Information Week, June 12, 2000
Offshore Outsourcing Nears Critical Mass
The IT talent shortage in the United States is driving more companies to use
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.
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.