Study: Software makers head offshore

Lured by low labor costs, more than eight in 10 software companies are shipping work overseas or plan to in the next year, says a study sponsored by a venture capital group.

Ed Frauenheim Former Staff Writer, News
Ed Frauenheim covers employment trends, specializing in outsourcing, training and pay issues.
Ed Frauenheim
2 min read
Lured by low labor costs, more than eight in 10 software companies are shipping work offshore today or will do so in the next year, according to a study to be released Monday.

The report, written by investment and research firm Sand Hill Group, also found that software company leaders aren't terribly concerned about theft of intellectual property abroad.

Sand Hill Group co-founder Madhavan Rangaswami likened the trend of software companies sending work overseas to the way the Internet took those companies by storm a few years ago. "It's really started to blossom in just the past two years," he said.

Software companies arranging for code to be written overseas or using foreign-based techies to do implementation work is part of a broader push to export information technology and business tasks offshore. Sometimes businesses set up their own facilities overseas, but they also contract with service providers. Under pressure from fast-growing Indian IT services companies, U.S.-based IT giants such as Electronic Data Systems and Hewlett-Packard are expanding their offshore operations.

The trend is controversial, especially in the midst of a still sluggish economy in the United States. The New Jersey Senate has approved a bill to permit only citizens or legal residents of the United States to work on certain state contracts. Another argument against outsourcing abroad is that face-to-face communication is critical to IT projects.

The Sand Hill report, which surveyed executives from 51 software companies, concluded that communication problems were a risk to offshore arrangements. Most respondents said that they would be keeping senior-level technical positions in the U.S. but hiring lower and midlevel workers only overseas.

As evidence that software leaders were not very worried about their intellectual property being swiped abroad, Rangaswami pointed out that nearly half of the companies were shipping out strategic tasks such as core product development work and software implementation support.

The study found that 63 percent of companies are currently involved in offshore initiatives. In addition, 21 percent are in the process of sending work offshore and will have such processes in place within a year.