Offshore Outsourcing: Global Economy Devalues U.S. Developers

Offshore Outsourcing: Global Economy Devalues U.S. Developers

any professional application developers in the United States believed the U.S. IT industry that hired them would always be in need of skilled programmers and, therefore, assumed that as long as they kept their skills up-to-date with emerging technologies this need would assure them job security. They were half right. U.S. companies are indeed searching for qualified IT labor, but they aren’t necessarily looking within U.S. borders to find it.

Offshore outsourcing of application development and IT projects offers these companies significant cost savings by providing access to cheaper skilled IT labor in countries such as India and Russia. Moving this work overseas has meant job loss in the U.S. IT market, leaving many laid-off developers in the States feeling everything from disillusionment to outrage. However, their feelings aren’t enough to stem the tide of offshore outsourcing. U.S. companies will not forego a 20-30 percent cost benefit to mollify their anxious or disgruntled IT employees?nor their former employees.

Where does that leave American app developers? How large an impact will offshore outsourcing have on their careers? How can they best guard against being included in a job cut? These questions are being discussed in IT shops and tech worker advocacy groups all over the country?and they soon could become topics that elected representatives will have to address in Washington D.C.

Contractors Are First to Go
Gartner Research predicts that one in 10 IT jobs and one in 20 non-IT jobs will go offshore by 2005. The immediate impact of this trend will be the elimination of outsourced work that formerly went to domestic contractors. Ian Hayes, president of Clarity Consulting, a management-consulting firm that assists organizations with offshore outsourcing, has learned from surveying companies that “they get rid of contractors and they don’t replace attrition. For a contract programmer, it’s an absolutely horrible time. That’s where the job losses are really occurring.”

Gartner Vice President and Research Director Diane Morello also sees contractors at the highest risk. “If companies can move [work for which they may have employed domestic outsourcing] to the outsourcing model and take advantage of the lower labor costs in a global market, the communication infrastructure enables them to do that.”

Gartner Research Director Diane Morello says companies will move domestic outsourcing offshore.
In particular, the IT work that offers the most seamless transfer overseas according to Morello is stable, well defined, and requires only minimal changes. For example, Gartner primarily has seen application maintenance to legacy applications like ERP get taken over by companies in Southeast Asia. Such tasks are, as Morello puts it, “usually able to get carved out from core business processes, or are almost peripheral to core business processes.”

Because this type of work often goes to the most inexperienced programmers in an organization, those just starting out in an IT career face bleak job prospects. Young college graduates with computer science degrees and those who switched to the computer field within the past few years are on shaky ground. Hayes said, “Like any industry that’s contracting, it’s the people at the lower end that are going to get whacked. So someone who’s not an inspired programmer who got into this, say, in 1999 because there was plenty of demand and it looked like an easy way to get a high-paying job, those people are in trouble.”

How Valuable Are Your Skills?
For those developers who are not contractor workers but highly skilled programmers who are full-time employees, their skills alone may not be enough to assure them job security. “I might be the world’s best Java programmer. Someone gives me specs of what they want and I build it,” explained Hayes. “In that situation, whether it’s somebody here in the U.S. or elsewhere, a Java programmer is a Java programmer. It’s a commodity skill [that companies will acquire] wherever the lowest cost is.”

While no company can dispute the value of developers (regardless of geographic location) to a wired business world that depends on computers for nearly everything, offshore outsourcing allows U.S. companies to quantify developer value on a global scale in terms of dollars and cents. Morello said, “For 10-15 years, IT professionals thought that if they assembled enough skills, they would be intrinsically of a certain value. Any one of them might be, but these skills are becoming more and more transferable.”

Mike Blain, a Web developer who serves as editor for the IT worker advocacy site, simply stated: “It’s not about skills. It’s about cost.” Offshore outsourcing is “far and away” the number one issue that members, subscribers, and interested visitors are contacting TechsUnite about, according to Blain. He has seen how little value the people who contact his site believe they have to their companies and the IT industry as a whole.

“Clearly, the trend is towards more offshoring, more layoffs, [and] fewer career prospects for people in the industry or anyone who’s looking to enter the industry,” said Blain. The writing on the wall for a U.S. developer, according to the feedback Blain has received, is “there’s a good chance [his or her job] is not going to be in this country in 2 to 5 years. These are some of the highest paying, best skilled white collar jobs that you can get in the country.”

Management consultant Ian Hayes believes developers must move up the value chain.
Increase Your Value, or at Least Prove It
Hayes’ vision of the future is not as grim, but it probably isn’t what developers want to hear either. With India able to offer U.S. companies a 20-30 percent cost benefit, he believes two classes of programmers will emerge:

  1. Programmers who manage to move up their particular company’s value chain will continue to get paid as much or more than they are now. However, they will be a smaller group.
  2. The remaining programmers will be more commodity-skilled. Their salaries will reduce significantly (20-30 percent), because they’ll need to be somewhat competitive with offshore worker rates.

Therefore, developers must find ways to move themselves up the value chain in their companies, Hayes says. For example, a programmer at a bank, rather than being concerned only with meeting the requirements of a given project, should try to become an expert on some of the processes at the bank and bring his or her technical experience to the particular business problems that the bank faces.

While Hayes acknowledges that developers tend not to be interested in the business strategies of their employers, he believes this type of involvement can elevate a programmer’s skills from commodity to “value-adding.”

Morello put it this way: “The more disconnected [developers] are from the top initiatives within the business?driving new revenue, for example, or new products and new services?” the easier it is to move their work to remote locations.

From Professional to Personal to Political
Blain is more pessimistic about developers’ chances of retention through business skill. “Even highly skilled, nimble, highly experienced workers who’ve moved up the value chain are getting laid off,” he said.

These lay-offs are responsible for the daily messages TechsUnite receives from IT workers who have suddenly become political in their views about the industry. According to Blain, tech workers from across the political spectrum will tell his organization everyday, “I never really thought much of unions, but I think we need to organize.”

Even the developers who’ve had an independent spirit?Blain describes them as “your stereotypical independent, maverick, Libertarian, ‘I’ll succeed on my own merits and pull myself up by my bootstraps’ kind of tech workers?have expressed support for a tech union. Many have gone as far as stating that the issues of offshore outsourcing, as well as H-1B and L-1 visas, will influence how they vote.

Results from a recent online DevX poll
The politicizing effect of the offshore outsourcing trend does not surprise Morello. “The political and federal backlash is something that’s going to shape up over the next 2-3 years in the United States and in other developed economies. I would expect it to be a huge electoral issue in any subsequent voting session.”

Blain has already seen an organized IT workers’ push meet its political goal. His organization put out a call for the General Accounting Office (GAO) to conduct a study on the impact offshore outsourcing has on U.S. workers and communities. Blain said in the first six months of 2003 they generated over 15,000 fax and e-mail letters to Congress in support of the call. In July, two representatives from Washington State submitted a formal request to the GAO asking for such a study, and the GAO replied within two months saying it would do it.

Still, Hayes has his doubts about how effective political action can be in stopping a global market trend. “Look at the automobile industry. How many of those jobs have gone offshore? Look how strong the auto workers unions have been over the years trying to stop that and they’ve been unable to do it,” he said. “All those [tech] organizations could conceivably do is slow things down a little bit, but they’ll never be able to stop it.”

Change Happens. You’ll Adapt?As Always
Before punching the panic button, remember that not all companies are outsourcing their development work. Many companies are reticent to pursue offshoring, and even those that do are keeping core parts of their businesses in the States. For example, user and client interface development, business requirements management, and project management are all aspects of IT that companies prefer to have in-house.

These may not be the aspects you’re working in today, but you should consider them as the areas where the most security lies for your career. This may present a significant change in your career to be sure, but if any professional has experience adapting to change it’s the application developer. You constantly experience changes in IT that occur in a fraction of the time that similar changes would in other fields.

Do you perform your job the same way today that you did three years ago? Five years ago? Probably not?and the changes are probably the result of your own innovation. As the purveyors of much of the change in IT, developers are agile enough to land on their feet when it comes to their work.


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