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Experts offer fresh perspective on offshoring IT

At a time when data is in short supply, a new report yields in-depth findings

By David L. Margulius

March 10, 2006

One of the problems with the debate over IT offshoring has been a lack of facts on the table. There’s been plenty of rhetoric and emotion, but little in the way of credible data.

Now, thanks to the academic, ultrageeky Association for Computing Machinery, that’s all changed. Its recently completed report, “Globalization and Offshoring of Software,” is a monster. This fascinating tome, which includes the most comprehensive bibliography I’ve seen since my last college term paper, is an aggregation of existing research by a task force of more than 30 experts in economics, public policy, computing, and human resources management.

This is truly great desert island reading, a fascinating snapshot of how globalization is really working from a non-U.S.-centric perspective. You could spend days scouring its charts and tables (“Figure 5.10 -- Total Flows of Inventors  between Countries”) and in-depth country profiles (“The Structure of the Russian Software Industry”), in addition to its political analysis.

Interestingly, the U.S. media has focused on one sound bite, which is that predictions of massive U.S. IT job losses to India and China over the next couple decades are greatly exaggerated. The real loss will be a mere 2 or 3 percent, the report says, assuming the United States gets its education act together and cranks out more computer science majors. Of course, this may not happen if kids think that all the IT jobs are going overseas anyway.

Although there’s nothing shocking in the report’s main findings, it does paint a non-zero-sum picture that contradicts the usual win-lose scenarios painted by offshoring’s detractors. Higher skilled IT jobs such as IT research are starting to cross borders in greater numbers, the report finds. But developed countries need not suffer as developing countries do more IT work for export, because IT globalization will enable greater specialization, which in turn will drive growth.

The report emphasizes the importance of strengthening education, technical training, and R&D investment, while cutting away regulatory barriers to the free flow of talent. Interestingly, the finding singled out problems in both India’s and China’s education systems -- India’s being too elitist and China’s too focused on rote learning. And it noted the United States’ challenge of raising interest in math and science programs in primary education.

Pumping up vertical ERP: The McKinsey Quarterly is out with a research brief on where CIOs are likely to boost spending for 2006, and tops on the list are upgrading hardware (such as VoIP), improving security and reliability, and beefing up ERP systems, particularly with industry-specific extensions. Overall budgets aren’t expected to rise much, thanks to continued cost cutting and productivity improvements such as streamlining mainframe operations.

However, McKinsey expects companies to add functionality to existing ERP systems to better compete, such as BI tools to help retailers analyze customer trends. I guess that’s why Oracle bought Retek -- I wonder whether Oracle and SAP will get most of this add-on business, or whether 2006 is the year smaller pure-play vendors will prove their staying power in selling vertical ERP add-on solutions.

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