Of outsourcing, offshoring and the IT Industry

Call Center Girl

It’s interesting to read Thomas Friedman’s the world is flat and realise that I’m not the only one recognizing that competition is inherently a good thing. I work in the IT industry and my current job scope involves managing transition to support activities for projects which will transition into operations. My job is and will continue to be a threat from people who can do it cheaper, faster and more efficiently from all around the world. The trick of it all is to ensure that you fully recognize this threat and deal with it.

Outsourcing and off-shoring are terms that are often used wrongly. Outsourcing refers to the delegation of non-core from internal production to an external entity specializing in the management of that operation. An example of this would be companies that outsource their call centres to external organizations. TMNutNet for example used to outsource all their first line support for their Streamyx service to VADS. TMNet has since purchased VADS. Off-shoring on the other hand, describes the relocation of business processes from one country to another. An example of this would be when Intel moves their manufacturing operations from the United States to Penang, and now to China. The manufacturing operations are still owned and run by Intel, but relocated to another country to usually take advantage of the lower operating expenses.

The key term often applicable to the IT industry is outsourcing. Companies all around the world are looking at India, China, the Philippines and Malaysia as global hubs to outsource their current IT Operations. After all, if your key competency is selling cars, why should you want to bother about maintaining and developing complex computer systems? Email is email is email and whether it’s managed by the IT department of Ford Motors or WiPro is irrelevant. Detractors of outsourcing often argue that IT is business critical and hence should never leave the control of core business. But so is electricity, the postal system and telecommunications. The reality is simple. Companies will specialize in niche areas that will churn a good profit. These special skills can then be purchased by other companies so that they can concentrate and specialize in whatever niche areas they specialize in.

Outsourcing blogging
We really don’t have to go too far to see how outsourcing has benefited the ordinary man. In the world of blogging for example, millions of people around the world have outsourced their blogging needs to companies like Blogger, WordPress.com, SixApart and Xanga so that they can concentrate on creating content and not have to bother about the technology behind blogging. For example, in the good old days, I used to install my own blogging software, maintain it by ensuring that it’s always updated and keeping it constantly under scrutiny to ensure that it doesn’t get abused. Enter WordPress.com and today, I don’t have to worry about how the software works. I frankly got tired of keeping up and WordPress.com enables me forget about the hassles. For RM 38 a year, I get the hosting I need and not have to worry about maintenance.

Jobs will be lost
Will jobs be lost? Of course jobs will be lost. In many cases a lot of people talk about job loss in a vacumm. It’s easier to say that it’s okay for jobs to be lost until it’s actually your job on the line. The worry about job loss usually stems from the fact that you cannot innovate and change yourself to fit into new conditions. This is false, wrong, and must be discarded. Policies and people must learn to change in order to fit new developments.

But how can this be done? Let’s flip this question a little bit. Friedman talks about how 3 % of the American population now provide for the food needs of 97% of the population. This used to be reverse just a few hundred years before the industrialization age. Let’s not look far. The development of the Internet created millions of jobs that couldn’t otherwise have been created. Just look at the thousands of traders on Ebay. Ebay sellers who were people who recognized that there was a changing world out there and took full advantage of it. They changed their habits. They persevered.

Governments usually respond to change in two ways. The first is to embrace the change and the second is to erect barriers to that change. China is a great example where the government realised that it was time to embrace a changing wave and embraced it. A hub for offshoring, China is using its phenomenal army of people as base to leverage the economies of scale for the manufacturing business. India is where it is today because Manmohan Singh was instrumental in opening up their economy in the 90s.

The Malaysian government on the other hand is building even more barriers. The New Economic Policy has a lot to do with this. Malaysia tries to market itself as a progressive, modern Islamic state who welcomes companies bringing in business to the country. The Multimedia Super Corridor project was heralded as one of the few projects that was supposed to thrust Malaysia into the 21st Century. On paper, all seems nice. But beneath the surface of things, a few problems begin to emerge because the Malaysian government has erected barriers to resist the change. Major government linked corporations like Telekom Malaysia (who owns TM Net) control and monopolise key IT infrastructure in the country. The perceived xenophobic behaviour of many UMNO leaders during the last UMNO general assembly not only threatened non-Malays in the country but also scared off a lot of foreign investors. The government must realise that political stability is the one factor that Malaysia has over India, China, Vietnam and the Philippines. If the perception that that stability is no longer there proliferates, the Malaysian economy is in for a massive beating. In reality, Malaysia must start to realise that protectionist policies such as preferential treatment of bumiputera companies and individuals will only continue to hurt it. The move to recognize this and promote opportunities for international investors in the Iskandar Development Region, is certainly welcomed. While just 10 years ago Malaysia was probably the prefered investment destination, today India and China are taking away our jobs at a much faster rate.

But is it really all doom and gloom for the Malaysian IT professional?

The light at the end of the tunnel
Hardly! The IT industry in this country is booming at a rate never before seen in the past. Companies are setting up back offices in Cyberjaya in a massive scale and IT jobs are aplenty. The massive unemployment rate that we’ve seen with IT graduates in this country is not because of the lack of jobs, but because of the lack of quality education in this country. Our IT workforce is one of the least prepared after tertiary education and our children are unwilling to think out of the box. The age of the knowledge worker has caught on to rote learning in our education system and something needs to be done to change all of it before we will see more improvement.

The trick to keeping up with India and China is to continue to re-invent ourselves. This must be done not only by the leaders who chart the future of a country but also by individuals who want to stay relevant. There must be recognition that outsourcing, like automation, will not hinder or stiffle us, but will create more opportunities for us to grow and move up the value chain. The rest they say, is up to you.

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7 responses to “Of outsourcing, offshoring and the IT Industry

  1. Pingback: People - our most important asset « A Malaysian Perspective

  2. Malaysia plan for MSC has turn different than originally plan (R&D vs now outsource site).

    Not that I am saying this is bad, considering the number of job created (Myself work in one those MNC as well).

    The only thing that is holding MSC from achiving greater height is ourself. Look at newspaper, how some insensitive government minister and official are shooting Malaysia in the leg for all the wrong reason be it politic, religion or economic matter.

    Maybe to some our hare brain minister and offcials who still practise “Katak dibawah tempurung” mindset, let me say it out aloud “Perception matter” and that is what selling us to the rest of the world.

    Remember one of the largest India IT company that told us how Malaysia lost out becoming one of the largest DRC (Disaster Recovery Center) site due to the inept official in handling visa issue.

    And don’t let me get started on our world-class-MSC-but-broadband-suck issue…

  3. phantomzero

    It was refresh reading your article, myself a person who is in IT line can well relate to your article.

    I hope you don’t mind, but I would like to share your blog on my blog.

    http://phantomzero.wordpress.com/2007/07/10/outsourcing-prespective-of-a-malaysian/

  4. Pingback: Outsourcing & MSC - A Prespective. « Opinions Does Matter, But Are Best Kept To Yourself.

  5. Pingback: Are you driving the bus? « A Malaysian Perspective

  6. Pingback: Management Musings » Are you driving the bus?

  7. Pingback: Management Musings » People - our most important asset