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Information Week, June 12, 2000

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, a Dallas startup that's developing technology to deliver movies via set-top boxes and over the Internet.

With the U.S. Department of Labor predicting that 1.7 million IT jobs will be created this year-and that up to half of them may go unfilled-the continued growth in offshore development seems inevitable. "No one can grow as fast as they want to due to the chronic shortage of programmers," says Carlos Cashman, CTO of Opus360 Corp., a New York supplier of offshore development services. "It's all about supply and demand. The supply is abundant overseas and the demand in America will continue to grow."

Russia, the rest of Eastern Europe, Latin America, Jordan, and even China are gearing up to develop the software the West requires. And many U.S. companies are discovering that, as long as projects are carefully managed, entrusting foreign suppliers with systems development can be highly rewarding. Wayne Norris, manager of research and development at Santa Barbara, Calif., software provider Biopac Systems Inc., has four Russian developers working on site in California, with another in St. Petersburg, Russia. All are supplied by Contex, a Russian services firm. "While the price is certainly right, what is more important is that I trust my St. Petersburg resources to get the job done," Norris says.
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