Offshore outsouricng IT: U.S. grapples with the challenge

While there is little disagreement in the IT industry that offshore outsourcing is likely to grow, there is little agreement on what to do about it.

Though some European workers associations have put pressure on legislators to re-examine labor policies, friction among politicians, labor leaders and IT industry insiders caused the controversy to flare especially brightly in the U.S., making it one of this year's most public IT-related debates in the country. As more work gets outsourced abroad, the controversy is bound to grow in 2004.

Outsourcers themselves say that as they try to offer better and higher-end IT services, they run into more resistance from the U.S. than elsewhere.

"We have tried to add more value, but we are more successful in Europe. There is also this vocal movement against outsourcing there (in the U.S.) because they say we are stealing their jobs," said Marian Hanganu, marketing manager for TotalSoft, a software company in Bucharest.

As U.S. politicians in state and federal legislatures attempt to deal with the issue by proposing laws that would restrict offshoring, most businesses reject this legislative approach.

Among efforts in Congress to curb offshore outsourcing is an amendment to the appropriations bill for independent agencies and the departments of transportation and treasury. The proposal would prohibit the offshoring of some private contracts with those agencies. The amendment, sponsored by Republican Senators Craig Thomas of Wyoming and George Voinovich of Ohio, could become law when Congress returns from its holiday break, and it's similar to legislation introduced or debated this year in several states, including New Jersey, Maryland, North Carolina, Indiana and Michigan.

"The bills as they're currently written are unworkable," said Rolf Lundberg, senior vice president of congressional affairs for the U.S. Chamber of Commerce, a business alliance. "They place undue restrictions on trade."

For IT vendors, offshoring is an opportunity to cut costs and maintain business agility, bringing development teams closer to various markets around the world, and to engage in 24-hour-per-day development and maintenance.

"We look to use selective outsourcing to help build a more variable cost structure. It has allowed us to maintain services levels and capabilities to make sure internal users can focus on strategic things rather than other internal functions," said Drew Prarie a spokesman for financially ailing Advanced Micro Devices Inc. (AMD) .

The big question is, if legislation is not the answer to increased competition from abroad, what is?

Congress should work on cutting the cost of health care in the U.S. and on limiting lawsuits against U.S. companies; those changes would encourage U.S. companies to hire U.S. workers, the Chamber of Commerce's Lundberg said.

U.S. legislators also should focus on improving the country's education system and investing more money in IT research and development, said Doug Comer, director of legal affairs for Intel Corp., during a December forum in Washington, D.C., sponsored by the Center on the Global Information Economy.