Have code will travel - offshore outsourcing for year 2000 conversion - Industry Trend or Event

With Year 2000 software problems looming large and qualified IT professionals in short supply in the U.S., many companies are turning to offshore outsourcing services.

"The cost model is unbeatable," says Bruce Hall, vice president of marketing at Trigent Software Inc. "Infrastructure issues such as telecommunications links are becoming commodity items, and there is a renewed focus on process, quality, audit, and security. Not to mention the fact that key resources with the requisite skills are becoming harder and harder to find. It is 20% to 30% cheaper to remediate software codes in offshore factory settings."

Indeed, wage differentials between the U.S. and many foreign countries are enabling organizations to stretch their project budgets by 50% or more compared to domestic consultants and providers, according to Mastech Corp., a Pittsburgh-based information technology services firm.

While the offshore development concept has been around since the 1970s, it has gained momentum in recent years, and is likely to gain more steam as the Year 2000 nears and users realize the magnitude of the millennium problem. Mastech, for example, has established an offshore development center in Bangalore, India, and wants to add two more centers in Madras and Poona. The firm employs about 250 people in Bangalore and plans to have a total workforce of about 1,500 across the three centers.

Our clients seem to be very comfortable with the offshore soft-ware delivery methods," says Larry Mulhern, Mastech's national sales manager, whose firm also has operations in Canada, Europe, Singapore, Japan, Australia, and the Middle East. Clients are choosing offshore methods not only to reduce the cost of labor-intensive Year 2000 solutions, but also to accelerate their projects, he explains.

While the financial industry is one of the biggest backers of offshore outsourcing, companies from numerous industry sectors arc looking to do some part of their Year 2000 conversion projects overseas, says Mulhern. For example, Florida Power & Light recently awarded its Year 2000 conversion project to Mastech. More than 80% of the work will be completed off-shore at the Bangalore center.

Nancy Hoffman, information management systems manager at Florida Power & Light, says offshore work will reduce their renovation costs substantially while maintaining the quality of their applications. The compliance effort will address a portfolio of Cobol, Fortran, and Assembler programs with a mix of VSAM, IMS, and DB2 database configurations.

"Almost all coding and final analysis will be performed in India. I have no concern about these functions being so far away," Hoffman says. "It is very cost-effective."

Culture Shock

Offshore outsourcing, say analysts, is a good way for U.S. firms to share the pain of Year 2000 projects. That way, onshore sites can perform functions such as impact analysis, pre-change analysis, and test and implementation, and leave the labor-intensive compliance phase of projects to offshore factories.

According to Trigent's research, about 85% of U.S. firms would like to outsource some part of their Year 2000 project functions to offshore factory settings. India has positioned itself as one of the top offshore facilities in the world, says Trigent's Hall, whose firm maintains an operations center in Bangalore employing around 100 people. "India is the first and foremost because of its tremendous education system. Its ability to provide high-tech talent is meticulous," he says. Other hot spots for outsourcing include China, Malaysia, the Philippines, Spain, and Ireland.

In addition to cheap labor and trained technical staff, time differentials between the U.S. and offshore facilities can also prove advantageous. This is particularly true for mainframe work, because offshore employees can link into U.S.-based mainframes during off-peak hours, so that companies are effectively working around-the-clock.

Offshore sites, however, don't appeal to every company. "There are cultural issues, human communications issues, and legal concerns," says Hall. "It's just a different environment. Sometimes you have to visit offshore sites several times. You have to really focus very well on communicating electronically from project perspective and human issues."

In addition, says Dave Ghosh, CEO of Turnkey 2000 Inc., a developer of Year 2000 code conversion tools, some clients are extremely sensitive about security and long-distance management issues. "Customers are asking `How can I be in control?' and `How can I do day-to-day tracking?" he says. "Offshore outsourcing solutions need to have good international management capabilities and good communications systems."

However, if U.S. companies decide to tackle their Year 2000 problems on their home soil, there will be a huge crunch for talent, and that may drive them to look outside the country for help. "Next year there will be more desperation. People might break boundaries," says Jeff Bloom, Turnkey's vice president of business development.

One firm that's taking advantage of non-U.S.-based IT aptitude is The Netplex Group, a networking solutions and technical services company in McLean, Va. "We go to Canada and the Philippines. People will relocate to the right kind of environment," says Gene Zaino, Netplex chairman and CEO.

The IT labor shortage, adds Zaino, is only going to worsen. "The single largest problem for our clients is that they cannot find enough people for their projects and retain them," he says. "We see this heating up dramatically. We feel it's going to be big next year. We see a lot of offshore factories coming."

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