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Outsourcing:

Trends in Information Systems

Mike Ng

State University of Albany

Outsourcing:

Trends in Information Systems

ABSTRACT

This paper analyzes current trends within the world pertaining to outsourcing of information systems. Currently, India is the key leader amongst outsourcers, but in concern is how all the other countries coexist in the current and future makeup of outsourcing trends. Outsourcing is nothing new and will continue to be an impact on the world and global job markets. This paper presents, to future IT professionals and those currently engrossed in the field, what the status of affairs on global outsourcing is at this time and to what extent outsourcing will develop as we progress, along with inherent legal issues varying from country to county.

INTRODUCTION

"More than 50% of firms are expected to use IT outsourcing in 2006" (William R. King. 2004, pg. 83), chances are you're a part of the IT world and fear for your own job security or have already been phased out in order to "cut costs". Maybe outsourcing has not become an issue for you yet, but based from the data polled by Cornell University 400,000 jobs were lost to Mexico, China, India, and other Asian nations alone in 2004, with expectations to rise as high as 3.3million by 2015, which for mathematicians is 8.25 times more (Sen, 2005). Growth rate on offshore projects is estimated to rise by 30-40 percent over the next 5 years (from the current 2005), not accounting for the 70 percent of the top 1000 largest companies as researched by McKinsey Global Institute (Sen, 2005). Along with the current trends and expectations, there is minimal postulated on the impact of the developing Asian countries, but once they are capable of being outsourced too, another spike will occur (Sen, 2005).

The scope of outsourcing is limitless, just in the IT world alone thousands realize foresee their own jobs being surrendered to a foreign nation in the name of "cost savings", it is important for developers to understand how to combat outsourcing to maintain their job status. There are many aspects taken into consideration when selecting the particular outsourcing venture (legalities, language, costs, quality, speed, etc), with all the points looked into the firm can determine where and what to outsource , if needed (Palvia, Figure 2, 2004). In retrospect, this document also informs upper level management of global trends and legal ramifications to look for in foreign countries, what countries offer salary/service-wise, and design method differences. This information is situated for a company about to or just starting to outsource, by laying out a path of possible outsource countries and guidelines in selecting the best locale. Typically, this information is geared more towards an information system field, but since many of the guidelines are general, they can be applied to other industries (financial, software, HR, etc).

This paper, in all essence, depicts the pros and cons to outsourcing for business and employees, with alternatives for both parties. The following parts of the paper will delve into aspects of current outsourcing trends (historical included), allowing a picture of where the world is currently at. The next section examines the future of outsourcing, with an investigation of the impact or effect on the global system. Lastly, a crucial topic of legal issues in outsourcing to foreign countries, including political and privacy concerns (what is private here might not be so private over there).

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Insert Figures 2

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Figure 2 illustrates the decision-making process and considerations of what a company projects to be the main focal points for determining an outsourcing country

Outsourcing Trends

History of Outsourcing - The history of outsourcing dates back to the making of America's covered wagon covers, more than two hundred years back. Today outsourcing has become much more prevalent because of increased technological demands. In the 1970's, it was very common for payroll to be outsourced to outside providers for processing. In the 1980's, and into the future, the demand for outsourcing in the technological field has increase exponentially. Business needs have transformed, beginning in the late 1980's, into a need for immediate responsiveness, instant access to necessary databases from anywhere in the world and constant accessible updateability. Technology is changing as fast as we are figuring out how and where the cheapest method and place to outsource is.

The outsourcing of Information Technologies is the core component of businesses outsourcing today. The outsourcing of IT services is taking into consideration and analyzing the hardware, software, data, people, networks and procedures to make a company specific application (most commonly software applications). Most software development outsourced to India is because of their reputation in the application development field. The U.S. based companies want to take advantage of the high quality application development that they normally cant get in the U.S. and the incredible cost savings

Outsourcing used to be scarce because people used to have absolute American pride, meaning they only brought products produced and/or manufactured in the U.S. Now-a-days cost savings to a business is a major factor. Outsourcing is a big business, generating global revenues of $298.5 billion in 2003 (2005 Gartner). These companies want the cheapest, fastest way to get a product out onto the market, to obtain the highest profit margin possible.

Current Outsourcing Trends - Outsourcing is very attractive to many companies because the wage rate differential is quite appealing to the financial statements. If a company has the chance to outsource a particular service or process that will end up saving the company money, it seems irrational to keep the company from doing such. The economic trends of outsourcing focus on cost savings because other