Workforce Globalization
in the
U.S. IT Services & Software Sector
John F. Sargent
Carol Ann Meares
Office of Technology Policy
U.S. Department of Commerce
Study Limitations
• 6 month time-frame
• Data limitations
• Specific Industry Focus
• Sources:
– Some data analyses
– Extensive literature review
– Interviews
IT Services and Software-related
Industries Examined
• Software publishers
• Computer systems design and related
services
• Internet service providers and web search
portals
• Data processing, hosting, and related
services
Macro Trends Facilitating IT
Workforce Globalization
• Integration of national economies
accelerating/expanding competitive arena
– 1948 GATT: 23 countries
– 2004 WTO: 147 countries
• Economic reforms and business infrastructure
development in growing number of countries
• Rapid development and widespread deployment
of high speed communications
Macro Trends Facilitating IT
Workforce Globalization
• China, India, Russia, Eastern Europe
joining free market system
– 3 billion people; half the world’s labor market
– Large/growing pool of skilled/education
workers
– Work for wages far below workers in U.S.
– Unprecedented addition of productive labor
capacity in the global free market economy
Macro Trends Facilitating IT
Workforce Globalization
• Digitization of knowledge work and business
processes
• Rapid codification of some knowledge work into
rule-based procedures
• Skills training rapidly developed/made widely
accessible
• Allows emerging and LDCs to truncate
traditional economic development continuum
Macro Trends Facilitating IT
Workforce Globalization
• Knowledge work can move offshore more
quickly and cheaply than manufacturing
• Companies moving up the off-shoring
learning curve
Trends Driving Globalization Specifically in
IT Services and Software
• Surplus of low-cost, technically-skilled
labor in other countries
(e.g. India, Ireland, Russia, some Eastern European)
• Digitization of Work
– Business process reengineering
– Documented/digitized work processes
– Value chain of separable activities allows for
appropriate, cost-effective sourcing of working
Trends Driving Globalization
Specifically in IT Services and Software
• Standardization of Software Platforms
(Oracle, PeopleSoft, SAP, etc.)
– Domestic and foreign workers acquire
standard and portable skills useful to many
employers
– Development and adoption of standard IT
training programs and skill certification
Other Factors
• Increases in H-1Bs
– Valuable knowledge/contacts gained
• Large Indian-American IT business community
– Tapping low-wage Indian workforce
• Moving-up off-shoring learning curve
• Emergence of off-shoring broker/ consulting
firms
– Opens off-shoring to broader range of companies
– Aggressively promoting off-shoring
Other Factors
• Off-shoring destination nations expanding
technical workforce pipeline/skills training
• Some expanding efforts to build language
skills/reduce cultural barriers
• Some nations focusing on improving
productivity, quality, business skills, and
higher value work
• Business adoption of global sour
Complex International Landscape
• Different countries offer different skill
sets/capabilities
• Varying wage rates relative to U.S.
• Different levels of cultural compatibility
• Different industry structures
• Different levels of business and project
management sophistication
India
• Rapidly growing presence of software/IT
services/consulting multinationals
• Indigenous IT services industry dominated by handful of
large companies
• Applications development and maintenance
• Growing business skills
• Seeking to move to higher-value added work
• Indigenous firms not a player in software products or
research
• Attempting to address the cross-cultural issues
Ireland
• Presence of software/IT services/consulting
multinationals
• Small Irish-owned companies focused on niche
software products
• High quality, English speaking workforce;
cultural compatibility with U.S.; higher wages
than in India
• Some leading-edge IT R&D in Irish academic
institutions
Russia
•
•
•
•
•
•
Good information hard to come by
World-class IT skill base
Very high-skills, can work on most complex projects
Comparable to U.S. skill levels
Poor English language capability
Russian IT industry:
– small and medium domestic companies;
– small entrepreneurial groups getting work from x-pats, friends,
acquaintances;
– revenues small but growing ($500m)
• Some presence of IT multinationals
• Poor business environment/capability
Russia
Broad Range of Capabilities
• Applications develop.
and maintenance
• Electronic
marketplace
• Middleware
• Knowledge mgt./data
mining
• Home education/
entertainment
software
• Speech/natural
language applications
• Data analysis tools
• Cryptography
• GIS
• More
Rapidly Changing Landscape
• Indigenous Indian firms growing
rapidly/expanding staff by the 1,000s
– FY04, Infosys up 9,800 (most IT)
– FY04, Wipro up 5,728
– FY03, Satyam up 4,273 (most IT)
• Indigenous Indian firms attempting to move up
the food chain
– Exerting greater management control
– Entering consulting
Rapidly Changing Landscape
(in millions of nominal U.S. dollars)
IT Services and Softw are Revenues of Major Indian Com panies
$1,400
Tata 31% CAGR
Tata
Wipro
Infosys
Satyam
$1,200
$1,000
$800
Wipro 23% CAGR
Infosys 54% CAGR
$600
$400
Satyam 40% CAGR
$200
$1997
1998
1999
SOURCE: Company annual f ilings, SEC f ilings
2000
2001
2002
2003
2004
Rapidly Changing Landscape
100%
Onshore
Offshore
80%
60%
40%
20%
0%
Late 1990s
2000-2001
2002-2003
2003-2004
Time Frame
Onshore
Offshore
Late-1990s
80%
20%
2000-2001
56%
44%
2002-2003
43%
57%
2003-2004
38%
62%
Rapidly Changing Landscape
• VCs encouraging IT start-ups to use lower
cost off-shore software development to
reduce cash-burn rate
• Growing pressure in corporate America to
offshore IT work
• Political pressure to stem the flow of jobs
Underlying Advantages for
U.S. IT Workforce
•
•
•
•
•
•
•
•
•
Stable nation/economy
No cultural issues with U.S. work
Strong data security/privacy protection
Knowledge transfers overseas difficult
In the time zone
Good/reliable telecom infrastructure
Strong intellectual property protection
Strong skill base
Software development benefits from market proximity
IT Research Capabilities Off-shore
• What is research vs. product
development?
• Most multinational IT company overseas
R&D is product development and
localization
– Oracle Chinese R&D centers modify database
products for Chinese market
IT Research Capabilities Off-shore
India
• Indigenous Indian companies not R&D players
– Develop/refine software methodologies/tools
– Implementing metrics
– Education and training methodologies
– Monitoring technical trends
– Monitoring business trends
• R&D investments a few million dollars, at most
IT Research Capabilities Off-Shore
India
• Indian industry signaling desire do more.
• Specific product/service-related needs or
experimental development
– Cryptology, digital watermarking, wireless,
systems software, middleware, smart cards,
artificial intelligence, bioinformatics,
embedded software
– Makes sense: next generation e-business and
e-commerce technologies
IT Research Capabilities Off-Shore
Ireland
• Irish government: $191 million in IT research
over 3 years
• Irish industry: $113 million by IT companies
• Recruiting 50 top researchers
• Bio and IT targeted
• Academic research: context aware computing,
grid computing, sentient computing, nano-scale
computing, photonics
IT Research Capabilities Overseas
Multinationals
• Establishing modest “real” R&D presence
• Information hard to come by
Multinationals: IBM
• India
– Bioinformatics, text mining, natural language
processing, grid computing, autonomic computing, life
sciences, pervasive and wireless computing, speech
recognition for Indian languages
• China
– Language processing, speech and handwriting
recognition, pervasive computing, mobile computing,
multi-media, e-business
Multinationals: Microsoft
• China:
– Technologies expected to emerge in 5-10
year time frame
– Next generation user interfaces (interact
based on speech, gestures, expressions);
immersive technologies, pervasive computing
– Expected to expand the facility significantly
Multinationals: HP
• India
– Research on innovations for emerging
economies
– Focus on social, cultural, economic,
technology drivers
– Handwriting and speech-based computer
interfaces, low cost access devices, IT that
can be shared, communications concepts for
small towns/rural areas, etc.
Multinationals: Google and Yahoo
• Recruiting engineers for R&D centers in India:
– Google
• Next generation search engine
• Information retrieval algorithms
• Machine learning
• User interfaces
– Yahoo
• Neural nets, data mining algorithms
• Data warehouse design
Some Implications
• Rapid diffusion, improved education and
training delivery systems, improved
knowledge capture and sharing systems
mean:
– Hot technical skills become a commodity—
and ripe for off-shoring– faster
– Reduction in the number of jobs U.S. can
capture from its technical innovations as they
mature and diffuse
Characteristics of IT Work Favorable for
Performance in the United States
• Work in which there is uncertainty about what the customer wants or
what the specifications should be.
• Projects that require highly iterative development processes.
• Work that crosses many disciplines.
• Work that requires a high degree of personal interaction with endusers/clients.
• Applications with complex procedures, including ones that involve
substantial manual intervention and data fixes.
• Applications that involve a high degree of integration with other
systems developed and maintained on-shore.
• Work involving nuances or deep cultural understanding.
Characteristics of IT Work Favorable for
Performance in the United States
• Work in which much of the knowledge exists only in the minds of the
on-shore IT staff
• Analytical tasks, leading-edge research and non-rule-based
decision-making
• High levels of creativity, innovation, insight, “thinking outside the
box”
• High management requirements
• Process design and business analysis
• Technology and systems integration (applications, hardware and
networks)
• Fusion of industry knowledge, high-level IT skills, and business
process expertise
• Requires U.S. security clearance
Characteristics of Work Favorable to
Performance Offshore
• High wage differential with similar occupation/level in destination
country
• High labor intensity
• Clearly defined requirements, little nuance
• Repetitive tasks
• Rule-based decision-making and problem solving
• Documented or easily transferred content and process knowledge
• Discreet, separable; low degree of interaction across different
services, applications
• Low degree of personal interaction with end-users, clients
• Stable applications with minimum of “firefighting”
Characteristics of Work Favorable to
Performance Offshore
•
•
•
•
•
•
•
•
•
Long projected useful life to amortize offshore set-up costs
Low-to-medium business criticality
Less time-sensitive, longer transition periods
Projects involving simple and standard hardware and software
Digital, Internet-enabled
Low setup barriers
Low-to-medium technical complexity
Not multi-disciplinary
Projects in business areas in which offshoring is a broadly accepted
concept
• Tightly defined work processes
• Stable process
A Difference Mix of Skills
• Project Development
Management and Program
Management (with technology
skills)
• Business Savvy
• Broad Technology Acumen
• Process Design
• Communications, Liaison, and
Relationship-building
• Business Planning and
Management
• Technology and Systems
Integration
• Business Problem Solving
• Technology Management
• Business Analysis
• Contracting
• Business Process Knowledge
• Negotiation
• Domain (industry-specific)
Knowledge
• Compliance Monitoring
A Difference Mix of Skills
• Financial and Accounting
• Supply Management
(such as strategic sourcing and
vendor management)
• Human Capital Management
• Business Development
• Security Analysis
• Service Management
• Data Mining
• Business Intelligence
• Network Engineering and
Architecture
• Internet/Web Architecture
• Middleware
• Open Standards Software
(including legal, intellectual
property, and industry practices in
the open standards arena)
• Business Transformation
• IT Consulting
Return to Growth (Modest)
in Aggregate Professional IT Employment
U.S. Professional IT Workforce
1999-2003
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
1999
2000
2001
2002
May 2003
Nov 2003
Employment Growth/Decline in Professional
IT Occupations in Most Recent Year
U.S. Professional IT Employment
by detailed occupation, 2002 to November 2003
Computer Systems Analysts
4%
Computer Support Specialists
0%
Computer Software Engineers,
Applications
15%
Computer Programmers
-12%
Computer Software Engineers,
Systems Software
15%
Computer and Information Systems
Managers
-3%
Network and Computer Systems
Administrators
5%
Network Systems and Data
Communications Analysts
Nov 2003
Database Administrators
May 2003
Computer Hardware Engineers
17%
-4%
4%
2002
Computer and Information Scientists,
Research
-3%
-
100,000
200,000
300,000
400,000
500,000
600,000
Employment Growth/Decline in
Professional IT Occupations, 1999-2003
U.S. Professional IT Employment
by detailed occupation, 1999 to November 2003
Computer Systems Analysts
13%
Computer Support Specialists
4%
Computer Software Engineers,
Applications
33%
Computer Programmers
-24%
Computer Software Engineers,
Systems Software
40%
Computer and Information
Systems Managers
-8%
Nov 2003
Network and Computer Systems
Administrators
20%
May 2003
Network Systems and Data
Communications Analysts
59%
Database Administrators
-4%
Computer Hardware Engineers
16%
2001
2000
1999
Computer and Information
Scientists, Research
-
2002
-10%
100,000
200,000
300,000
400,000
500,000
600,000
Wages Continue to Rise
Across All Professional IT Occupations
Mean Annual Wages for U.S. Professional IT Occupations
2000 to 2003
CAGR
20002003
All Occupations:
Computer and Information Systems Managers
6.1%
Computer Hardware Engineers
5.4%
Network Systems and Data Communications Analysts
2.4%
3.8%
Network and Computer Systems Administrators
3.6%
Database Administrators
3.1%
Computer Systems Analysts
2.8
%
4.0%
Computer Support Specialists
Computer Software Engineers, Systems Software
2.7%
Computer Software Engineers, Applications
2.2%
Computer Programmers
5.1%
Computer and Information Scientists, Research
$-
$ 10,000
$ 20,000
2000
$ 30,000
2001
$ 40,000
2002
$ 50,000
$ 60,000
$ 70,000
May 2003
$ 80,000
$ 90,000
Nov 2003
$ 100,000
$ 110,000
Aggregate Wages Continue to Rise
Aggregate Wages Earned by U.S. Information Technology Professionals
(Employment multiplied by mean annual wages, summed over all IT occupations)
5.7%
$200,000,000,000
18.7%
0.7%
1.4%
Computer and Information Systems
Managers
0.9%
$180,000,000,000
Computer Hardware Engineers
$160,000,000,000
Network Systems and Data
Communications Analysts
$140,000,000,000
Network and Computer Systems
Administrators
$120,000,000,000
Database Administrators
$100,000,000,000
Computer Systems Analysts
$80,000,000,000
Computer Support Specialists
$60,000,000,000
Computer Software Engineers,
Systems Software
$40,000,000,000
Computer Software Engineers,
Applications
$20,000,000,000
Computer Programmers
$-
1999
2000
2001
2002
2003
2003
May
November
Computer and Information Scientists,
Research
BLS 2002-20012 Projections
Projected Compound Annual Growth Rate for the Professional IT Occupations
Bureau of Labor Statistics Occupational Projections, 2002-2012
Total U.S. Employment Compund Annual
Netwo rk systems and data co mmunicatio ns analysts
Co mputer so ftware engineers, applicatio ns
Co mputer so ftware engineers, systems so ftware
Database administrato rs
Co mputer systems analysts
Netwo rk and co mputer systems administrato rs
A ll o ther co mputer specialists
Co mputer and info rmatio n systems managers
A ll IT Occupatio ns
Co mputer suppo rt specialists
Co mputer and info rmatio n scientists, research
Co mputer pro grammers
Co mputer hardware engineers
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
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Workforce Globalization in the U.S. IT Services and