The Outsourcing Times has announced the launch of a special report, "Outsourcing 101 - Offshoring for Beginners". The report discusses the history, economics and political implications behind offshore outsourcing.

Los Angeles, CA (PRWEB) June 18, 2004 -- Outsourcing has become a "charged" word. It is an important concept to understand because of its business applications (both for corporations and for small businesses) and because of its political implications.

For these reasons, The Outsourcing Times has announced the launch of a special report, "Outsourcing 101 - Offshoring for Beginners". The report is available online at http://www.blogsource.org/blog/2004/06/outsourcing_101.html.
Information in the guide is divided into five sections: The Definition of Outsourcing; Business Process Outsourcing; The Roots of Outsourcing; Offshore Outsourcing; and, The Politics of "Offshoring".

The report was edited by Michael Johnston of The Outsourcing Times (http://www.blogsource.org). "The offshoring issue has become a spark for several differing political agendas. We're trying to give people an objective starting point to weigh the different factors, whether they are considering outsourcing as a solution for their small business or trying to make an informed voting decision come November," said Johnston.
The Outsourcing Times is owned by Jimandi Corp, a privately held company based in Los Angeles, California. For more information, please visit http://www.dotmarketer.com . Visit the Outsourcing Times at http://www.blogsource.org.

EmediaWare

By ERIN POOLEY

More than 100,000 small businesses will be started in Canada in the next five years, says a CIBC report released yesterday.
The report, called Start Me Up: A Look at New Entrepreneurs in Canada, said an aging population coupled with advances in technology and the Internet is driving the boom in small business.
"Starting a business is becoming a more popular career choice, particularly among Canadians over 55 and those who are highly educated," said Rob Paterson, senior vice-president of CIBC small business banking, in a release.
New entrepreneurs who are 55 and over now account for 15 per cent of total startups, compared with 11 per cent in 1990.
"With only one in three startups being headed by an entrepreneur who is over 45, the aging Canadian population is expected to lead to strong startup growth," Mr. Paterson said.
One in four people who started a small business in Canada in the past two years have a university degree, compared with only half that number in 1990, Mr. Paterson said.
Science and health-related businesses led the startup sector over the past two years, followed by the financial and sales and services industries. Growth in in British Columbia nearly doubled the national average over the past two years.

GlobeAndMail

A CEO roundtable uncovered problems that must be addressed. Among them are education, trade, intellectual-property rights, and cybersecurity.

By Larry Greenemeier

Information technology's ability to continue innovating the way people work and live requires close cooperation between technology vendors and government to promote IT education, intellectual-property protection, international trade, and cybersecurity. These were the sentiments of CEOs and senators who participated Wednesday in a Business Software Alliance roundtable.

In fact, failure to address education, intellectual-property, trade, and cybersecurity issues creates impediments to critical R&D investments that enrich innovation. The most volatile are intellectual property and offshore trade.

"Intellectual property is under severe attack today," said James Glassman, a fellow at the American Enterprise Institute, at Wednesday's forum. Glassman, the forum's moderator, pointed out that the greatest damage caused by those who steal intellectual property comes when companies withhold investments in new technology because they feel they won't get the proper return.

Microsoft CEO Steve Ballmer agreed that intellectual-property protection is essential for software companies to invest in the R&D required to innovate. He also said that, while software companies are already enlarging their R&D staffs this year, they would like greater assurance from government that the intellectual property created from these investments will be protected from piracy. "Government is doing a lot, but it can do more," Ballmer said, particularly in countries with weaker and emerging economies, including China, India, and Italy, where piracy is more prevalent.

The response of the senators present at the forum, including Robert Bennett (R-Utah), Hillary Rodham Clinton, D-NY, and Gordon Smith, R-Ore., was largely to agree with these corporate interests. Senator Smith, a member of the Senate Finance Committee, said that pressuring the rest of the world to enforce intellectual-property laws would send a message: "If you want to do business with the U.S., you can't steal from us."

Much of the intellectual piracy taking place occurs outside the United States, where laws are not as strict, said Dominique Goupil, president of Filemaker. "Thirty-nine percent of what we produce is ripped off through piracy."

"The reward for fixing this problem is more innovation, as well as businesses that generate millions more jobs and tax dollars," said McAfee CEO George Samenuk. "Government should help us help the economy."

Not surprisingly, the BSA CEOs favor international trade and the freedom to outsource overseas. Most believe offshore outsourcing's impact on the global economy will deliver commerce and jobs back to the United States.

Greg Bentley, CEO of Bentley Systems, pointed out that there's a misconception over the extent to which U.S. jobs are shipped overseas and the benefits that this open trade provides to U.S. businesses. "I don't know why we would jeopardize the [economic benefits] with protective measures" that would discourage business globalization, he said. While two-thirds of Bentley's workers are employed in the United States, more than half of the company's sales come from customers outside the country.

Sen. Bennett, also chairman of the Senate Joint Economic Committee, said at Wednesday's forum that tracking the jobs lost when companies outsource offshore is short-sighted. "Let us not be carried away with the concept that trade hurts American jobs," he said. "One of the ways that Wal-Mart grew to become the largest company in the world was through its ability to buy inventory all around the world at the lowest cost, so that it could sell all around the world at the lowest cost." Still, most of Wal-Mart's employees are in the United States.

Cyber insecurity is another impediment to IT innovation, the CEOs said. While the Internet has helped the U.S. economy flourish, it has also created security challenges undreamed of a few years ago, such as the Cabir cell-phone worm. "For the Internet to reach its potential, people must have trust in it," said RSA Security CEO Art Coviello.

"Ninety-seven percent of the critical infrastructure in this country is in private hands," said Sen. Clinton, a member of the Senate's Armed Services Committee. Both the government and private industry are looking to the software industry for their advice to help with this. "We need a partnership to fulfill homeland and international security," she said.

Although the United States has been criticized for not producing as many math and science students as other countries, the BSA sees this as a reversible trend. Math and science education leads to engineering degrees, which feed the technology industry, said Gary Bloom, CEO of Veritas.

One of the stumbling blocks to promoting information-technology education has to do with the education system itself, which "was built when we had a different economy, not one driven by technology," said John Thompson, CEO of Symantec. Thompson co-chaired, along with RSA Security CEO Art Coviello, the CEO working group that developed the report.

Coviello suggested that secondary schools make some form of IT training a requirement for students and teachers. The key to putting the resources behind developing and selling this technology, he said, is having teachers who understand technology well enough to adopt it into their curriculum.

"Our economy today was built by students from our educational system," said Bill Conner, CEO of Entrust. "We just need more."

The BSA will address each of these issues at length through a series of reports. The first of these, addressing the need for improvements in IT education and training, was published Wednesday. The BSA plans to issue future papers over the next year expected to offer its collective thoughts regarding IT innovation, intellectual-property protection, cybersecurity, and trade.

The forum itself underscores the software industry's optimism when it comes to the power of technology, Ballmer said. "I'm more excited about the next 10 years then the last 10 years, and the last 10 years were pretty good," he said, citing the rise of the Internet and cell phones in particular. Speaking for the other software CEOs, Ballmer said, "Our businesses only survive by innovating."

Information Week

Survey Predicts Growth and Investment In Small Business

Small business owners and executives possess a positive outlook about the state of the national economy, according to the 2004 CIT Small Business Outlook, a nationwide survey conducted jointly by CIT Group Inc. (NYSE: CIT - News) and BusinessWeek Research Services.

"The enthusiasm expressed by small businesses across the country indicates that the U.S. is indeed experiencing an economic recovery," said John Canning, President of CIT Small Business Lending Corporation, a subsidiary of CIT. "Throughout 2004, small business has been one of the fastest growing segments of the national economy and, according to our survey results, we can expect this growth to continue into 2005. This is positive news for entrepreneurs and corporate America alike."

Other significant survey findings include:

• 85 percent of small business owners and executives surveyed
  believe that now is a good time for companies/firms to invest in their
  organizations;
• 72 percent of survey participants are confident about the future of
  the U.S. economy;
• Eight out of 10 believe that their sales revenue will increase in
  fiscal 2004 compared with 2003 and 45 percent believe that sales will
  increase by 20 percent or more in 2004;
• 74 percent of survey participants feel that U.S. companies will
  increase their spending over the next 12 months;
• 54 percent expect consumer spending to increase over the next 12
  months.

The 2004 CIT Small Business Outlook, conducted online, surveyed 482 representatives of small businesses nationwide that have, on average, 72 employees and gross annual sales of $3.2 million. Surveyed participants represented 37 different types of businesses/industries, including consulting services, information technology, financial services and healthcare/pharmaceuticals.

A summary of the survey results will be available at http://www.cit.com.

CIT Small Business Lending Corporation

CIT Small Business Lending Corporation offers Small Business Administration (SBA) loans to finance business acquisitions, owner-occupied real estate purchases and franchise start-ups through a network of field representatives. The nation's No. 1 SBA lender, CIT Small Business Lending has been designated a "Preferred Lender" by the SBA and can provide quick credit decisions and loan closings. The company's website and online SBA loan application are located at http://www.smallbizlending.com.

About CIT

CIT Group Inc. (NYSE: CIT - News), a leading commercial and consumer finance company, provides clients with financing and leasing products and advisory services. Founded in 1908, CIT has nearly $50 billion in assets under management and possesses the financial resources, industry expertise and product knowledge to serve the needs of clients across approximately 30 industries. CIT, a Fortune 500 company, holds leading positions in vendor financing, U.S. factoring, equipment and transportation financing, Small Business Administration loans, and asset-based and credit-secured lending. CIT, with its principal offices in Livingston, New Jersey and New York City, has approximately 6,000 employees in locations throughout North America, Europe, Latin and South America, and the Pacific Rim. For more information, visit http://www.cit.com.

Yahoo

By Satnam Gambhir

Myth 1: Offshore outsourcing is costing U.S. jobs.

A recent study by the McKinsey Global Institute calculated that for every dollar spent on a business process that is outsourced to India, the U.S. economy gains at least $1.12. The largest chunk -- 58 cents -- goes back to the original employer. And U.S. companies perform 30% of Indian offshoring, so money returns home as earnings.

The U.S. has lost 2 million jobs due to global trade over the past 20 years but in just 10 years has added 35 million new jobs.-[1]

It was U.S. technology -- the boom in telephony and fiber optics -- that directly contributed to the viability of offshore IT outsourcing. U.S. innovation will remain the largest competitive advantage we have over developing nations taking on outsourced work. Many jobs that aren't materializing during the economic recovery are lost not through outsourcing, but rather through improved efficiencies and business automation.

Myth 2: There's a stigma to offshore outsourcing.

In Bangalore, India, some 110,000 people are employed writing software, designing chips, running computer systems, reading MRIs, processing mortgages, preparing tax forms and doing other essential work for U.S., European, Japanese and even Chinese companies. Intel, Cisco, Oracle, Philips and GE are among the multinationals with significant R&D facilities there.

In fact, it would be challenging to find a single Fortune 500 company that is not outsourcing any part of its daily business operations to offshore outsourcing firms. Again, it's important to note that most outsourced jobs are supporting operations that aren't part of the core competency of U.S. firms, such as phone technical support, human resources administration and software coding.

Myth 3: The cost benefits of outsourcing are overstated.

With workers in offshore locations such as India and the Philippines commanding only 10% to 30% of the salaries that U.S. workers earn (with average IT employee costs ranging from $5,800 to $6,500)-[2], there is no doubt that savings can be achieved purely from a head-count perspective. However, the greater benefit of outsourcing is the migration from a fixed-cost IT environment to a variable pricing model that allows firms to gain better control over operating costs. There will be a reduced need for software and hardware infrastructure, as well as reduced costs for maintaining and upgrading hardware and software and for training software developers on the latest technologies.

Myth 4: It's a buyer's market for IT workers right now anyway.

Most firms underestimate the true cost of hiring an internal employee. Taking an employee with a base salary of $50,000, the following additional costs could be expected:

• Benefits (medical, dental, 401(k) plan): $18,000
• Administrative costs: $8,500
• Orientation/training: $1,400

Therefore, the total actual cost of the employee would be close to $78,000 a year -- a 56% increase on the initial estimate.

Myth 5: There are huge cultural barriers.

The first step involves comparing potential offshore countries. It's no coincidence that 260 of Fortune 1,000 companies have selected India as their nation of choice for outsourcing. Indians tend to have excellent English-language skills and a highly trained technical workforce due to the first-class education system.

The second course of action is to ensure that the outsourcing firm you select has in place stateside project managers who can engage both you and the offshore resources. A good project manager will facilitate communication and help define and track goals and objectives.

Myth 6: What about the other risks of outsourcing?

• Expense of initial migration. The best method of mitigating the concern of high upfront expenses is through a transparent, closely aligned partnership. The two parties can work together to construct a business case that satisfies both sides; for example, initial expenses can be minimized in exchange for a multiyear commitment that enables the outsourcer to make the necessary investments on behalf of its client.
• Fear of losing control. Loss of control is best tackled in a similar manner with internal departments. Strict policies and procedures can be implemented to ensure satisfactory compliance. Another way of looking at it is that the separation of duties through an outsourcing partner allows for increased, rather than diminished, control.
• Intellectual property issues. In cases where intellectual property is a concern, specific clauses can be written into the contract to ensure protection. Clearly defined audit procedures that adhere to compliance can be set up prior to the outsourced relationship commencing. Other legal resources include nondisclosure and noncompete agreements, patents and copyrights.

Myth 7: The ROI of outsourcing hasn't been proved.

On the contrary, the ROI component of outsourcing has been shown time and time again. In fact, the greatest arbiter, the marketplace, seems to give outsourcing a resounding thumbs up. Beyond reducing head count and employee overhead, additional benefits such as faster time to market and improved quality of the finished product can achieve an ROI of over 400% in some cases.

Today, the question is not if you will outsource, but when and how.

Computer World

Would eliminate tax breaks, provide help to affected workers

Companies that outsource American jobs would lose tax benefits, and outsourced service sector and technology employees would for the first time see training and income relief, under legislation introduced Wednesday by Sen. Ron Wyden, D-Ore.

The "Keep American Jobs at Home Act" would eliminate tax deductions for businesses that ship American jobs overseas, provide wage insurance and training assistance for service sector workers whose jobs have been shipped overseas, and offer legal protections for companies who refuse to outsource their workforce to maximize profits.

"These are some logical steps Congress can take to keep jobs from leaving the U.S. that won't damage our long-term economic outlook or our relationships with other nations," said Wyden. "Republicans and Democrats ought to be able to agree that taxpayers shouldn’t subsidize the exporting of American jobs, companies shouldn't get forced into exporting those jobs out of fear of lawsuits, and workers who lose their jobs as a result of outsourcing shouldn't be denied worker training."

A summary of the legislation follows:

ELIMINATE TAX BREAKS FOR CORPORATE OUTSOURCING

Eliminates several tax deductions for companies that outsource American jobs, including those for executive compensation and for the cost of training overseas workers related to outsourcing. Companies could also no longer defer taxes on profits gained from shipping jobs overseas. Today, the service sector accounts for more than 80 percent of total U.S. employment; as many as 500,000 of these positions have been outsourced in the past three years.

TRAINING, RETRAINING AND JOB SEARCH ASSISTANCE

Provides outsourced service sector workers with the same training assistance offered to manufacturing workers through the Trade Adjustment Assistance (TAA) program. Currently, Americans who have seen their service jobs in call centers, technical support, software development and other service sector industries shipped abroad are not eligible for the training, retraining and job search help offered to manufacturing workers under TAA. Displaced workers who qualify for TAA are also eligible for a tax credit to cover 75 percent of the cost of their health insurance premium.

WAGE INSURANCE FOR RE-EMPLOYED DISPLACED WORKERS

Offers wage assistance to outsourced service sector workers. These workers would receive as much as 50 percent of the difference between the salary paid at their outsourced job and a lower salary paid at a new job, up to a maximum of $10,000 for one year. The eligibility age for this assistance would be 40 years of age.

A McKinsey Global Research study found that only one-third of workers who lost their jobs between 1993 and 1999 found new jobs at equal or higher salaries. The remaining two-thirds matched their earlier salary, at best, or accepted a pay cut. The same study reported that for four to five percent of the savings companies get from outsourcing, they could provide wage insurance for every full-time worker whose job is shipped overseas.

CORPORATE IMMUNITY FOR REFUSING TO OUTSOURCE JOBS

Provides corporate immunity from stockholder lawsuits alleging financial losses due to a corporation's refusal to outsource work from the U.S. Some company officials have claimed that failing to save money and increase profits through outsourcing would open them to stockholder lawsuits.

The Wyden bill is expected to be referred to the Senate Finance Committee.

Classifieds

By BEN WORTHEN

As the offshoring debate heats up, CIOs are scrambling to meet the demands of current and pending legislation. Here's what's real, what's not and how to cope.

THE SIMMERING DEBATE over offshore outsourcing boiled over on Feb. 9, when the chairman of the president's Council of Economic Advisers, N. Gregory Mankiw, blandly asserted that offshoring was good for the economy. And while Mankiw's statement may be defensible, or at the very least arguable, its timing and tone revealed a political ear of the purest tin. Not surprisingly, his quote landed on the front page of newspapers nationwide, along with charges that the Bush administration was advocating sending American jobs overseas.

Senate minority leader Tom Daschle, for example, citing Mankiw's remarks, suggested that the White House would have to explain its support of outsourcing to millions of unemployed Americans. And Republican Rep. Don Manzullo of Illinois—where a lot of manufacturing jobs were lost due to offshoring—even called for Mankiw to resign. (He didn't.)

In any event, offshoring in general, and the Mankiw quote specifically, will more than likely be central to most every campaign this fall—including the presidential, especially given that the media has been raising a hue and cry over the exportation of U.S. jobs offshore. (For more on how the media and companies are wrangling over outsourcing, see Trendlines.)

And the legislating and politicking have already begun. By the end of February, state legislatures had introduced 27 bills designed to restrict offshoring. Two bills giving preference to state contractors have recently become law. And while such measures may have a minimal impact on the general profile of offshoring as practiced today, they may be considered the opening salvos in a battle that will only heat up.

"My personal view is that [the debate] won't end until the day after the election," says Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce, by many accounts the most powerful pro-business lobby in the country. "It is hard to imagine this being kicked off the front page."

Cutting costs by hiring cheaper foreign labor may help the economy in the long run, but that's a hard position for elected officials to take. If voting for laws that restrict offshoring helps politicians win elections, overwhelmingly they will do so. However, as is often the case in politics, many of those votes are more about posturing than policy making. Richard Shell, a Wharton School professor of legal studies and management, suggests that offshoring is the type of issue where lawmakers vote in favor of a bill and then use parliamentary techniques to kill it after the fact. "To be able to say that they proposed or voted for [an antioffshoring bill] is a very responsive thing to do," he says. "Actually limiting outsourcing is very hard."

Groups on both sides of the issue are drawing lines in the sand. The business community has made preserving the right to offshore a top priority. On the labor side, activists are lobbying for measures that restrict offshoring (mostly at the state level) with hopes of establishing a precedent and foundation for national antioffshoring legislation.

And once again, CIOs are caught in the middle. Public-sector CIOs and those whose companies have state or federal contracts face the most immediate risk from legislation limiting how they can source their work. Health-care and financial services CIOs face some elevated risks because of the sensitive nature of the data they handle. The legislation that could affect most other CIOs, however, is in the form of disincentives and obstacles, not outright bans. The U.S. Chamber of Commerce, the Information Technology Association of America (ITAA) and other organizations that oppose antioffshoring legislation acknowledge that they cannot stop all antioffshoring efforts from materializing. Therefore, CIOs need to start preparing for the inevitable and thinking about how to mitigate (or possibly eliminate) the effects of the legislative highballing down the political road.

With Government Contracts Come Government Restrictions

To date, the most common antioffshoring bills prohibit companies with state and federal contracts from sending their work overseas. The only federal offshoring law in this category, cosponsored by Republican Sens. Craig Thomas (Wyo.) and George Voinovich (Ohio) and signed last January, restricts companies with federal contracts from outsourcing that work overseas. Indus Corp., a software development and IT support services company, signed a 10-year, $175 million contract with the Department of Transportation in May 2002 to provide IT support for the federal highway administration. And while the company has an operations center in Bangalore, Indus President and CEO Shiv Krishnan says his company no longer uses it for work on any federal contracts. IT support and software development are "fertile ground to offshore," he says. "But we have a contract with lots of restrictions."

Indus, like other companies with contracts covered by the Thomas-Voinovich provision, must be careful to keep its government work separate from its nongovernment work; and its workforce for government projects separate from its nongovernment workforce. Krishnan stresses that the background checks required for employees who work with government data make it next to impossible for his organization to send work offshore. And, in fact, he suspects that this is precisely what future legislation will do to offshoring.

An amendment, sponsored by Sen. Christopher Dodd (D-Conn.) and passed by the Senate in March, would expand Thomas-Voinovich to include state contracts funded with federal money. (It has yet to come up for a vote in the House.) Many state bills already prohibit the use of state funds for offshoring. George Newstrom, secretary of technology for the state of Virginia, which has four antioffshoring bills pending, says that the public sector is particularly vulnerable since it is funded by taxpayers, who feel that the state has an obligation both to preserve and create jobs.

Nowhere was this dynamic more apparent than in Indiana, which last year put out an RFP to upgrade the systems that run the state unemployment insurance program. The winning bid was $15.2 million from TCS America, the U.S. subsidiary of the Indian IT outsourcing giant Tata. (The next closest bid was $23.3 million.) Work on the contract was scheduled to begin last October. But the irony of a state outsourcing its unemployment benefits project didn't go unnoticed or unremarked, and within a few months Indiana lawmakers proposed legislation that would prohibit sending state contracts offshore. Meanwhile, faced with mounting pressure, the governor canceled the TCS contract in November. And in March 2004, Indiana enacted a law that would give a 1 percent to 5 percent preference to Indiana companies. (For example, a bid of $100,000 would be calculated as $95,000.)

The state's IT procurement process changed even more substantially. "The reason why Indiana companies could not bid [on the unemployment contract] was that they weren't large enough," says Chuck Martindale, the commissioner of the department of administration for Indiana and the head of procurement for the state. "We had put together a project that they couldn't bid on."

Now, the state will attempt to break large IT projects into smaller chunks that it can source separately. "We are doing what we can with policies and procedures to maximize the opportunities for companies that have a presence in Indiana," says Martindale.

Virginia is trying to avoid becoming the next Indiana. The state is facing a budget shortfall of more than $1 billion, and there is pressure for IT (and all state agencies) to cut costs. But Newstrom says he has already ruled out offshoring as a way to do that. "If we were in a private setting, we would offshore," he says. But he isn't. So he won't.

Health, Finance and Other Privacy Quagmires

Antioffshoring groups have targeted health-care and financial services companies. Rep. Edward Markey (D-Mass.) has spoken about the need to restrict where companies send consumers' data. Both California and Arizona have introduced bills that would make it illegal for health-care providers to send their patients' records outside of the United States for transcription, and California would also restrict companies from sending individuals' financial data offshore.

Partners HealthCare CIO John Glaser admits that he is "a little more wary" than ever before when it comes to offshoring, primarily because hospitals rely on the government for reimbursement. Therefore, he says, there's "a greater degree of political entanglement." Partners offshores about 1 percent of its work in the form of transcriptions, radiology reports and low-level IT work. "I'd be stunned if there was legislation that stopped this," he says. Nonetheless, he's mulling over changes he could make that would strip patient information from the data Partners sends offshore.

A major insurance company that asked not to be identified undertook such a project that played out over two years. The company's rate-calculating systems are developed and tested in part offshore. Because of concerns about privacy and identity theft, the IT group built a utility that masks personal information such as names, Social Security numbers and addresses. Offshore developers cannot match the financial information to individuals. At first, a supervisor offshore who has gone through a background check had the authority to turn off the utility if necessary; but a few months ago, even that exception was eliminated, as the company sought to further tighten control and make certain that no offshore workers could access personal data.

The fact that the system already masks personally identifiable data means the company won't have to undertake such a project in the future in response to regulation. In addition, the company is lucky its development work is offshore, while maintenance is performed in the United States. The development work requires a test environment, rather than live production data, so the company won't have to readjust its work processes to satisfy potential privacy legislation. Most companies, however, do the reverse. "Ninety-nine percent of offshore is support and maintenance, which means they are running production data," says the insurer's CIO. If the government restricts customer data from being sent offshore, "they could essentially cut down that entire tree."

How Offshoring Can Make Retailers Look Bad

Without an outright ban on outsourcing (which parties on both sides of the issue agree is unlikely), the government is powerless from prohibiting most companies from sending work offshore. But it can make it harder. There is one way for the federal government to directly impede the offshoring practices of companies that aren't government contractors or in already regulated industries: visas. The two existing programs used to bring technology workers into the country, the H-1B and the L-1, have recently come under scrutiny. Both facilitate offshoring by allowing overseas workers to come to the United States for training. (For more on the link between offshoring and high-tech visas, see "Backlash.") Both Democrats and Republicans have introduced legislation that would tighten the rules on granting these visas and close the loopholes that allow these workers to be contracted out.

However, it is more likely that the government will take indirect action to discourage the employment of foreign workers. Sixteen states have introduced "right-to-know" bills that would require help desk and call center employees to disclose their location to consumers before conducting business—essentially creating a public relations headache for companies that offshore such work. Senator and presidential candidate John Kerry has sponsored such a bill.

These bills and others, such as a Daschle bill that would require companies to give employees 90 days' notice before their jobs are offshored, are calculated to cast companies that offshore in a bad light with their customers. Steve Williams, CIO of Mattress Giant, says that they are blatant attempts to smear corporate reputations. And they're working. Williams, who says that his company doesn't offshore development, is afraid that if he did, his "competition may utilize the fact that I have outsourced 20,000 jobs overseas." While Williams is an avid supporter of free trade, he says that a CIO would be crazy to start offshoring between now and November.

Some states will probably pass right-to-know laws between now and the election. On the federal level, the most likely outcome is legislation that would provide job training, health benefits and income support to IT workers who have lost their jobs to foreign labor. Jay Gardner, CIO of BMC Software, says that he would support such a measure, even if his company had to pay for it. He considers that to be the right approach for the government to take.

"I am concerned that legislation might take the wrong approach that would be politically popular, but not in the best interest of America in a global corporate environment," Gardner says. Nonetheless, "if all [offshoring] had to be turned off tomorrow—if we couldn't do any offshoring anymore—I still have a base of people to do those same jobs," he adds.

The Sky Is Lowering, Not Falling

Despite all the attention offshoring has received of late, relatively little is likely to happen between now and the election that will put a serious crimp in the practice. The Communications Workers of America is the largest organized labor group specifically targeting offshoring, and even they know that they have to pick and choose their battles. "We're not going to stop offshoring; we know that," says Tony Daley, research economist for Communications Workers of America. "We're [just] trying to set some rules for the market."

The forces opposed to antioffshoring legislation are better organized, richer and more sophisticated in the ways of leveraging influence. And they have made blocking restrictions a top priority. The U.S. Chamber of Commerce's Josten, for example, says that if the Chamber has to sacrifice every item on its 2004 agenda in exchange for preserving the right to offshore, his organization would consider the year a success.

Ultimately, public opinion will be the main factor in determining whether any antioffshoring legislation will pass. A March USA Today/CNN/Gallup poll reported that of 1,000-plus adults surveyed 58 percent said that preventing jobs from going overseas would be a very important factor in deciding whom they would vote for this fall; 27 percent said that it would be fairly important.

In light of these numbers, Harris Miller, president of ITAA, acknowledges that some legislation is inevitable. "Congress is going to want to say they did something," he says. Miller hopes that "something" will be restricted to job retraining benefits for white-collar workers, similar to the benefits that manufacturing workers now get when their jobs are sent overseas. (See "Offshored IT Workers May Get Training Benefits.")

When these bills do, in fact, pass, business groups like ITAA will make an effort to blunt their impact. For example, the Dodd amendment that restricts how states can use federal funds was itself amended to exclude signatories to the World Trade Organization agreement on government procurement (including many European and some Asian countries, although not India and China), and makes the amendments subject to a review by the Secretary of Commerce.

"We're lobbying," says Miller. "That's what we get paid to do."

CIO

By Cliff Saran

Poor governance of offshore software development is costing businesses millions of pounds, according to a study by Meta Group.

The survey of 150 European IT directors, commissioned by software supplier Compuware, found that businesses were failing to invest in the management and legal framework required to support offshore development contacts.

Peter O'Neill, vice-president of consulting at Meta Group, said, "Lots of companies are sending [project] specifications to offshore outsourcers on the vague presumption they will save costs."

He said, in most cases, users did not possess enough information on current application development costs to assess whether outsourcing was cheaper.

O'Neill warned that offshore development work increased project complexity and required additional quality assurance procedures.

Nearly 80% of those surveyed failed to invest in a combination of in-house project management, legal protection, benchmarking, and ongoing testing to ensure that application development specifications were adhered to.

Meta also found that 30% of respondents had not taken any specific steps to ensure their businesses' intellectual property did not fall into the hands of competitors during application development projects.

O'Neill urged users to look at their internal software development processes before outsourcing offshore. "Cost should not be a motivator for outsourcing. Offshore development gives increased flexibility and external resources and skills," he said.

Offshoring best practice:

• Document, deploy, and test a security policy that will reduce risk of infection or hostile intrusion to an affordable minimum level of risk
• Acquire or develop a method for lifecycle management of an outsourcing relationship
• Change the IT department's software development process from a "craft skill" to an industrial process.

Computer Weekly

By John S. McClenahen

For workers like John Fern, for the AFL-CIO, for the National Association of Manufacturers (NAM) and the Business Roundtable and for President George Bush and the men who want to replace him in the White House, there are few issues as emotional as the offshoring of U.S. jobs. And with good reason. "Improving one's skills is a necessary but no longer sufficient condition for economic success," contended a late-May report from the Washington, D.C.-based Progressive Policy Institute (PPI). "Working Americans wonder whether any job will be safe in the fiercely competitive global marketplace."

Yet amongst widespread anxiety is an absence of reliable numbers. "It is unclear how many jobs have been lost to offshoring," May's PPI report stated. Forecasting, too, is difficult and projections are subject to withering challenges. For example, "squirrely predictions" is the term John Castellani, president of the Business Roundtable, used in April to describe a Forrester Research estimate that 3.3 million U.S. white-collar jobs would go overseas by 2015 and International Data Corp.'s estimate that nearly 25% of U.S. white-collar tech jobs would move offshore by 2007. "While accurate numbers are hard to come by, most economists estimate that about 100,000 white-collar jobs . . . have gone overseas in each of the past three years -- for a total of about 300,000 jobs so far. Given the 138 million-plus Americans with jobs today, that is not an alarming number," said Castellani, whose group encompasses the CEOs of America's 150 largest corporations, companies with $3.7 trillion in annual sales and 10 million workers.

Whether the numbers are alarming or not, the situation is not as simple as Castellani's comments or Forrester's revised numbers -- it's now projecting 3.4 million U.S. white-collar jobs will migrate overseas during the next decade -- make it seem. For example, at California software producer QAD, cost, not the lack of available skilled workers, is now the major reason more than half the company's jobs are offshore. The "burden cost" of a software developer in the U.S. is $138,000 annually, while for an Indian software developer with equivalent skills and capabilities, her company's "burden cost" is about $35,000 per year, explains QAD president and founder Pamela Lopker. But not so for Michael Mallia, CEO of AFCO Systems Inc., a privately held, Farmingdale, N.Y., maker of high-tech equipment enclosures. "A lot of people look at the direct labor of manufacturing as the most expensive thing that's associated with manufacturing," he notes. It's a myth, he contends. "In a technology-oriented, automated type of factory, you'll find that the direct labor is a very small percentage of the overall cost," he insists. His challenge: finding people with skills. And it's not Mallia's challenge alone. "We are headed for the most severe shortage of skilled labor that this country has ever seen, warns futurist Roger Herman, CEO of the Herman Group, Greensboro, N.C.

Industry Week

By Matt Harrington

The High Point Chamber of Commerce named four winners at its 2004 Small Business Awards luncheon Thursday, including the first-ever winner in a new category, Minority Business Advocate of the Year.

Jane Evans, unit supervisor of business research services for the High Point Public Library, was the recipient of that award. Tom Dayvault, president of the High Point chamber, said the new award was the result of a new chamber initiative.

"Our chamber started a minority business council last year," he said. "Initially (the council) was looking at awarding a minority-owned business of the year award, but they felt that minority businesses should be considered with the other businesses. They preferred the award be given to a person or a business that has gone out of their way to assist minority businesses."

Chris Greene won this year's Small Business Advocate of the Year award from the chamber. She has served on "just about every board in town," said High Point chamber Vice President of Business Development Tonia Stephenson. Most recently, she led the High Point effort in getting bonds passed for Guilford County Schools.

Al Adams, principal of Senn Dunn Corpening, an insurance company, was named Small Business Person of the Year for companies of between one and 25 employees. Adams led High Point's Corpening Insurance Center, which was purchased by Greensboro-based Senn Dunn in January.

Owen Bertschi, general manager of Crescent Ford, was named Small Business Person of the Year for companies with more than 25 employees. Bertschi also serves as second vice chairman of the High Point Economic Development Corp.'s board of directors.

Dayvault said the winners were chosen not only for their success in business, but for what they do outside the workplace.

"All the winners have been dedicated servants to the High Point community," he said. "Not just in their business life, but in their civic and service life. They've all been leaders, they've all been risk-takers and they've all made a difference."

The awards were presented at a joint meeting of the High Point Rotary Club and Kiwanis Club of High Point.

Wes Jones of radio station WIST 98.3 FM, who emceed the event, called the small businesses "the backbone of America." The theme of the event was "Champions of Free Enterprise."

Other finalists in the category for small businesses with fewer than 25 employees were John and David Chang of Spectrum Wireless and Heidi Majors, director of the YWCA of High Point. For companies with more than 25 employees, the other finalists were Chet Green of Liberty Steakhouse and Harvey Lowd of KAO Specialties Americas LLC.

The other Small Business Advocate finalists were Margaret Lewis of Simon Jewelers and Kay Meekins of BizLife magazine. Bob Mitchell of Southern Community Bank & Trust and Doug Page of Omni National Bank were the other finalists in the Minority Business Advocate category.

The Business Journal

An executive from a security software company pointed to offshore software development as one reason for security vulnerabilities in a hearing before a US House Subcommittee yesterday.

Steve Solomon, chief executive officer of the Dallas-based Citadel Security Software said software companies must add additional controls to the development process for products produced outside the US.

"Software development organisations should be required to have all overseas-developed software examined for malicious capabilities embedded in the code," Solomon told the committee.

"Industry and government must work together to develop some form of standard or review process to address this growing threat."

Solomon's comments were among the few that generated debate in the latest in a series of cybersecurity hearings before the subcommittee. Much of the hearing was devoted to government agencies detailing their cybersecurity efforts, but Solomon's comments drew disagreement from Microsoft and Juniper Networks representatives.

"It really doesn't matter where software is developed," said Dubhe Bienhorn, vice president of Juniper Federal Systems. "It is a process that requires very tight controls and very intense scrutiny."

Solomon defended his comments by claimng software suppliers see offshore development as "easy and cheap".

"Maybe my colleagues on this panel have [offshore] processes in place," he added. "A lot of companies don't."

When asked by subcommittee chairman Adam Putnam if the patching process and the alert process that accompanies it is working well, Scott Culp, senior security strategist for Microsoft, said software suppliers were working hard to notify government and private customers.

"We have a very active interest in making sure as many people as possible know about our mistakes and how to fix them," Culp said.

Putnam then asked if Culp was generally satisfied with the patch and alert process Microsoft has now. Culp answered that he was never satisfied. "I'd like to send out a lot fewer of those alerts," he added.

Putnam had taken both private companies and government agencies to task for not moving fast enough to address continuing cybersecurity concerns.

"As a nation, we have taken very dramatic steps to increase our physical security, but protecting our information networks has not progressed at the same pace, either in the public or in the private sector.

"I remain concerned that we are collectively not moving fast enough to protect the American people and the US economy from the very real threats that exist today ... The time for action is now."

Citadel's Solomon also suggested that companies relying on patch management services have "false security" because they are missing larger problems, such as the lack of broad security policies and recovery after attacks.

"On average, only 30% of an organisation's verified vulnerabilties relate to patching, leaving their networks exposed to the remaining 70% of the problem, which are more dangerous and easily exploited," he said.

"These products do not address the problem of full lifecycle vulnerability management, and effectively become part of the problem."

Louis Rosenthal, executive vice president of ABN AMRO Services, called on the subcommittee to find ways to encourage software companies to "accept responsibility" for the role their products play in supporting US critical infrastructure.

He also asked the subcommittee to support a measure making software vendors more accountable for the quality of their products and for continuing patch support for older, but still viable, versions of their software.

Rosenthal suggested that incentives such as tax breaks, cybersecurity insurance and lawsuit reform could help software companies make more secure products.

Meanwhile, the US Department of Homeland Security is working with private companies to pump up the programmes offered by US-Cert, the government's computer emergency readiness team, said Amit Yoran, director of the National Cyber Security Division at DHS.

US-CERT launched a national cyber alert system in January, and around mid-year it plans to roll out a partner program to encourage private companies and universities to work with government agencies.

Goals of the partner program include the better sharing of information on cyber threats, improving cyber response and increasing discussion about cybersecurity, Yoran said.

"We've been encouraged by the enthusiasm of the private sector to partner with the Department of Homeland Security," he added.

Computer Weekly

By Madeline Bennett and David Neal

IT outsourcing is on the agenda of most large enterprises. Firms have to decide which IT functions to outsource and which to retain in-house, and they also have to decide whether to use a service provider in the UK or one based further afield.

Before signing any outsourcing deal, firms need to identify and manage security risks, said Kelly Kavanagh, senior analyst at research firm Gartner. He pointed out that offshore outsourcing requires even greater care in several areas, including the degree of control over customer data.

Kavanagh added that to deal with these issues, IT staff should be involved in the outsourcing process from the earliest stages. This means that they should be included in operations management, as well as the strategic planning phase.

Firms should audit prospective service providers to ensure policies and controls meet the required standards, said Kim Rajah, vice-president of European operations at outsourcing specialist Cognizant.

"The more educated buyers will visit the proposed location, look around the facility, look at the infrastructure and security and see if the processes are being adhered to," said Rajah.

He stressed that the location of an offshore partner is important. "Buyers tend to do a lot of due diligence, looking at political stability, the size of the labour pool and technical capabilities," he said. According to Rajah, few countries apart from India can meet the required standards.

Rajah predicted that offshore IT outsourcing would increase as the economy improves. "Companies will be picking up on new development spend and running new projects and they won't have enough IT people in-house to do it," he said.

Another trend could see more companies handing over day-to-day responsibility for their IT operations to third parties. "There's a strong likelihood that more and more firms will see IT as a utility and outsource their entire function," said Rajah.

But companies will still keep certain key IT personnel, he added: "Firms will look for hybrid IT managers who know IT and the business, and project management skills will also be required in-house."

Businesses requiring a high level of security may be attracted by a new scheme called Outsource2NewZealand, designed to encourage UK firms to outsource high-level, business-critical systems to New Zealand. The scheme includes a coalition of 20 vendors, supported by the New Zealand government and managed by the IT Association of New Zealand (Itanz).

Outsource2NewZealand members said they were not interested in competing with mainstream outsourcing companies in India, China or Eastern Europe, but instead would offer top-end, niche solutions. "We are pitching our skills at a much higher level," said Jim O'Neill, executive director of Itanz. He added that New Zealand should be a good choice for data privacy. "Our regulations and laws are [comparable] to those in the UK. New Zealand is a very safe destination for outsourcing."

Another attraction of New Zealand may be its time zone, which is 12 hours ahead of the UK. This could speed up projects, because when one territory stops work, the other could continue it without requiring night shifts.

For example, one of the group's members, Jade Software, provided UK building society Skipton with a complete branch automation system in less than three months, working with Skipton for what were essentially 24-hour days.

VnuNet

THE Indian software and services industry revenue is expected to touch $20.5 billion by the end of March 2005, registering a growth of 30-35 per cent during the year.

The total software and services revenue for year-ended March 2004 are estimated at $15.9 billion.

Of the $20.5 billion, $16.3 billion will accrue from software and services exports, while the rest $4.2 billion will accrue from the domestic market, according to the National Association of Software and Services Companies (Nasscom) survey.

During 2003-04, the IT services, products and technology services grew by 25 per cent registering revenues of $8.9 billion, while the information technology enabled services (ITES)-business process outsourcing (BPO) segment grew at 46 per cent recording a $3.6 billion as revenues, Nasscom said.

Outlining the key trends of the sector, the Nasscom President, Mr Kiran Karnik, said, "The pricing levels have been stabilised at $55-$60 per hour for onsite jobs, where as they are at $18-$24 per hour for offshore jobs."

The Indian industry exports software and services to 112 countries around the world. Americas continue to be the primary market with exports to this geography constituting around 70 per cent of total software exports, followed by UK with 15 per cent.

Indian companies are aggressively exploring new markets in geographies such as Japan, Germany and France.

The IT industry added more than one lakh jobs in 2003-04, taking the total employees in the sector to 8.10 lakh. ``In FY04, the ITES BPO industry added 65,000 jobs, while in software and services sector 40,000 jobs were created,'' said Mr Karnik. Indian IT companies were more aggressive in hiring than the multinational firms, he said.

Nasscom feels the Government should aggressively negotiate on services at the World Trade Organisation (WTO). "India has inherent strength in services and we should negotiate aggressively at the WTO on removing all barriers against free trade in services," he said.

Of Nasscom's 660 small and medium enterprise members, 414 members grew by over 20 per cent in 2003-04. The ITES-BPO presence is growing beyond metros and has started reaching cities such as Visakhapatnam, Jaipur, Kochi, Pune, Ahmedabad and Chandigarh.

The domestic market drivers will be applications for the mobile market and higher spend from education, banking, automotive and retail sectors.

Mr Karnik called for a consistent tax policy from the Government. He also expressed concern over infrastructure bottlenecks in areas such as airports and lack of urban mass transport systems.

The Nasscom Chairman, Mr Jerry Rao, said, "Customers will start defining core competency narrowly and will outsource most non-strategic processes. The BPO contracts will start becoming more complex in nature and there would be IT services and BPO bundling."

Asked about data security legislations, Mr Rao said the concerns raised by foreign clients could be addressed by minor changes in IT law and individual contracts.

Business Line