Moving software development ‘offshore’ has been a major issue in the US presidential campaign and is likely to become increasingly controversial here, as Asian companies offer Irish organisations much cheaper development personnel.
India, with its huge population of well educated English-speaking software developers can offer contract software skills to companies from western countries at a fraction of what they cost at home. As a result, many companies in the West have availed of India’s mushrooming software industry and located part of their development operations in places like Mumbai and Bangalore.
Hot on the heels of India is China, more famous up to now as the centre of low-cost hardware manufacturing but keen to move into the software arena, according to Kraken Yu of Cornerstone International, a Dublin-based company specialising in software-quality testing and training.
Yu is a council member of the Asia Trade Forum, which is itself part of the Irish Exporters’ Association. He is engaged in promoting links between the Irish and Chinese software industries, both for the purposes of assisting Irish exports to China and encouraging Irish firms to avail of Chinese software skills.
‘Irish companies need to get the lower level of production done somewhere cheaper, like China,’ he said. ‘They can then concentrate on matters like project management and marketing.’ He cites a frequently quoted statistic that for every dollar spent on code development offshore, $1.20 is retained in the country putting the work out. He admits that there is currently very little software
outsourcing being carried out by Chinese companies on behalf of Irish software companies, but insists that as soon as issues like the management of software quality are addressed, the market will open up.
‘Managing quality control is a huge issue,’ he said. ‘It is not easy to regulate the ICT industries. You can’t impose a standard and tell people how to develop software.’ Instead, he said, he is working on creating a platform that would introduce Irish software companies to the methods used by Chinese companies so that companies from each country could feel more comfortable about working together.
During the US presidential campaign, the candidates fought over the issue of outsourcing with John Kerry accusing President Bush of having the worst employment record in 72 years, thanks in part to the number of American jobs lost through outsourcing to low-cost Asian countries. He promised, if elected, to close tax loopholes which seemed to encourage American companies to move jobs overseas.
However, an alternative viewpoint, put forward by the likes of Federal Reserve Chairman Alan Greenspan, is that failure to adapt to new economic realities and putting artificial barriers in place to retain an outdated status quo can be harmful in the long term.
Closer to home, such views are echoed by Ray Collis, marketing manager with Insight Test Services, an Irish company that carries out software quality assurance work. He feels that the opportunities offered by the availability of cheap high-quality software developers in Asia far outweigh the negative points.
‘Software development is not an exclusive domain,’ he said. ‘It is increasingly becoming accessible to a lot of people around the world. It is inevitable that much of the work that is being done in Ireland now will move offshore.’ Which is not to say that the Irish software industry will disappear. On the contrary, says Collis, Irish firms will instead have to ‘move up the value chain’, retaining control of the
management of software projects and handling matters such as product specification, customer-facing issues and marketing.
‘When you outsource the writing of the code, the key thing becomes the writing of the specification,’ he said. ‘As teams become more distributed, you need to have very tight definition of specifications. You have to insist on adherence to best practices and to systematic and scientific procedures.’ He rejects the notion that management have to work in close proximity to the code developers and that as a result the Irish software industry will come under threat as more and more of the ‘value chain’ is moved overseas. ‘Closeness to the customer and the end user is much more important than closeness to the developer,’ he pointed out.
Cahal Friel, chairman of the Irish Software Association, the representative body for Irish-based software companies, likewise shows no fear of the industry moving overseas. ‘The software industry has to get on with it,’ he said. ‘As we move up the cost base, we have to outsource more. It’s an issue to be addressed;
not a threat to be feared.’
He also pointed out that most Irish software companies are focused on developing products with their own intellectual property rather than offering bespoke development services. It is the latter style of company, he says, that is particularly vulnerable to being undercut by ‘body shops’ from countries with lower personnel costs. The venture capital community in Ireland, on the other hand and with some encouragement from government agencies, tends to look
more favourably on companies that are engaged in developing their own products.
He admits that some jobs at the lower end of the scale will inevitably be moved to lower cost countries but rejects the notion that over time, more and more high-skilled job functions will also move overseas. ‘We have a big head start over India,’ he said. ‘They have a wall of people at low cost, but we have a wall of knowledge regarding product development, project management and marketing.’
20/12/04
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