Count the numbers not the fear

NO issue boils the emotions so quickly in the IT industry as debate on the commercial viability and even the morality of organizations joining the global trend to send software development work offshore, potentially saving money at the expense of local Australian jobs.

A study on the topic for the Australian Information Industry Association (AIIA), released at CeBit last week, illustrates again the importance of understanding the reality rather than embrace the hype and fear of the debate.

The survey of 100 CIOs and IT managers of medium and large companies in Australia revealed early adopters of offshore outsourcing are in a small minority while many others prefer to buy locally.

The AIIA commissioned the indicative study from research company, ITR, as the first of a two-part program of quantitative and qualitative research on company and government agency attitudes towards offshoring in an effort to enhance discussion and policy debate.

In the ensuing media melee, the AIIA took some criticism about its emphasis from the Opposition’s IT spokeswoman, Kate Lundy, who alleged the association favoured sending IT services work overseas.

The AIIA can and does speak for itself, but Senator Lundy’s assertion was not my experience when running this survey.

Early in the research project, it became clear few Australian companies had bitten on the offshoring bullet, and many had an entrenched desire to support the local industry. This was flagged during a regular project update, and the AIIA response was simply: “Fine. So long as it is a true reflection of the views of 100 buyers of technology, then we’re comfortable. It is what it is. That’s the whole of point of doing the research, right?”

Right. And what it is, is that 12 out of the 100 organisations surveyed had outsourced work, and another five were actively considering whether to try their luck later this year. Of these, five had more than $1 million to spend offshore and two had between $500,000 and $1 million.

However, 83 percent perceived barriers to going offshore and had no intention of taking that path in the next 12 months. Some 34 percent of these respondents said it was not even on their radar. More than half of them agreed their work would stay at home because they “prefer a local provider” (66 percent), and/or they have “ security and privacy” concerns (52 percent).

So, which of all these metrics paint the most vivid picture of the status of offshore outsourcing in Australia? As the chief executive of the AIIA, Rob Durie, explained at CeBit, it is impossible to make that judgment based on the quantitative data.

There is a global trend towards offshoring and the critical question is whether, or how long it will take, for Australian organizations to start looking to countries such as India, China or The Philippines, for their software development and testing needs.

Not every project is worth millions of dollars. In preparing the AIIA study, I asked a CTO of a major consulting firm his view of India and the outsourcing market. “I don’t use India,” he replied. “I send work to Argentina. They’re great and only charge $10 an hour. I found them on the Internet, but I only use them for small projects.”

Anecdotally, such edge-of-the-enterprise projects are not unusual.

The drift offshore is most marked in America and, to lesser extent, Western Europe. Dutch oil company Shell late last week joined the ranks of Citibank and American Express, ANZ Bank and many others, revealing its own multi-million-dollar, multi-year deal to move its IT services to IBM and Wipro Technologies in India.

Such speed of growth clearly indicates attitudes that are entrenched today may evaporate tomorrow. In that light, the AIIA study should be seen as an indicator of the attitudes in Australia today.

AIIA’s Rob Durie made an important observation about data that shows not every respondent gives their work to India.

It does indicate, however, that Australia has the opportunity to continue to forge its own destiny in the offshore outsourcing segment while maintaining a strong local client base. How best these outcomes are achieved will be the result of industry and government working together to ensure Australia remains a world-class, competitive destination for IT services. There is no suggestion we should wave the white flag.

Mark Hollands is principal of ITR

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