Global trends
Software outsourcing began as a pure labor cost reduction strategy. Companies hired people oversea to produce software at a lower cost resulting in a financial advantage which give companies competitive advantages in a global market. The outsourcing market was accelerated in the past ten years due to the critical shortage of software people in most developed countries and gave significant economic boost to countries like India, China, and the Philippines etc.
With outsourcing, financial managers are very happy because the cost of an engineer in a developing economy is about a quarter to half the cost of an engineer in the U.S. or Europe. The cost gap between the developed world and developing countries is significant. As the salaries in India, China are rising fast there are other countries would quickly fill in the positions with their labor costs are much lower than India and China. In 2000, there were about 20 countries that focused on software outsourcing but in 2010, the list increases to 125 countries and most have several incentives for foreign investments with well developed software and technology parks. Of course, every government would look at the 100 billion dollars export a year from India software industry and have plans to do something similar. The Indian outsourcing model is probably the most “popular model” in the developing countries today. You can travel from Asia to Africa, from Eastern Europe to South America and found similar plans for technology parks with software outsourcing incentives.
However, the global market has changed. Rather than focusing exclusively on cost, many companies in developed countries are looking at the “Effectiveness factor” as a measure of success. Effectiveness incorporates the elements of timeliness, cost, productivity and efficiency. Basically it is about knowledge and skills. More and more companies are changing their strategies to incorporate effectiveness so it is NOT about what country has the lowest cost but getting access to the expertise that they need to take their company forward to achieve global dominance. This change will has significant impact to many developing countries because in next few years, no one will be using the term “outsourcing” or “offshore” anymore but people will talk about their globalization strategies with distributed software delivery centers.
With globalization, many companies will undergoes a “Decentralization process” by moving their works toward the consumer markets. Instead of building things in one place and sell them internationally, the trends is to develop and build whatever the market wants to buy and stay close to the local consumers. Instead of outsource works to a country and bring them back, integrate them into products then sell them to consumers whoever they are. The new trend is to open facilities all over the world and build products where there are local consumers. Within this “Effectiveness” trend, knowledge and skills are the key factors to determine success. To do that, many software companies will NO LONGER consider programming or testing as the main works to be outsourced but the entire software development process as they build software delivery centers in local countries to create specific products and services to the local market.
The drive towards globalization is primarily about getting access to the talent the company needs to support their product and business strategies. For the first time, more than half the world’s GDP comes from developing countries and that is where consumers are. If you look at the top 10 cities in the world based on population, NONE are in the developed world. Today India, China, Brazil and Russia are the destinations. These are facts that most global companies are paying serious attention and quickly update their strategies to accommodate the market changes. Almost all global companies have plans to invest and open facilities in these countries because they are their future business.
As these developing economies continue to grow, their ability to educate will continue to increase producing more highly qualified software engineers. Every company will need the competitive capability to tap into the best and brightest talent to boost global product engineering efforts and ensure local market preferences are incorporated into their products and services. Learning to harness the global talent market will give companies a head start in capturing rich sources of new revenue from the largest developing markets in the world. The better they can meet the needs of these rapidly growing new markets and the businesses and middle classes they are generating, the more new customers they can create.
To take advantage in this new “Effectiveness” trend, every developing countries must focus on improve their education systems. It is no longer just quickly produce programmer or testers via vocational skill training but invest in high quality and advanced college education to develop highly skilled and talented Computer scientist, Software engineers and Information System Managers.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
