Media Truth

Slowdown sending tech jobs overseas

By Jennifer Bjorhus

Mercury News, Oct. 21, 2002

The U.S. economy might be stalling, but at least one niche is hot: shipping technology jobs offshore. The economic slowdown is speeding up the export of jobs, experts say. As executives face smaller budgets and more pressure for profits, they find it much cheaper to send work to contractors overseas.

More U.S. companies are following Silicon Valley's lead by shifting engineering and other technology-related jobs to places such as China, Ireland, India and the Philippines to cut costs. The drift of jobs is worrying engineering groups, renewing fears that white-collar tech jobs in the United States are going the way of blue-collar manufacturing jobs: over the border and across the seas.

A major engineering group has asked Congress to investigate whether the offshore trend, combined with U.S. companies importing foreign engineers on H-1B visas, is partly to blame for high unemployment among U.S. engineers.

About 200 of the Fortune 500 companies now ship software work overseas, according to Stephanie Moore, an outsourcing expert at Giga Information Group in Cambridge, Mass. Fortune 1000 companies are quickly following.

Moore estimates that global revenue from offshore software work will hit $7.68 billion this year, up 20 percent from 2001. Forrester Research estimates that corporate budgets for offshore software outsourcing will probably more than double by 2004.

Valley technology companies pioneered the concept of going offshore for tech talent more than a decade ago, along with General Electric and Microsoft. But now the practice is becoming common outside the technology industry.

The list of companies contracting for offshore tech services reads like a corporate ``Who's Who'' list: Target, Visa International, Gap, Boeing, Citigroup, Nordstrom, Bank of America and, of course, Oracle, Cisco Systems, Hewlett-Packard and Microsoft.

San Francisco brokerage Charles Schwab last year moved part of its information technology division to a contractor in Bangalore, India, where about 150 people do programming for Schwab's internal computer networks and Web site.

The move followed a 25 percent companywide layoff. Schwab spokesman Greg Gable said the layoffs included an unspecified number of contract engineers in its tech division. Franklin Templeton Investments in San Mateo, too, has shifted about 20 percent of its tech work to service providers in India and elsewhere.

Even the state of California has contracts worth $76.6 million with five tech services firms that outsource some tech work overseas, according to records maintained by the state's Department of General Services. A department spokesman said he didn't know whether the work on those contracts was being done overseas. The state has no rules about it, he said.

Some experts say the growth in offshore tech services is less about increased U.S. demand than about aggressive marketing by Indian firms. Some of the biggest are Infosys, Wipro Technologies and Tata Consultancy Services, all based in India.

U.S. tech services companies are also in on the game. Tech consultants such as IBM Global Services; Accenture, a Bermuda-based Arthur Andersen spinoff; Electronic Data Systems; Computer Sciences; and PricewaterhouseCoopers are all racing to set up overseas operations. Many go to India. Other hot spots include Ireland, the Philippines, Eastern Europe and China.

Although most of the overseas software work remains basic maintenance and applications development, vendors are moving up the value chain to software architecture, strategy and systems design.

The Philadelphia Stock Exchange recently hired Cognizant Technology Solutions, which has a New Jersey headquarters and 10 development centers in India, to build new software architecture for its computer networks to run the exchange in real time.

Back-office work is moving overseas even faster, experts say. India's leading software association expects the country's sizable share of back-office work, such as handling customer service e-mails and payroll processing, to surge more than 60 percent this year.

Shifting work to low-cost areas is a way to rein in costs in a tough market, executives say. Tech executives surveyed last fall by Forrester reported saving 25 percent on projects by going overseas.

A software engineer fresh from college in India might earn $5,000 a year, compared to about $50,000 in the United States. Not everyone agrees on how big a threat the drift poses to U.S. engineers.

Norman Matloff, a professor of computer science at the University of California-Davis, argues that the actual number of software jobs being shipped overseas is a fraction of the country's total. And it will remain small, he argues, because nothing beats face time at the soda machine for finishing engineering jobs right. Still, the increase in overseas outsourcing is making hard-hit tech workers anxious.

The jobless rate for all engineering doubled in the second quarter of this year, from 2 percent to 4 percent, and increased even more for computer scientists and electronics engineers, according to the IEEE-USA, the U.S. arm of the Institute of Electrical and Electronics Engineers.

Some unemployed engineers express a deep sense of outrage and betrayal. Echoing critics of globalization, they argue that companies are selling out technology jobs that were supposed to be the future of the U.S. workforce.

Labor experts say no one knows how many engineering jobs the United States has lost because of the recent uptick in offshore outsourcing. The bigger issue, some say, is the U.S. tech jobs that fail to materialize because of the overseas hiring.

"It's worrisome," said Terry Oldberg, a Los Altos Hills engineer and organizer for the Programmers Guild. "We're not organized to fight it."