Offshoring losing lustre?
If you are a technology professional, especially a programmer/analyst, this study result comes as no spurprise to you:
Consulting company Sand Hill Group last year surveyed executives from about 50 software companies and found that offshore software development has become standard practice. Eighty-four percent of companies said they use offshore developers, an increase from about 63 percent two years earlier.
“Core software development is done offshore, not just maintenance and testing,” said M.R. Rangaswami, co-founder of Sand Hill Group. “These executives said they are more reliant on offshore development than ever before.”
The study also showed that many of the overseas IT sweatshops are passing along higher prices and are experiencing a shortages in skills.
A couple of years ago I predicted that the huge costs savings of off-shoring would soon begin to fade. India has 1 billion people with about half living in squalid conditions. As more and more Indians climb the socio-economic ladder, there will be more of a demand for technical services internally. Not to even mention the greater demand for more social services. Also, other emerging economies as well as developed economies all compete for the same IT resources in the major offshore labor markets.
As competition increases and thus costs rise for the offshore resources, the better domestic IT providers look from a competitive standpoint. For the deal to work the decreased labor costs overseas have to offfset the higher cost of managing a distributed workforce. One solution of course is to move the management overseas too. Which I have also predicted.
As a free market conservative, I believe that the laws of supply and demand will bring balance to the technology services market, even on a global scale. I don’t change my viewpoint because I am one of the ones sitting on my ass while programmers on the other side of the world do the same work for about 20% or less of what I used to earn.
One other item of note in the study:
[Rangaswami] said many software companies expected massively lower costs by hiring offshore developers. However, those companies found that prices were about 40 percent lower when all factors were included.
I wonder if all factors are indeed included in the price. For example, is there a value placed on the stability of using a predominantly domestic workforce? Or a cost placed on the risk of using a predominantly foreign workforce? How much does a one month work stoppage of three dozen programmers cost a small software company who uses offshore IT for 80% of its labor? A hit like that could be a deal killer.
I only bring this up because they are burning Valentines cards in India today and they always seem to be on the brink of nuclear war with Pakistan. Other than that, there are probably no concerns regarding India’s security.