Student Projects:Outsourcing PPF:Topic Discussion

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Kiran's email

This is Kiran's original email. (Additions to and comments on the original email are in blue.)

Outsourcing in IT predated by similar movement in manufacturing

  1. Companies that didn't outsource then no longer exist - Verify with examples.
  2. Study the possible causes that led to this kind of outsourcing and contrast with IT outsourcing.
  3. David Dorwin Are there differences between IT job loss and previous examples?
    • Workers that lost their jobs in previously outsourced/obsoleted job categories have often been told to retrain for the technology/IT industry. What should high-tech/IT workers retrain for? Biotech? Probably not.

Causes of IT outsourcing

  1. Globalisation
  2. WTO??
  3. Fast communication
  4. Fast transport (3 and 4 may be good for other reasons, too)
  5. Suitable political climate - no major Cold War-like polarisation of world -> free trade (and outsourcing) all over
  6. Strong dollar leads to a very favourable exchange rate - Eg:$1 = 46 rupees. (So, Oracle can afford to pay midlevel employees with 2 years experience a slary of 600000 rupees ie $12000 approx. without affecting their bottomline even marginally. The salary, on the other hand, is AMAZING by Indian standars and such salaries can facilitate a lavish lifestyle anywhere in India).
    David Dorwin NOTE: The dollar is currently weak (at least against the Euro).
  7. Volume businesses like call centers and manufacturing are better (economically speaking,of course) handled through outsourcing (any historical precedent here, Stuart?)
  8. David Dorwin There are no physical goods to ship in IT, so there is no added transportation cost.


Case against outsourcing (US viewpoint)

  1. Moral obligation to citizens and employees who helped build the company
  2. Outsourcing may lead to loss of jobs, technical anc commercial advantage
  3. Reverse brain drain in that good jobs may soon move overseas taking talent with them
  4. Quality and control concerns about the businesses being outsourced
  5. Language barrier and transitional costs may be too high
  6. David Dorwin The long term savings may not be as great as anticipated.
    • Cost of the infrastructure to connect multiple sites, set up in a new country, communicate between countries.
    • Possible decrease in productivity of US organizations and employees that work with or support overseas operations.
      • US employees need to train, ramp up, assist new employee base. This takes time from their normal job.
    • Salary costs will eventually rise as the standard of living increases.
  7. David Dorwin Poorer work/life quality for both US and foreign employees (adjusted/longer work hours).
  8. David Dorwin National Security
    • If there is significant brain drain and/or technology development moves outside the US, the US government may no longer have the ability to control or obtain technologies important for national security, defense/military, etc.
    • If the US economy is weak, national security can be decreased (can't afford a strong military and other reasons).

Case against outsourcing(Indian/outsourcee's viewpoint)

  1. High-paying jobs,no doubt, but not really satisfying work
  2. Odd hours + not much scope for advancement in industry
  3. No significant improvement in country's skilled manpower and techno. advantage

Case for outsourcing

  1. David Dorwin It is benneficial to have development closer to users (in most cases, this seems to be BS, but if products are unique for developing countries, then it may make sense).
  2. David Dorwin Cheaper labor allows the company to expand into other businesses that it could not have otherwise afforded.

Some issues to be raised and, if possible, answered

  1. With the new free market economy and WTO, is outsourcing inevitable?
  2. If not, will companies that don't outsource remain competitive? (Some historical studies of the manufacturing outsourcing phenom might be useful to draw parallels here)
  3. The first few cos. that outsourced to India faced a lot of problems - no processes of quality,management,development but once everything was set up, its now not even a question of If they'll outsource, but how much. [ Eg:GE] Examine how policy initiatives might've helped foster this enthusiasm abroad.
  4. How far will/can IT outsourcing go? Can products for Ameircan markets be designed in India? Or is outsourcing destined to remain within the fields of supoort and peripheral development?
  5. David Dorwin Is employee quality and productivity the equivalent? I've heard from several groups that overseas employees in several countries need more guidance and to be told how to do something rather than just what needs to be done.

Other issues

  1. Graphs showing savings with/without outsourcing on companies' bottomlines.
  2. How much of the advantage of outsourcing is due to policy intiatives rather than real benefits?
  3. David Dorwin Address the claims this political season that there are tax loopholes that encourage outsourcing. This is definitely a "policy" issue.
  4. Kiran Kalyan i definitely don't know abt tax breaks here in the us for outsourcing but in India, as i noted earlier, a tax holiday has been declared for all software firms till 2010 making the outsourcing boom a smppther experience. I can find out more specifi details in a week or so.
  5. Diwaker Gupta Definitely big, in light of the elections. I'm afraid I don't have the necessary background on the politics of this country to comment a lot on this, which is where I think David and Stuart can really help us out.
  6. David Dorwin Should schools and major/degree programs limit the number of non-citizens/permanent residents that are admitted? Does the ratio of foreign students have an effect on the need for outsourcing and visas? Does it contribute to "brain drain"?

Scope

Policy

David Dorwin Do we have to focus on "policy" or can we focus on an IT issue (outsourcing)? It seems that Kiran's list doesn't focus on public policy issues. Do we need to focus more on policy for our “balanced policy brief”?

Diwaker Gupta Since this is a course on IT and Public Policy, I strongly feel that policy should be an integral part of our project. If you see one of the earlier messages on the discussion page for the project, I had expressed concern that I was not able to find out a whole lot of policy issues regarding outsourcing. We should ascertain if that is indeed the case. If not, then we should summarize the current policies and the issues involved. And if there is indeed not much policy on this issue, we should most certainly go ahead and suggest our recommendations based on our study of other aspects (like the technology, impact on economy, brain drain and other related issues)

Off-shoring, internal US outsourcing, visas, etc.

David Dorwin Do we really want to limit the paper to outsourcing? Do we want to include off-shoring (moving operations oversees within the same company)? That's a very similar topic, but it's not technically "outsourcing". "Outsourcing" can also occur to other companies within the US. In addition, the topic of foreign workers in the US (H1-B visas, etc.) is a big issue. Do we want to discuss/address it, avoid it, or only mention it in passing? The visas would certainly be considered a "policy" issue.

Off-shoring / internal US outsourcing

Kiran Kalyan good idea,David ,about connecting "Outsourcing" with "offshoring" . in my opinion, at least, as i noted in my list, globalisation and the tendency to offshore branches of companies led to the phenomenon of outsourcing. (a thought here: is "outsourcing" just "offshoring" on a much larger scale? what is the real difference, if any? maybe we can examine some issues here. is there historical precedent for such metamorphoses in other fields - say tea/coffee production (British Empire vs. China) ?)

Diwaker Gupta I think David made a nice observation in noting that outsourcing can happen to companies within the US itself. I think we should look at both aspects -- the domestic as well as international and point out this distinction. Also, since I'm sure there exist several examples of such domestic outsourcing, we might want to take a look at how those cases fit together in the international market -- do the same motives, strategies and policies apply?

Visas

Kiran Kalyan Regarding the h1b visas issue is a pet concern of Diwaker and ,to be honest, all of us Indians students here in the US who want to work here for a while - so i do think more than a mere mention is caled for.

Diwaker Gupta Definitely big for me, as Kiran pointed out. Not so much for personal reasons, but I think its one of those bills that will have a long term impact on the US economy (and consequently, that on the global economy). Its interesting that the visa cap was brought down (mostly due to rising public opinion and outrage), but was brought back up recently (due to corporate demands). I sense a fundamental tussle here -- something like capitalism vs. socialism at work.

Timeline

Diwaker Gupta proposed the following.

  • November 5, Friday
    first draft of proposal (internal)
  • November 8, Monday
    final draft of proposal for submission
  • November 15, Monday
    first cut at draft
  • November 22, Monday
    second cut at draft
  • November 29, Monday
    third cut at draft
  • December 3, Friday
    submit draft paper
  • December 10, Friday
    submit final paper

Outline

Diwaker Gupta proposed the following.

  • Past
    • Origins of outsourcing
      most of this has been outlined in Kiran's doc. Specifically we want to look at outsourcing in other industries and compare it with the IT world. We want to discuss if there is something fundamentally diferent about IT outsourcing that makes it such a cause for concern compared to say outsourcing in manufacturing (like GM did)
    • Reasons behind outsourcing
      In addition to what Kiran pointed out, I'd like to add that for BPOs (business process outsourcing, the term for call centers and customer support services in general) have a major incentive for opening facilites half way across the globe -- its easier for them to provide 24/7 customer support due to the natural 12 hrs time difference between India and the US.
    • Rise of outsourcing
    • Response from Government and public?
  • Present
    • Current status
    • Impact
    • Public opinion
    • Government policies
  • Future
    • Recommendations
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