Dangerous Consequences of Outsourcing IT Jobs

There are unforeseeable and dangerous consequences as well as the inherent financial risks in outsourcing IT jobs in particular. When American corporations face the dilemma of considering outsourcing an IT project, a business programming task, or a role within the company’s IT organization, they will need to consider the costly disadvantages as well as the presumed cost benefits of that decision. Regardless of the research approach utilized by corporate executives, i.e. accessing Google or other Internet search facilities, an institutional knowledge-base, or industry feasibility studies, they are sure to find conflicting data, conclusions and opinions.  What one organization considers an advantage another may perceive as a significant disadvantage, what one analysts sees as a significant benefit another will label it as a long-term strategic risk.  Analogous to “one man’s junk is another man’s treasure”.

Digging Out
There are very few areas where a majority of the sources agree, such as “real cost savings”, yet even those appear to be surrounded with many caveats, sometimes so many that it becomes difficult to reason how outsourcing American jobs can even be seriously considered. In addition, after lists of pro and cons are created based on the information gathered, corporate executives will review the lists and individually formulate their own point-by-point opinions, frequently causing internal debates. In fact, to further cloud the issues as well as the merits of outsourcing, priorities that are known to change based on any number of factors in business, obvious ‘pros’ become less obvious, and some ‘cons’ suddenly seem less disturbing. That is not at all surprising as advantages and disadvantages of outsourcing are tightly related to situation and the task at hand.  Given all of that being said, why are so many corporations enthusiastically jumping onto the band wagon, knowing that they displacing American jobs and taking money out of the U.S. economy?

I have attended financial services’ debates on the subject of outsourcing at American Banking Association (ABA) conferences (as thrilling as watching paint dry), and even participated in some of those debates. I remain convinced that outsourcing is detrimental to the current economy, and I believe that impending disaster lurks in the shadows for our future economy, threatening our very way of life should this mega-trend persist.  In fact, many industry experts and economists who are opposed to off-shoring work in principle feel that outsourcing Information Technology work in particular is already having personally devastating effects on Americans individually.

Outsourcing Consequences

There are licensing and copyright violation issues. After development, outsourced proprietary source codes could easily be copied and programs reused in the development of projects for different companies within the same industry.  Going even further, entire projects can be resold to competitors, violating every licensing and copyright law on the U.S. books. American companies that outsource IT work have very little control over their proprietary software developed in India.

A great deal of additional management time is expended on outsourced development projects to India as detailed in a previous article.  Any cost reductions must be weighed against the time spent having to manage projects half way across the planet. Getting requirements from internal users and then having to communicate those requirements to the Indian programmers necessitates multiple emails, phone calls and verification. The same communication exchanges are needed for translating system specifications. Picking up the tabs for industry training, airfares, hotel accommodations and visas are also a factor for consideration.

India is not exactly located in a politically stable region, frightfully close to terrorist-friendly countries that are not terribly fond of the U.S., i.e. Iraq, Iran and Afghanistan. The political unrest anywhere within that geographical region can negatively effect work in progress by having businesses shut-down for days.

Outsourcing companies wanting to maximize profits, frequently assign their best programmers to work on multiple projects simultaneously. Quality control is not the highest priority in India, mainly because the skill levels of their programmers vary.  Often these companies hire several high-quality programmers and fill in with junior and less skilled programmers.  Many of India’s best programmers leave their native country for higher-paying jobs elsewhere in the global market.  The absence of more stringent testing and quality control measures, problems not immediately obvious will surface during additional system testing upon delivery by the U.S. corporate client. Unfortunately, many programming bugs are not found before going live.  A senior editor and business journalist at India Today magazine, Shankkar Aiyar, who has written widely on outsourcing was quoted as saying “everybody who sees an opportunity here sets up shop. They want to start fast, they’ve got a contract in hand, and some of them are taking shortcuts.”

The singular most dangerous consequence of outsourcing Information Technology has already devastated millions of Americans, Europeans and Australians by the dramatic increase in identity theft, resulting in billions of dollars in individual losses. Confidential personal information in foreign hands where the laws that protect privacy of personal data are not nearly as strict as here in America, and in India, rarely enforced when those laws are broken. An excerpt from the British Sun Newspaper in June of 2005, wrote that a reporter posing as a businessman purchased the bank account details of 1,000 Britons for about $5.50 each, including customers of some of Britain’s best-known banks.  The worker who allegedly sold the information bragged to the undercover reporter that “he could sell as many as 200,000 account details a month” and declared that “technology is made by man and it can be broken by man,” according to the newspaper. The Sun said the worker received the information from “a web of contacts who work in Indian call centers”.

There are also national security implications when entrusting critical systems like those supporting banking and government entities to foreign countries, especially those countries that are located in unstable and hostile region of the world like the Mid East. Year ago when companies off-shored manufacturing work, there was no security risk involved.  Commercial products could be stolen, damaged or lost, but those were corporate liability issues addressed privately between the domestic manufacturer and foreign contractor.  Outsourcing confidential banking and government information and systems to foreign countries is certainly a national security risk. Just as the mass identity theft that occurred as a result of corrupt Indian workers copying British and American banking data and then selling customer account information on the ‘Black Market’. The stakes would be even higher for sensitive American security data to a country that is surrounded by terrorism and hostile governments.

Another real threat to corporations considering outsourcing as a means of cutting operational costs is the financial stability of the foreign company you choose for outsourcing support.  India’s fourth largest software provider was involved in $1 billion fraud.  Satyam Computer Services’ chairman Ramalinga Raju has resigned after admitting he falsified earnings and assets for the fourth quarter in 2008, prompting a complete stock collapse.  This company of 53,000 employees provides outsourcing services for Citibank, Nissan and Qantas.  All this exposes the corruption of an under developed country motivated by the lucrative opportunities offered through outsourcing jobs.  It also reveals how difficult it is to evaluate a company’s economic viability as well as their ability to provide long-term support by merely reviewing a balance sheet.   Access the underlying link to a Business Day newspaper article of January 7th, 2009.

business.theage.com.au/business/world-business/indian-software-giant-admits-scam-20090107-7bx4.html

Unfortunately, wherever there is an opportunity for monetary gain, corruption is a willing participant. This especially applies where previously little opportunity for making money existed.  The idealism of excellence has been lost in pursuit of making the most amount of money for the least amount of effort. The IT industry is taking lessons from global financiers, hedge funds and merchant bankers on how to make profit destructively.

 

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