IBM Puts The Theory Of Comparative Advantage Into Practice

from the complements-across-the-globe dept

The success of American IT firms in recent years has pretty much put to rest the idea that competition from Indian outsourcing firms would pull the rug out from under their business. Part of the problem was that outsourcing labor to India was never the magic bullet for cost savings that companies assumed it would be. A cost justification is even hard to make now, as salaries there continue to rise. The New York Times has an interesting look at IBM’s outsourcing and services business and how it combines its own workforce in India and the US. The key is in identifying the relative strengths of each part of the company. When it comes to the aspects of a job that are mainly technical, the company can realize cost savings by using its Indian workers. But for the parts that involve specialized knowledge into a clients’ business, IBM’s American workers are well suited to do the job. The complementary nature of the company’s various units arose out of a realization that IBM had to compete on more than just price in order to thrive. Going forward, the arrangement should continue to prove beneficial to IBM. As the IT industry becomes more and more about services, a company that has deep understanding of its clients’ businesses should have an advantage over a company that just knows technology.

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Comments on “IBM Puts The Theory Of Comparative Advantage Into Practice”

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Darrell Young (user link) says:

Outsourcing of IT jobs...

As a former tech worker (Sr. Systems Analyst) for a variety of Telco’s including USWest (Qwest) and MCI (WorldCom), I can tell you that those companies were searching for ways to wrench out cost and had already developed extensive relationships with TaTa Consulting in India.

The actions and behaviours of those companies toward the end of the 2000’s were but one reason I decided to “retire” from the business. The other was that I was becoming a Dilbert and felt increasing pressure to produce and hit deadlines that became even more tight.

I always knew the specialized knowledge possessed by the average IT worker with its “business rules” built in would prohibit anyone from another continent to actually takeover and I’m surprised its taken this long for American IT management to realize this.

Shame on them for putting us through wrenching layoffs and downsizing after Y2K. Though a real threat, my Colorado license plates in 1998-1999 said it all: Y2KHAHA.

Now I’m a Realtor® and though business is slow, I at least sleep at night knowing my career is in my hands now.

I wouldn’t mind picking up some technical work via telecommute, but it would largely be on my terms (practical productivity) and not on those who need someone under their thumbs at all times.

Just call me Technical for life… (profile) says:

Re: Outsourcing of IT jobs...

Congratulations to Mr. Young for finding a career in which he can escape the Dilbert phenomenon. I hope that real estate sales turns out well for him. I tried something very similar (insurance sales), but I found that I sucked at it, so I let my licenses expire — I am back writing software for a company that doesn’t seem to mind that I have gray hair and I’m a bit overweight (used to morbidly obese before losing 100 lbs; now I’m just a tad chubby).

However, the memory of the hard times from 2002 to 2005 still haunt me, so I am currently pursuing two different avocations on the side (teaching violin lessons, and teaching concealed handgun classes), which I definitely enjoy, and appear to have the potential of being a living when (not if; if you don’t believe in age discrimination, it just means that you haven’t been around long enough) my employer decides that I’m “overqualified” to write software.

US companies have not given up on outsourcing, and certainly have not given up on the idea of replacing “expensive” US workers with the cheaper H1-b workers. There was a pretty good (unintentional) admission of that by a law firm that specializes in teaching US companies how to destroy domestic jobs in a series of videos that they posted on YouTube (now taken down, but Google for “job destruction” or “Cohen & Grigsby” and you can still find them elsewhere: they may still be on the Lyre, Lyre, Pantz & Fier blog).

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marcia says:

Re: Outsourcing of IT jobs...

I agree with you. I was also laid off and I am doing a doctorate on the outsourcing/offshoring of IT services, functions and procedures. My argument is will there be IT jobs for the upcoming generation as enrollment in math and technology in the USA is decreasing. In addition, will the USA remain competitive?

I am looking for data on the above.

Please advise.

Robert says:

Variable Cost

Companies developing software that still consider software development a variable cost are fooling themselves, and I believe companies that are outsoucring to India are still thinking of SW development as a variable cost. Squeezing every last penny out of software development usually results in missed deadlines and poor quality softare. Software is not a variable cost. However, software is obviously not a fixed cost either.

Companies run by executives that only understand this older model of accounting (fixed or variable) will never understand software development. In my experience, spending more money on software development (to buy better tools and higher saleries to attact better developers) results in better software and met dates.

_Jon (user link) says:


I consulted IT issues for small businesses for 8 years through college. I knew the ins and outs of my customer’s business. I had to – it was the only way I could provide them a solution for the business. I wasn’t just selling hardware, I was providing a solution.

I think companies that companies that are outsourcing like that are doing the equivalent of selling hardware (people) without trying to become a partner to their customer and provide solutions.

Unisys (formerly Burroughs & Sperry) used to have a slogan like that – Solutions.

Brad Eleven (profile) says:

Glad to see the issue get some attention, but ...

… I never once heard, suspected, or so much as dreamed that outsourcing of any kind would plow American IT firms under. That has been the result of the commodification of the IT industry, e.g., the idea that a military-style specialization matrix could be derived and enforced. Aside from the inherently foolishness of the concept–tech is a moving target–it’s taken me several taken me several years to get over being offended by HR types who think that my value can be measured by a few paragraphs of text. I’m valuable because I can learn anything. That’s what I got out
of college.

I can understand that someone said, “This hiring of talented
and motivated technical people is really, really hard! Surely there’s an easier way.” What I don’t understand is someone saying, “Hey, all we have to do is to create categories and just label everyone. Problem solved.”

citizenj (profile) says:

It's not outsourcing, it's integration

I work for a consulting firm that utilizes a company in India for the mundane overnight tasks of patching and backups and server/desktop event monitoring. During the day we here in the states handle the fires, do hands on work and engage clients. So far it’s worked out well for all, and I look forward to a long and healthy relationship with my compadres in India.

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