Software Swims Offshore

When it comes to offshore outsourcing, there's a language barrier--and then there's the computer-language barrier. While most of the early focus of offshoring has been with call centers, software development and services are becoming a big area for offshoring, especially in India.

In fact, three different tech companies recently bought software-focused outsourcing companies based in India. Why outsource when you can just buy up the whole thing? IBM recently bought India's third-largest outsourcing company, Daksh eServices, which provides payroll-accounting functions and customer calls. Daksh is one of many firms that do "business-process outsourcing," which Gartner estimates will be a $24 billion business by 2007. Oracle is also in early discussions with some Indian firms about working more closely together. Plus, Singapore-based hardware company Flextronics bought out Hughes Software Systems of India, and Dallas-based Adea Solutions bought up India-based Netkraft to expand its presence on the subcontinent.

The buyout option is a way for companies to quickly expand their presence in India, and take control of the outsourcing company"perhaps with better oversight and security. While the language barrier has kept a lot of work in India so far, Keane's Laurence Shaw told TechWeb's Outsourcing Pipeline that China could boom in four or five years if its denizens become more adept in English. As far as software goes, Shaw said the Chinese can help most on standard tool sets, such as Java, and not as much on large packaged software, such as SAP.

So does this trend mean there will be less software-development jobs in the U.S.? A pair of surveys tried to dampen job concerns. Meta Group found that only 20 percent of IT shops were sending work overseas, and they are still interested in hiring domestically for skilled IT jobs, such as database management, Web infrastructure, and enterprise-resource planning. Plus, the U.S. Labor Department found that only 4,633 jobs were sent overseas in the first quarter of 2004.

Still, that survey counted only positions eliminated in the U.S. and filled abroad. The recent trend of buying out software firms overseas could mean that the companies are not planning to hire as many people domestically. And other surveys show that outsourcing will only continue to grow in the future. Forrester upped its estimate of offshore jobs to 3.4 million by 2015, though the cost for outsourcing work to India is expected to rise 15 percent per year, according to Hewitt Associates.While it's difficult to gauge just what effect outsourcing will have on the U.S. economy and jobs, the one certainty is that many software operations will be developing apps and services globally--and language barriers are sure to drop.