Outsourcing & Insourcing: Current Trends for the Software Market

Enhancement on the agreements on international trade, the incorporation of new countries to global economic cycles, the increase in air traffic, the exponential increase in the quality and bandwidth of telecommunications, the disclosure of internet culture around the globe are all factors that are dramatically changing markets in all countries. Increased competition has led more companies to seek the expertise of all its processes. Focusing on core business and move to a third party support functions result in a high impact on costs and quality of services. This is the way that outsourcing promises.

Out-Sourcing Trends 

Enhancement on the agreements on international trade, the incorporation of new countries to global economic cycles, the increase in air traffic, the exponential increase in the quality and bandwidth of telecommunications, the disclosure of internet culture around the globe are all factors that are dramatically changing markets in all countries. Increased competition has led more companies to seek the expertise of all its processes. Focusing on core business and move to a third party support functions result in a high impact on costs and quality of services. This is the way that outsourcing promises.

This service is an analogy of industrial production processes, can reduce risks in the construction and maintenance of software projects, provides direct benefits on the reliability and satisfaction of the delivered products, providing a clearer budget and timetable more limited projects.

This concept of service allows for the optimization of resources, technological potential and the advantages gained through economies of scale and improved cost-benefit ratio. It can be applied to the full development of new projects or some modules, as well as for the maintenance of production systems. There are three working schemas that could be applied under this model: Complete Project Development, Functional cases (parts or modules of a project) and Resource / Day-Hour (specific functions).

Clients who outsource software to outside providers are expecting nothing less than great quality, as the IT development outsourcing scene matures. After about a decade of growth, it is time for superior customer service, reliable organization, modern management and, most important of all, top-notch solutions. Knowing that they can turn to hundreds of other outsourcing firms competing for their budgets, clients are likely to reward not just affordable prices, but sustainable high quality (ClearCode, 2011).

New concepts are also emerging within the software outsource business, and along with these new concepts new forms of business appear. That is the case of nearshoring, farmshoring and cloudshoring. Each of these terms means outsourcing to a nearby country, to a rural area or moving operation to an IT cloud (For computing power, storage, bandwidth, processing, etc) respectively. According to the forecasting made by Clear Code in it article “Software Outsourcing Trends for 2011”, in 2011, these ideas will make it possible to cut costs further, as well as improve management and control over third-party contract execution.

Cloud sourcing which has often been predicted as the death of outsourcing, will soon merge with the existing outsourcing market and provide better opportunities for the entire industry. Infrastructures supported by cloud resources and based on SOA principles will encourage smaller outsourcing providers, which will in turn energize the outsourcing market by heightening competition and lowering prices (OutSource2India, 2011).

International outsourcing of services has increased in the United States but still remains low, based on our economy-wide measure using International Monetary Fund trade data. Imports of computer software and information plus other business services as a share of GDP were only 0.4 percent in 2003. This share has roughly doubled in each decade; from 0.1 percent in 1983 to 0.2 percent in 1993 and to 0.4 percent in 2003. The United Kingdom has a higher outsourcing ratio than the United States at 0.9 percent in 1983, 0.7 percent in 1993, and 1.2 percent in 2003 (Amiti, 2004).

Finally Industry experts predict the emergence of a Latin America outsourcing boom especially in Brazil, Mexico, Chile, Colombia, Costa Rica and Peru. Service providers will also continue to shift their delivery centers to markets such as China, Philippines and Egypt, since these countries represent big markets with big demand for transformational and discretionary spend activity (OutSource2India, 2011).

In-Sourcing Trends 

The opposite of outsourcing can be defined as insourcing. When an organization delegates its work to another entity, which is internal yet not a part of the organization, it is termed as insourcing. The internal entity will usually have a specialized team who will be proficient in the providing the required services. Organizations sometimes opt for insourcing because it enables them to maintain a better control of what they outsource.

Organizations involved in production usually opt for insourcing in order to cut down the cost of labor and taxes amongst others. The trend towards insourcing has increased since the year 2006. Organizations who have been dissatisfied with outsourcing have moved towards insourcing. Some organizations feel that they can have better customer support and better control over the work outsourced by insourcing their work rather than outsourcing it. According to recent studies, there is more work insourced than outsourced in the U.S and U.K. These countries are currently the largest outsourcers in the world. The U.S and U.K outsource and insource work equally (OutSource2India, 2011 ).

Professor Matthew Slaughter from Dartmouth College, presented a study about the Insourcing Market in the USA. His findings remarked the following trends:

• Insourcing companies employed over 5.4 million U.S. workers. This was nearly 5 percent of the private-sector total employment up from just 3 percent in 1987.
• The share of U.S. private-sector capital investment accounted for by insourcing companies rose from over 8 percent in 1992 to over 10 percent—$111.9 billion.
• For many years insourcing companies have accounted for around 20 percent of U.S. exports of goods—now $137 billion.
• Insourcing companies paid their American workers over $307 billion in compensation. This was more than 6 percent of all U.S. private-sector labor compensation.

Pros and Cons

This form of contracting has its promoters and defenders, but also its detractors. Among the arguments against the sub-contracting, opponents mentioned:

1. Professional employees or sub-contractors may not have a sense of loyalty to the company contracting the service because; in fact these senses belong to the contractor.
2. That working conditions in which these workers are not usually play best as, for example, are hired on a temporary basis but the workflow is continuous. Critics of sub-contracting system argue that this figure is a contractual covert abuse labor rights.
3. That the system of outsourcing often eliminates jobs in the local labor market.

On the positive side, outsourcing is claimed to:

1. Allow to obtain products and services of better quality elsewhere if they are not found in the local market.
2. Reduce production costs.
3. Reduce the number of routine tasks in the contracting company and allows employees to focus on more creative and productive aspects of the task.

On regards to CMM and outsourcing, the market has a sense of pressure that if the outsource providers are not CMM certified, the customers will doubt when giving out their projects. However, according to Mark Hillary and his article “CMM might be mature, but is it adapted”, the CMM models do not yield to a better quality, mostly because most of the smaller companies are not even equipped to provide their offshore suppliers with the required inputs in terms of specifications, validation, etc. This consultant also reported that the relationship he is setting with his customers does not touch on CMM (although they have the accreditation), but rather revolves about the frequency of communication, the quality of deliverables, mixed teams with people on both sides of the ocean, etc.

Immigration policies for foreign IT graduates 

According to a news release from the US Immigration and Customs Enforcement, ICE announced an expanded list of science, technology, engineering, and math degree programs that qualifies eligible graduates to extend their post-graduate training.

The current administration of Presidents Obama had reiterated their decision and strong support, as a part of comprehensive reform, for new policies that embrace talented students from other countries, who enrich the nation by working in science and technology jobs in the United States.

This reform includes the expansion of the degrees and fields that are considered important for the US economy. The list includes a comprehensive relation of career related to mathematics, high tech and computer science. According to the US Labor Office, these areas are suffering from a shortage of skilled workers. Again, the Obama administration is helping to address shortages in certain high tech sectors of talented scientists and technology experts-permitting highly skilled foreign graduates who wish to work in their field of study upon graduation and extend their post-graduate training in the United States.

Under the Optional Practical Training (OPT) program, foreign students who graduate from U.S. colleges and universities are able to remain in the U.S. and receive training through work experience for up to 12 months. Students who graduate with one of the newly-expanded STEM degrees can remain for an additional 17 months on an OPT STEM extension (US Immigration Office, 2011).

References

Amiti, .M. (2004). “Fear of Service Outsourcing: Is It Justified?”. Working Paper. International Monetary Fund.

Clear Code. (2011). “Software Outsourcing Trends in 2011”. Visited on May 17, 2011. Online  at: http://clearcode.cc/2011/01/17/software-development-outsourcing-trends-2011/

Hillary, .M. (2007). “CMM might be mature, but is it adapted?”. Visited on May 16, 2011. Online at: http://www.it-outsourcing-china.hyveup.tv/2007/05/cmm-might-be-mature-but-is-it-adapted/

Kirkegaard, F.( 2004). “Outsourcing-Stains on the White Collar?”. Institute for International Economics.

OutSource2India, (2011). “The Future of OutSourcing”. Visited on May 12, 2011. Online at: http://www.outsource2india.com/trends/future_outsourcing.asp

Slaugther, .M. (2006). “Insourcing Jobs: Making the Global Economy Work of America”. Tuck School of Business at Dartmouth. 

US Immigration Office (2011). News Release. “ICE announces expanded list of  science, technology, engineering, and math degree programs Qualifies eligible graduates to extend their post-graduate training”. Visited on May 12, 2011. Online at: http://www.ice.gov/news/releases/1105/110512washingtondc2.htm