Turning outsourcing into a plus takes time and skill

As jobs hopscotch across the globe, the outsourcing model will still face obstacles

I made my annual trip to Florida’s Walt Disney World last week. I’d been there as a kid, but funny how it wasn’t till 30 years later that Disney’s “small world” theme really sank in -- at the Gartner Outsourcing Summit.

At the conference hotel, the scene was all-American, with young families getting on and off the monorail and kids clutching stuffed animals. But as keynote speaker and former MIT professor Michael Treacy said, those kids could be in for a big surprise in a couple of decades. “We’ve dodged the bullet,” Treacy told the crowd of graying 40-something IT and procurement managers. “We’ll be retired before the full force of this really hits.” But our kids may find out later in their careers, he warned, that no job is sacred, and all work will eventually migrate to the place where it can be best done.

Don’t view outsourcing as evil, Treacy implored, as it will ultimately expand the economic pie for everyone (in 1900, 40 percent of Americans worked on farms --today its 2 percent, and nobody misses those jobs). He noted that far more U.S. jobs have been lost to productivity-enhancing automation than to lower-paid foreign workers. But he warned against complacency, even for people who can’t possibly imagine how their jobs could be threatened: Although doctors are still indispensable, he noted, their incomes are under pressure from new highly reliable medical implants which are easy for less-experienced (cheaper) docs to install.

There will be plenty of obstacles to globalization, as was clear from my hallway conversations at this event. Offshoring is accelerating for application development, infrastructure, and support (I view those backsourcing stories as wishful thinking), and India’s straining to keep up with demand but it still keeps a comfortable lead over emerging contenders such as China, Eastern Europe, and South America.

Customers are trying to find the right multisourcing model to get the best value from offshore vendors, and to hedge against many risks -- including geopolitical, security, and the high churn rate of Indian talent. The churn issue is huge. There’s so much competition that Indian vendors can’t raise prices much. But because their labor costs are rising quickly, they must grow their businesses faster to maintain profits, which means they must recruit even more developers to keep up.

Here are some numbers I heard while at the conference: Although the average cost for a developer at a tier-one vendor has risen from $22 to $24 per hour in the past year, the pay for those folks has risen much more than 10 percent. Meanwhile, the average monthly salary of a just-graduated engineer in eastern China (the less developed part) is reportedly $100 to $200 per month. These are the signs of a market that’s all over the map but also very deep and broad. There will be decades of “struggle,” as Treacy put it, before any global equilibrium is reached.

There are tons of opportunities for U.S. companies and talent to leverage the enormous American advantages around the globe (English, buying power, brands, technology leadership).

It may be a small world communication-wise, but it’s also a very big one, full of smart people. I won’t mind at all if an Indian cures cancer or a Chinese person solves global warming. Maybe they’ll do it with American software, QA’d in Bulgaria.