Offshore Outsourcing Nears Critical Mass
The IT talent shortage in the United States is driving more companies to use overseas developers
By Drew Robb
Until recently, outsourcing software development to offshore suppliers was seen as a cost-cutting approach used by a few big U.S. companies to offload mainframe maintenance, Y2K, and assorted IT grunt work. Not anymore. Now, offshore outsourcing is nearing critical mass: Fast-growing Internet startups, midsize businesses, and dozens of major companies are using offshore suppliers not for maintenance, but to develop sophisticated new applications quickly.
The biggest reason is the shortage of U.S. IT talent. Companies say it's almost impossible to find enough good developers-and even the not-so-good ones cost a fortune. In contrast, areas such as India and Eastern Europe have access to thousands of programmers, many with Java and other Internet-related skills, available for $20 to $50 an hour.
"Why spend months searching for a second-rate U.S. programmer when you can instantly find a first-rate one overseas at half the cost?" says John Tuder, CEO of Videos.com, a Dallas startup that's developing technology to deliver movies via set-top boxes and over the Internet.
Among America's biggest companies, those using offshore programming include American Express, Aetna U.S. Healthcare, Compaq, General Motors, Home Depot, IBM, Microsoft, Motorola, Shell, Sprint, and 3M.
IT Looks Offshore
U.S. companies look for more help from foreign programmers
By Marianne Kolbasuk McGee
The shortage of IT talent and the U.S. government's freeze on issuing H-1B visas to foreign programmers has made the market for offshore programming more attractive to businesses.
"Even companies that aren't enamored with the idea of offshore programming are looking at it," says Stan Lepeak, an analyst at Meta Group Inc. Using offshore programmers costs less than hiring staffers or bringing in people with visas to work in the United States, he says.
Offshore programming is most commonly used by software development companies, which tend to do a better job of managing off-site projects than corporate IT shops do. However, IT consulting and services firms are becoming frequent customers of offshore programming services as well, says Lepeak.
Is it true that most development projects are being pushed offshore to save costs?
the answer provided by Marty McCaffrey, founder and executive director of Software Outsourcing Research, Salinas, CA
While cost savings were the primary reason companies outsourced offshore in the early 1990's, in recent years priorities have been changing. Timely access to highly qualified technical talent, faster time to market and accelerated delivery, ability to significantly expand the organization's software development capacity at minimal costs, opportunity to accelerate the improvement in their own software process and quality capabilities by working with world-class offshore companies, and reduction in the risk of cost overruns and late projects are frequently cited by customers ahead of cost savings. When companies have down-selected to one vendor and initiated contract negotiations, cost then often becomes the driving factor.