companies and governments vulnerable.
The study has also come with policy alternatives for both the "High wage countries" and "low wage countries." Professor Aspray has acknowledged the fact that protectionist rules and tariffs have almost entirely failed inn the "high wage" countries, and has emphasized the need to encourage innovation, from foreign students, workers etc. by enhancing the educational system by funding research and development and promoting indigenous careers while providing safety nets for workers and communities. For the "Low wage" countries, he underlined the need for regulation for FDI trade, creating infrastructure, protecting Intellectual property, privacy and security
Globalization and the dynamics of such a technology-enabled change can be extremely unpredictable, fluctuating between the real, virtual and the ambiguous. The tacit yet perceptible nature of such a change and the incredible pace at which such change is occurring can pose epistemological limitations in understanding such politically sensitive phenomenon. Therefore, understanding trends in the dynamics of such interaction and the consequences of changes in the socio-cultural and political realms, both at the microcosmic individual and the macrocosmic societal levels, can prove to be very challenging.
"Globalization" has undoubtedly changed the face of the world. Enabled by a massive surge in user-friendly communication and technological innovations, the process of "Globalization" has enabled many a things, which were, just a few years ago, considered impossible. It has indeed changed the means, the method and medium in which individuals, corporations and governments, the world over, communicate, contact and interact with each other.
One of the outcomes of Globalization has been the "outsourcing" of services, which has, in the recent past, become very politicized. Economic necessity and reciprocity of interest fuelled by intense competition and cost-effective alternatives enabled by a drastic reduction in the costs of transport and communication has helped many a corporations in focussing on the "bottom lines" and maximizing profits. This "bottom-line orientation", led to the outsourcing of many a services to "low-wage countries" such as India and China, thereby putting the issue of job losses to "low-wage countries" at the top of the political agenda.
A recent international study organized by the computing professional society ACM on Globalization and Offshore outsourcing of Soft ware Services, tries to elaborate on the enablers and economics of offshore outsourcing, the reasons why companies send work to other countries, globalization of research - associated security and intellectual property risks, educational and policy responses to address the issue of job losses to "low-wage countries". Alerted by the issue of "Job losses", the ACM job migration task force consisting of thirty members from UK, India, Germany, Sweden, Israel, Japan, China and India attempted to analyze and review literature on the Outsourcing of software services to "low-wage countries" and the consequent job losses within a time frame of eighteen months.
The executive consultant of the study, Prof. Willaim Aspray, Rudy Professor of Informatics at the Indiana University School of Informatics said that the study aims to look at the issues from an international perspective and has come out with conclusions more "as analysis and not as recommendations". It must be noted that no new research has been done and that most of the conclusions have been drawn from collating secondary sources, expert testimony and literature review. Moshe Vardi and Frank Mavada are the co-chairs, John White, CEO of ACM is the Ex-officio chair.
While the United States of America, United Kingdom, Germany, Japan, and Australia are countries, which outsource work, the principal destinations to which the work is outsourced remain India and China. Many Indian companies like WIPRO, INFOSYS, TCS, Satyam (to name a few) have been able to establish themselves as global players in the realm of Software services because of the immense outsourcing of software services to India.
The study reports that, in the recent past, several companies in India have been outsourcing work to china as the wage rates are going up in India. A new trend that has been indicated has been the "near sourcing" of work by Indian companies by setting up satellite centres in countries like Poland, Czech Republic etc. to capture western markets.
KEY DRIVERS OF OFF-SHORE OUTSOURCING
The study lists out the key drivers of off shore outsourcing. The drastic reduction of costs in the telecommunications sector has been one of the key driver's of Globalization and the offshore outsourcing of software services. The fact that the cost of international telephony has dropped by more than eighty percent and that world-class communication facilities can be available at reasonably good prices has boosted the process of offshore outsourcing of services.
Intense competition brought about by globalization, coupled with "bottom-line" orientation of companies has led many a corporations to focus on core operations. This has led to the "downsizing" or "restructuring" of corporations thereby outsourcing of back end services to "low wage countries."
The move away from customized software to standardized IT platforms, the pace of innovation, the directional influence of thought leaders like Jack welsh in the business community, the emphasis of the venture capitalist community to push offshore outsourcing of software services to India and China to reduce the burn rate in the capital investments, increased willingness to divide work process, dramatic increase in the number of graduates in India with a large pool of English speaking skilled workers, the role played by well educated immigrant students from India and China who remain as "go-betweens," and their entrepreneurial endeavour, English as the primary language of work process, the opening up of the markets in India and china, ageing population in the west are some of the factors that the study claims, have driven the process of off shore outsourcing of software services. In addition, outsourcing of software services has not only occurred due to the cost and capacity, language skills or due to cultural proximity, but also due to a high-end niche of specific countries for example outsourcing of software services to Israel for security software.
Outsourcing has become politically sensitive due to the vulnerability predictions that are being made. It is estimated that in the United States, about twelve to fourteen million jobs are vulnerable with a maximum loss of around 2-3% per year over a period of ten years. However, the study predicts that there would be 40% increase in jobs per year over a period of ten years. The situation in Europe is not a gloomy one. It is estimated that Europe, overall is not losing jobs. In fact, in every country in Europe, with the exception of Denmark, business service job creation has been larger than IT service job loss. The number of jobs lost in Europe is going to be fairly low compared to the United States.
While the economics of globalization dictate off shore outsourcing of software services, safety net for workers and communities like wage insurance, retraining etc. prove to be very expensive and not politically and economically palatable.
Although many seem to argue for offshore outsourcing of software services, it does indeed come with a package of negatives. In some cases where job processes cannot be done at a distance or job process cannot be routinized, outsourcing can prove to be an unworkable strategy. Many a times, lack of appropriate infrastructure in the vendor country can impact negatively on the client firms.
There are inherent risks in "off shoring" of research due to globalization. The heightened risks due to data privacy, intellectual property and other trade secrets can have legal systems consequences, which may make the client companies and governments vulnerable.
The study has also come with policy alternatives for both the "High wage countries" and "low wage countries." Professor Aspray has acknowledged the fact that protectionist rules and tariffs have almost entirely failed inn the "high wage" countries, and has emphasized the need to encourage innovation, from foreign students, workers etc. by enhancing the educational system by funding research and development and promoting indigenous careers while providing safety nets for workers and communities. For the "Low wage" countries, he underlined the need for regulation for FDI trade, creating infrastructure, protecting Intellectual property, privacy and security
Globalization and the dynamics of such a technology-enabled change can be extremely unpredictable, fluctuating between the real, virtual and the ambiguous. The tacit yet perceptible nature of such a change and the incredible pace at which such change is occurring can pose epistemological limitations in understanding such politically sensitive phenomenon. Therefore, understanding trends in the dynamics of such interaction and the consequences of changes in the socio-cultural and political realms, both at the microcosmic individual and the macrocosmic societal levels, can prove to be very challenging.
posted by Shrenik Rao at 10:53 AM
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