Outsourcing: IT's all about China?

By Eric B. Parizo, SearchCIO.com News Writer 18 Nov 2003 | SearchCIO.com

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LAS VEGAS -- India may be today's hottest international IT outsourcing destination, but an expert says China is poised to dominate the market within the next few years.

Gordon Brooks, CEO of application management and outsourcing boutique E5 Systems Inc., told attendees at Computer Digital Expo's Enterprise IT Week conference that IT outsourcing was an $8 billion industry in India last year. However, beginning next year, he said that demand for IT workers in India will begin to outpace supply, driving up outsourcing costs there.

Plus, Brooks said, as workers in India become more in demand, it will get more difficult to maintain employee continuity. He said workers in India will be able to leave their jobs for better-paying ones as often as every six months.

Citing a statistic from Computerworld, Brooks said China currently has 400,000 IT specialists. Though that's approximately 200,000 less than India, as many as 50,000 new workers are expected to join China's workforce annually. As a result, cost-per-worker numbers will remain low in China for the foreseeable future.

"In this massive onslaught of offshore outsourcing," said Brooks, "I don't think any [nations] other than China and India will become large outsourcing centers."

As an example, he said that his company began outsourcing work to Ireland as early as 1992. But today, it's no longer cost-effective to do so, because of the cheaper labor that can be found in China, India and other niche countries like Russia.

He also dampened the recent hype surrounding IT outsourcing in The Philippines, noting that its small labor pool of 10,000 IT workers will quickly cause a labor shortage there.

"IT outsourcing is about fortune telling" to some extent, Brooks said. "You have to ask, 'Where can I get a sustained, long-term value?'"

Not all attendees agreed with Brooks, who admitted that his strong statements in favor of outsourcing to China were controversial. Mike Wright, an executive with multi-channel CRM messaging firm Striata Communications Solutions Ltd. in Johannesburg, South Africa, said if a company is internationally outsourcing an IT job for only 20 workers, it doesn't matter how many IT workers are in the country.

"[Companies should] find the place that does the job best," Wright said. "If you want to outsource SAP, go with the shop that is best in SAP," regardless of what country it's in.

Wright said he believes countries like South Africa can compete effectively with India and China.

Even though the debate over the best international IT outsourcing destinations is likely to continue for some time, Brooks said there can be no doubt that the trend is "irreversible."

"Whether good or bad, it's all about math," said Brooks. "It's going to cost you $75 to $80 per hour for an IT person here, but only $15 per hour in China, and $22 to $25 per hour in India."

Though some job losses are inevitable, Brooks said international IT outsourcing ideally will help companies better utilize U.S. workers.

"Our people don't want to [be charged with maintaining] older, less-valued systems," Brooks said. "They want to do the new stuff."

In fact, he said it's likely that many of today's U.S. IT workers are destined to take on coordinator-type roles -- communicating with international workers and ensuring that their projects are successful -- because it's easy for offshore outsourcing projects to fail.

"IT staffs are going to have to develop their own processes," for making international outsourcing work, Brooks said. "IT people are going to become more like business integrators."

Michael Perales, an IT specialist with the U.S. Air Force, said he is concerned that the IT vendors he works with will soon outsource work to international destinations, potentially creating security conflicts.

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