New Economy: Offshore Jobs in Technology: Opportunity or a Threat?:
"The United States economy is finally getting stronger, but there seems to be one unsettling weakness: the apparent wholesale flight of technology jobs like computer programming and technical support to lower-cost nations, led by India.

The trend is typically described in ungainly terms - as 'offshore outsourcing' or 'offshoring.' But that rhetorical hurdle has done nothing to lessen the recent public debate and expressions of angst over this kind of job migration. There are some early signs of political reaction. Last month, for example, the State of Indiana pulled out of a $15 million contract with an Indian company to provide technology services. And a proposed bill in New Jersey would restrict the use of offshore workers by companies doing work for the state."

Forrester Research, a technology consulting firm, published a report this month pointing out that the movement abroad is only gradual. The firm bemoaned "the rising tide of offshore hype." Yet Forrester itself played a significant role in framing the debate on offshore outsourcing, as well as stirring fears, with a report last year. That report, published in November 2002, predicted that 3.3 million services jobs in America would move offshore by 2015, and added that the information technology industry will "lead the initial overseas exodus."

So what is really happening? Is the offshore outsourcing of technology jobs a cataclysmic jolt or a natural evolution of the economy?

The short answer is that the trend is real, irreversible and another step in the globalization of the American economy. It does present a challenge to industry, government and individual workers. But the shifting of some technology jobs abroad fits into a well-worn historical pattern of economic change and adjustment in the United States.

"To be competitive and to maintain and improve American living standards, we have to move up the technology food chain," said Craig R. Barrett, the chief executive of Intel.

That may seem like easy advice from someone perched at the top of the food chain, but Intel represents a good example of a company that successfully navigated an earlier round of threats from international competition, from Japan in the 1980's.

In the early 1980's, Japanese chip makers appeared to be taking the semiconductor industry by storm, supported by their banks and their government. The Japanese were focused on the market for memory chips, which store data. At the time, Intel was getting battered and still received much of its revenues from memory chips. It made a bet-the-company decision, abandoned the memory-chip business and focused on microprocessors, the bit-processing engines in personal computers.

The bet, of course, paid off as the personal computer business blossomed. In retrospect, Intel's triumph might seem to be a foregone conclusion. But it did not necessarily look that way back then. Remember, those were the days when the term Japan Inc. struck fear in corporate boardrooms across America, and there was a resonant ring to the bleak prognosis of the nation's economic future by the former vice president, Walter F. Mondale: "What are our kids supposed to do? Sweep up around Japanese computers and sell McDonald's hamburgers the rest of their lives?"

It did not quite work out that way, did it? Today, the overseas challenge in technology services comes from linking nations with strong education systems like China, India and Russia with the global economy. The Internet is a big part of the phenomenon. The spread of high-speed Internet connections in the last few years has meant that Indian programmers are a mouse-click away from American corporations that are eager to cut their software development costs.

The salary comparisons are striking. A programmer in the United States would earn about $80,000 a year on average, compared with $20,000 or less in India. But analysts say the actual cost savings on a development project are not proportionate. Whole stages of a project - analysis, design and deployment - typically require face-to-face meetings. Communications and cultural differences add to costs and sometimes reduce effectiveness.

On a typical corporate software project, employing 40 programmers for a year, the savings from offshore outsourcing in India would be more in the range of 20 to 40 percent less than employing higher priced labor in the United States, estimates Joseph Feiman, an analyst at Gartner Inc., a research firm. Sometimes, American services firms with special expertise are the preferred choice, despite higher labor costs.

"The math of looking only at salaries is just wrong," Mr. Feiman said. "And it is a prevalent misconception."

http://www.nytimes.com/2003/12/22/technology/22neco.html?pagewanted=all&position=