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Is The Age of IT Outsourcing Over (For Now)?

Tyler Durden's picture




 

With the dominance of IT spend (whether consulting or outsourcing) in many of today's investment theses, Morgan Stanley's new forward-looking models should have more than a few long-only money managers rocking quietly in the corner of the office (especially given IBM's dominance of the Dow). Their proprietary models (discussed below) predict decelerating revenues in both consulting and outsourcing through Q2 2013 reflecting the weak discretionary spend environment. The inflection in outsourcing is particularly notable and is far from priced in with the velocity of the fall suggesting 2009-like cutbacks. After the last recession's drop, IT outsourcing was a key area of cost reduction that also provided additional revenues for a new sector; one has to wonder if the recovery this time would be so acute (since sooner rather than later the cutting of fat leads to lascerations in the muscle).

 

Via Morgan Stanley:

IT Outsourcing Leading Indicator Model (MSOSLI)

Similar to Consulting, the MSOSLI model enjoys a very high R-squared (0.96). The model also uses three macro economic indicators and two company-specific metrics, including:

  • Change in Euro Area Consumer Confidence
  • Change in Durable Goods Unfilled Orders
  • S&P 500 Composite One-Year Return
  • Change in CapGemini Consulting Headcount 
  • Change in Accenture Outsourcing Headcount

A summary of these factors along with their statistical measures from the univariate regressions performed in the model construction phase (see below) is shown in Exhibit 7.

 

LTM Outsourcing average revenue growth accelerated in 3Q10, at +0.4% growth, and peaked in 2Q12 at +5.2% growth. MSOSLI forecasts a deceleration beyond 2Q12 with forward four-quarter revenue growth (through 2Q13) estimated at +1.0% (excluding ~25bps of bias).

 

Recent Accenture and IBM commentary suggest this trend is beginning to materialize, for example:

  • Accenture’s constant currency growth remained strong in F4Q12 (+18% vs. +19% in F3Q12 and +20% in F2Q12). That said, management noted that it remains vigilant about understanding the impact of the evolving global macroeconomic environment. Plus, management’s expectation for 5-8% cc growth in FY13 (vs. +11% in FY12) embeds a slower than anticipated market growth (+4.8% vs. +5.6% previously) with the Technology/Outsourcing segment lower by roughly 100bps vs. the previous estimate.
  • IBM GTS 3Q12 revenue grew +1% cc (vs. +2% in 2Q12 and +3% in 1Q12). Management noted that while IBM generated revenue growth from its backlog in 3Q12, it did see a decline in revenue generated from new business in existing accounts and from new deals within the quarter, after growing through the first half. Unlike Consulting, backlog (flat cc) and signings (+30% cc) appeared somewhat stronger in 3Q12 although management did say that going forward it expects a similar IT Services revenue growth dynamics.
  • At HP’s analyst day in early October, management noted that a runoff of four key clients is pressuring Outsourcing revenue. While some of HP’s issues may be company-specific, an overall trend toward in-sourcing is worrisome. For example, we know that GM, one of the four clients, which spent an est. $600m with HP annually (~2% of HP’s Services sales) has decided to bring much of its IT work in-house.
  • For Atos, Outsourcing revenue growth was +1% on an organic cc basis in 3Q12. This is down from +2% in 2Q12 and +4% in 1Q12, which suggests a downwards trend. We believe the recent Managed Services contract wins at Atos and other deals in the pipeline (e.g. McGraw-Hill) will help the company perform above competitors if the market trends down into 2013.

In light of the continued deceleration predicted by our leading indicator models, we lower our top-line growth expectations across the global IT Services industry.

Source: Morgan Stanley

 

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Sun, 11/04/2012 - 23:44 | 2947723 Fips_OnTheSpot
Fips_OnTheSpot's picture

You know it's running low when IBM India outsources to IBM Mexico (dont confuse that with IBM USA switching from India to Mexico..) - and that was some three years ago.

Sun, 11/04/2012 - 23:53 | 2947746 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Modern US corps. Poor earnings, lay everyone off. Fast forward a few months. Why does nothing work? Well sir, those workers were let go not too long ago.  Mmmmmmm

Mon, 11/05/2012 - 00:06 | 2947764 Oh regional Indian
Oh regional Indian's picture

We can only hope. Outsourcing has been one bad deal for India. Screwed 2-3 generations of Indians into code monkeys. 99 % of them come to the task with hastily received "diplomas" in Java or some such. 

I hope it is the end of IT outsourcing....

http://aadivaahan.wordpress.com/2011/03/01/on-outsourcing-and-its-ills/

ori

Mon, 11/05/2012 - 00:19 | 2947789 UGrev
UGrev's picture

Hastily..  is that what you call it? Here we call it "Cracker Jack". :D

Mon, 11/05/2012 - 00:49 | 2947841 Oh regional Indian
Oh regional Indian's picture

Where is "here" UGrev? The UK?

But yes, Crack Her Jack and Jills..... Diploma Mills promise "Full Skill" and "Assured Job" in 90 days....

Garbage in Garbage out.

It could have been done differently, better, but that was never the plan. The plan has been clear all along. Create a "hastily" trained middle class with TV spewing an un-achievable aspirational (read material) mantra, banks giving cheap credit (read debt)...

The same playbook really, as in the US, only done in double time.

The Indian IT dream will end in tears.

Boom industries leeching off this new found IT wealth are : Beauty Parlours, Massage Parlours, Retail at an un-imaginable rate, Malls and cheap, shoddy apartment buildings and of course hospitals to deal with the increased sickness coming from being stuck in AC buildings, staring into a shiney screen, apologizing to angry customers about their credit-card block or selling insurance or the worst one, debt collection calls.

A TERRA FLOP! 

Yup, and it's not going to be funny either. Last 12 years have been rosy, this generation has not seen a serious down-turn..yet.

ori

Mon, 11/05/2012 - 01:04 | 2947859 Fips_OnTheSpot
Fips_OnTheSpot's picture

TERA :)

 

Had to deal with moving 1st/2nd Level IT-Support/Administration of a german bigcorp to India for some years -- it wasnt fun.

Fluctuation of personnel from shift to shift (hire+fire on a new level), english skills close to nothing and if something failed (oops!) it was usually blamed on the lack of documentation.

Best parts: "We have problems with the Voice-over-IP" - "what you say?"; "We must interrupt now, we have a flooding in the house".

Eventually I quit this job after a while, I am not a nanny X-)

Mon, 11/05/2012 - 01:39 | 2947894 Oh regional Indian
Oh regional Indian's picture

Fips, Terra was a pun, an earth sized flop etc... I guess it wasn't that punny after all, eh? :-)

But yes, it caused a forced anglicization on small town boys and girls as the need for bodies went vertical somewhere around 2002-2003. As you can probably imagine, I'm not popular in local circles for my poiint of view as people point to the ability to buy cheap chinee shit and expensive german shit and lots of other shit as a sign that "we are much better off". 

It is/was called body Shopping, suppose that really says it all eh?

ori

Mon, 11/05/2012 - 03:03 | 2947948 TwoShortPlanks
TwoShortPlanks's picture

So many people don't believe that the Illuminati even exist, hell, I don't believe they exist either...until literally just now!!!

Let's just say they evolved a little and haven't done too bad for themselves!

Evolution of the New World Order: Ancient Mystery Religions, Kabbalism, Gnosticism, Knights Templar, Rosicrucians, Freemasons, Illuminati....blah-blah-blah....New World Order.

Their Headquarters is now the Bank Of International Settlements.

The Swords of the Knights Templar have now been replaced by Swift Codes.

Like every good Illuminati/Knights Templar hang-out, you must advertise who you are on your building, well, take closer look at the Building of the BIS, it's a fucking Knights Templar Helmet:
http://www.bis.org/images/photo_gallery/Botta1.jpg
http://www.bis.org/images/photo_gallery/Botta2.jpg
Note the slanted eye slots, the nose bridge guard, ventilation slits, and even the row of Jewels around the Crown.

Knights Templar Helmets: ttps://www.google.com.au/search?q=knights+templar+helmet&hl=en&sa=X&prmd=imvns&tbm=isch&tbo=u&source=univ&ei=o06XUKKpFoijiAevrYDYBQ&ved=0CCMQsAQ&biw=1311&bih=598

A Nice BIS Castle Tower taboot:
http://www.bis.org/images/photo_gallery/Tower2.jpg

And where did the Rosicrucians end up....Switzerland of course....Rosicrucians means 'Rosy Cross'...oh geez, how about that for a coincidence, so does the Swiss National Flag (Inversed).
http://en.wikipedia.org/wiki/Rosicrucianism

Right now I'm betting that a majority of that 70% of above ground Gold, and thousands of Tons of Central Bank Gold is within a stone's throw from one of those BIS buildings.

Remember when Rothschild was on Bloomberg at the NYSE, and he said to "hold your Gold"...no shit Sherlock!

And connect the dot a little more while you're at it: http://www.zerohedge.com/contributed/2012-06-26/proposed-banking-regulations-would-drive-gold-prices-higher

So let's make Gold a Tier 1 asset again shall we...hmmm, let's do that at the Basel Tower: http://www.bis.org/about/buildings.htm

This whole thing feels like a fucking bad dream.

Mon, 11/05/2012 - 03:18 | 2947960 Oh regional Indian
Oh regional Indian's picture

Un-holy shite on the buildings. Nice catch 2shortPs.

Crazy!!!

Don't miss the Red Cross swaying gently in the breeze either, eh?

But Temporal power still lies in the city of Londonium.

Yes, it lies, every day, bigger and bigger lies.

ori

Mon, 11/05/2012 - 06:07 | 2948047 Acet
Acet's picture

Here on this side it just looked like IT in India was going through the same process as it had in the West during the Tech bubble and that eventually they were just hiring off the street anybody that knew the right side of the keyboard to type in and passing him off as a Senior Developer. The end result is that people that had no skill or inclination whatsoever for IT ended up in the industry "because you can make lots of money in IT".

Certainly a lot of the Indian-based devs I worked with were very bad (and their management was horrible - what kind of fucked-up management culture do you guys have in there!?). In the end, just like in the West during the tech bubble, India has about as many really good coders as percentage of population as the rest of the world, but so many not-so-good people were hired as coders in India that the overall impression of the Indian coder is pretty shit.

The end result is that things are turning around in the IT outsourcing to India: Things got so out of control in terms of hiring crap ITers in India that companies that were in overdrive to send anything and everything to India, have started bringing the work back inshore because as it turns out local IT people spend as much time fixing the mistakes in the code coming from India as they would in doing the actual implementations themselves. This I have seen live and on the spot multiple times.

Mon, 11/05/2012 - 08:50 | 2948149 GetZeeGold
GetZeeGold's picture

 

 

Don't miss the Red Cross swaying gently in the breeze either, eh?

 

Hard to miss actually.

Mon, 11/05/2012 - 09:36 | 2948261 El Viejo
El Viejo's picture

35 years in the IT biz(In the Mfg sector.). It's been a real roller coaster, Brother!!  The first hit was Reagan's self emploiyment tax. Remember the guy that flew his plane into the IRS bldg in Austin, TX ??? (He had an IT bizness and got into tax problems. TAKE NOTE: When the individuals got into tax trouble working under a 1099 the IRS went after the companies that hired them!) Politicians and Biz people don't realize the slim profit margin sometimes in IT and engineering. Every recession I was unemployed. Is it any wonder why few in this country get into engineering any more. And with Microsoft pushing for H1B2 visas and opening offices in Canada as a pipeline for foreign tech people to get into the US I don't blame people for choosing some other career.

By its very nature engineering is not supposed to make huge profits and they work their people hard. It's only natural that outsourcing came into being. After all foreign is better right??? and certainly cheaper is better, right???  Actually, things as complicated as software can cause serious problems down the road if not done right. It is highly correlated to Chaos Theory. I replaced two engineers here. One was from the Middle East. He was fired because in a year he did literally nothing. One defense for a small engineering company I worked for was to create a Software spec. Get the customer to sign off and any change down the road gets paid for. IT customers have a tendency to not know what they want and when you don't read their minds it is somehow your fault. IT is a difficult business.

Mon, 11/05/2012 - 10:33 | 2948404 Acet
Acet's picture

Any kind of real Engineering is seen at the moment in many Western nations as an inferior occupation: the big bucks and the social status are in things like management, law, finance or any kind occupation with a lot of public exposure (from successful musicians and actors to celebrities) - just look at the pop-culture "heroes" from TV series, the Techie is always an awkward, badly dressed, unactractive guy.

Brainy is Off, Extrovert and Showy is On. The whole society nowadays is mainly about appearences, so any kind of exact, precise profession dealing with absolutes and were status comes from having your peers recognize your competency is always going to be treated as less worthy than the professions dealing with relatives, not absolutes, and where people can be deceived by make-it-up-as-you-go-along, sounding assured and any other kind of alpha-male cockyness and show.

As for IT, it's one of the few professions where the really good professionals really are 10x - 100x more productive than the average ones. If they learn (or are supported by those who do) good business requirements gathering (where you actually figure out what the end-user needs) that's even more so, but since - in today's tradition of appearences are what's important - modern management is all about measuring the short-term and visible (for example: hours of hot body in a seat) rather than the long-term and hard to measure (for example, satisfied customers), superior productivity is often sacrificed for cheap bodies in far-away places keeping seats hot for many hours per-day.

Mon, 11/05/2012 - 12:32 | 2948854 El Viejo
El Viejo's picture

I saw two very different potential CEOs battle it out for the top job at a major corporation. Of course the "Short Term" quick profit guy won. Unfortunately, this is unhealthy for the long term health of a corporation.  A former head of the SEC said we should have rules that tie the CEO pay to long term results.  I agree.

Mon, 11/05/2012 - 09:56 | 2948308 Oh regional Indian
Oh regional Indian's picture

Excellent points/observations all Acet.

Re. management culture, we were taught the "Sir, Sir", hero-worship your seniors culture by the brits (probably the mughals before them too). It fitted seamlessly in modern india for some reason. BUt have to say, American management culture sucks big-time too. 

Management of a company is like a micro-cosm of political styles ne? Participative democracy woudl work, but it would take enlightened leadership to make it possible.

ori

Mon, 11/05/2012 - 12:50 | 2948903 Matt
Matt's picture

How would this participative democracy work in a company?

If it involves more meetings, count me out.

Tue, 11/06/2012 - 01:55 | 2951029 Oh regional Indian
Oh regional Indian's picture

Matt, on further pondering, it would take a generally enlightened work-force for that to work. Now THAT may not be such a pipe-dream? Everytime I've "run" a show, I've tried to make the place of work where people want to come in. Want to participate. Want to grow. 

And the only way was to lead by example, because in my 30 years in work and 45+ years of life, I've learned one lesson well... you cannot make lasting change in anything/one except yourself.

 

As for the small scale solar Q below, here in India, there are always great schemes, subsidies, sops from Gub, but they NEVER work because their admin. is mired in red tape, delay and bribery.

Right now Solar is heavily subsidised as an example, but trying to get said subsidy is a sisyphusian task. Heculean even. So most (like me) don't even bother. It's an all show no go economy here, waiting to exhale.

ori

Mon, 11/05/2012 - 01:53 | 2947912 UGrev
UGrev's picture

I'm in the USsA. I actually got into IT at the recovery point when the bubble popped and people scattered to other fields. I didn't know any better. I see it happening here, AGAIN, though more in the networking, telelcom side of things and not so much the programming side of things (thank God) .

Mon, 11/05/2012 - 02:04 | 2947920 Oh regional Indian
Oh regional Indian's picture

Interesting. I was a part of the Great Silicon Valley Scam from 1999 through 2006. Saw the boom bust crap for what it really was from the inside. 

Very surprising that no lawsuits of any note have been filed for how many people had their faces ripped off by the insider stuff that went on then.

1995 through now.... crazy days getting crazier every day.

Have to admit though, for a little while (till MArch 14-15 2000 anyways) it really looked like the world had changed for ever and that we'd all be millionaires sipping margaritas in Cabo.

It was a good fantasy....bad aftertaste.

ori

Mon, 11/05/2012 - 07:18 | 2948092 falak pema
falak pema's picture

ha ha conquistador of the silicon valley age; only the top echelon made it to the Cortes Pizarro class. But those that did...well look at the Nasdaq. 

Like in all empires the road to top is very narrow and to stay there never easy. Cortes died a disgraced, practically ruined man having made his king/country super rich. 

You have to choose your path; look at Cervantes he lost his fingers, maimed at battle of Lepant, ended his career as sword bearing adventurer, made him the greatest novelist of Spain and maybe in the top five of European literature! 

Life is a bitch and wisdom an eternal itch that comes thru dire trial and error! 

Mon, 11/05/2012 - 07:40 | 2948110 Oh regional Indian
Oh regional Indian's picture

Well said Falak.

Looks like the same old tired plot-line.... just the characters change over the ages. 

By the way, did you know that all those "doms", wis, king..... dom is actually etymologically rooted from Doom?

Wisdoom in the Kingdoom!

ori

Mon, 11/05/2012 - 04:22 | 2947992 Gavrikon
Gavrikon's picture

Interesting perspective.

Mon, 11/05/2012 - 08:16 | 2948132 Shelby Moore III
Shelby Moore III's picture

We can only hope. Outsourcing has been one bad deal for India. Screwed 2-3 generations of Indians into code monkeys. 99 % of them come to the task with hastily received "diplomas" in Java or some such.

http://aadivaahan.wordpress.com/2011/03/01/on-outsourcing-and-its-ills/

What has been sacrificed is real knowledge production, which requires autonomous actors, not a top-down managed globalizaton. The following comments will fill in the BIG PICTURE to complement your local perspective. I urge you to read at least the first 3 of these links, so you can expand your correct local perspective so you can see the whole forest and not just the rotting bark:

http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-the-correlations/#comment-18792

http://www.zerohedge.com/contributed/2012-10-18/shipping-news-and-bit-more#comment-2903512

http://www.zerohedge.com/news/2012-11-04/bitcoin-seen-through-eyes-centr...

http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-...

http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-the-correlations/#comment-18682

http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-the-correlations/#comment-18795

http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-the-correlations/#comment-18823

Others:

http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-the-correlations/#comment-18791

http://www.zerohedge.com/contributed/2012-10-18/shipping-news-and-bit-more#comment-2903524

http://www.zerohedge.com/contributed/2012-10-18/shipping-news-and-bit-more#comment-2904807

Mon, 11/05/2012 - 17:19 | 2949812 BlackVoid
BlackVoid's picture

Hastily and Indian outsorcing should not come into the same sentence. 

I have worked with outsourced support from India several times. Very slow, painful.

Sun, 11/04/2012 - 23:51 | 2947739 Bobbyrib
Bobbyrib's picture

Outsourcing will be around until the dollar bubble explodes..

Mon, 11/05/2012 - 00:38 | 2947822 ToNYC
ToNYC's picture

Unsustainable debt payments due, keep the bid on the USD.

Mon, 11/05/2012 - 04:39 | 2948000 Gavrikon
Gavrikon's picture

May it be soon.

Mon, 11/05/2012 - 09:34 | 2948250 CPL
CPL's picture

It did already and that's part of the reason, it's called exporting inflation.  ORI has mentioned in the past the rolling black outs and brown out are having a significant impact on how business can get done.

 

Here's what going to flip your lid.  If all that work comes back to the US with the very weak dollar, there isn't enough power in the grid to keep it all running.  This past summer was unschedueled black outs and shortages.  I doubt warehousing call centers and develop shops will inprove the situation.  Shortages are on the macro level and deliveries with their credit facitilites just scream big trouble coming.

Mon, 11/05/2012 - 10:17 | 2948364 Oh regional Indian
Oh regional Indian's picture

Astute observation CPL. India's already pathetic power situation is unfairly directed to the huge computer farms in massive aircon buildings with thousands of servers and....yes...servers of the human sort.... while the common man sees 6 hour power cuts, so his brand spanking new refridgerator warms and his shiny new AC refuses to cool.

All upside down.

ori

Mon, 11/05/2012 - 12:59 | 2948936 Matt
Matt's picture

What are the rates and rules like for having a grid-tie small scale solar power there?

Sun, 11/04/2012 - 23:54 | 2947750 disabledvet
disabledvet's picture

I really believe this Sandy thing is a BIG deal. Enough to throw the entire nation into a "technical recession"? I say yes...as per the above mentioned reasons among many others. Simply put if this hurricane has revealed a striking "bankruptcy" of our economic model then greater "inefficiencies" will need to be created in order to sustain some semblance of "recovery." I still believe the plan is war from our "top people".... and has been all along...but hey, that's the conspiratorial side of me talking and we know how that goes.

Mon, 11/05/2012 - 00:10 | 2947768 Yen Cross
Yen Cross's picture

Well there goes whats left of Indias economy down the shitter... At least I won't have to sit on the damn phone for 3 months teaching the guy at the HP service center how to speak english, so I can order a new battery for my laptop.

Mon, 11/05/2012 - 05:49 | 2948036 ballafun
ballafun's picture

Oh yeah, and that was why in first place you were able to buy a HP LAPTOP. If they keep manufacturing and servicing everything from US or for that matter any country you are from, then game would have been different

Mon, 11/05/2012 - 00:19 | 2947783 jonjon831983
jonjon831983's picture

I heard something happened to S&P due to Sandy.  Their primary offices in New York were taken offline thanks to floods... then their BACKUP server location in New Jersey were taken offline by floods as well.

 

Oops.

Mon, 11/05/2012 - 09:44 | 2948286 CPL
CPL's picture

Generators ran out of fuel on Sat/Sun.  The newer disks are solid state, so there's no problems with disks physically getting munged up.  The other 99% of the disks are platter with needles.  They can get a little stuck if they aren't shut down gracefully.

 

For the large mainframes, well, it's just easier pulling the disk and letting the RAID set repair itself with a new disk.  That's if the drive fails and you have a graceful power down.  If they drop dead in a power outage, well I can picture a small troop of Lan Admins losing their shit right now and management riding them like throughbreds.  And as usual, someone will quit, someone will get canned and someone will shine like a beacon for their tenacity in the face of uber levels of office retardation.

 

There isn't just one data center in NJ, all of them are there in the industrial areas that were swamped.  Data centers are hardened for theft and surges.  Weather is usually left to good faith the building is up to code and the builder has a good idea of what they are doing.  Nobody imagined that a Class 1 Hurricane would pound the crap out of an area that historically misses the messy business of hurricanes.

Mon, 11/05/2012 - 11:28 | 2948592 Acet
Acet's picture

Basic Rule #1 for building a separate DR site: Don't do it in a location where an "Act of God" can simultaneously take down both the Main site and the DR site.

But then again, these things nowadays are not decided by Engineers, they're decided by Accounting, Managerial or Law types - they probably wanted to save on the cost of coast-to-coast high-speed networking.

Mon, 11/05/2012 - 13:07 | 2948966 Matt
Matt's picture

Yeah, it sounds like quite a few NYC area businesses have their backup site in New Jersey. I love it when accountanting and marketing make all the big decisions.

Mon, 11/05/2012 - 00:39 | 2947825 ebworthen
ebworthen's picture

Everything going to mobile.

Apps and other dingleberry's.

IT landsacape going to be a wasteland before long.

Desktop and laptop/netbook PC's dying on the vine, Millenials and A.O. (Always On) generation going all mobile.

Bullish for inhouse cloud operations and independent operators, bearish for Dell, HP, IBM, Lenovo, and even the NASDAQ pumper Apple.

Mon, 11/05/2012 - 06:29 | 2948060 Tekrunner
Tekrunner's picture

IT landsacape going to be a wasteland before long.

Uh... do you really think that clouds work on their own, automagically? Or that mobile terminals design and assemble themselves? Maybe the landscape is going to change (and I seriously doubt that smartphones will ever completely replace regular computers), but unless everyone goes back to paper it's certainly not going to disappear.

Mon, 11/05/2012 - 10:55 | 2948486 ebworthen
ebworthen's picture

So, you're saying this is bullish for cloud servers in Mumbai?

I'm ribbing you, but seriously, the hordes of IT hardware and professionals can be off-shored just as readily as call centers when all that is needed is a connection overseas.

Corporations do anything they can to avoid booking costs and taxes stateside; so they will be off-shoring every possible thing they can as there is less and less hardware required.

People still doing IT in the U.S. will get paid less and on call 24/7, paid a lower salary, and made to work 80 hours a week under a "professional" classification (happens now, but getting worse).

The trend is less hardware, less people, more off-shoring.

Many votes tomorrow will be counted and tabulated on servers overseas.

Mon, 11/05/2012 - 09:56 | 2948310 CPL
CPL's picture

Computers are an extension of human memory and thought processes.  It is specifically designed to help model ideas, solve complex problems and act as a repository.

 

We even use them in subsitution for humans watching blinking lights with network management platforms like HP Openview, Tivoli, OpNet, BMC Patrol.  For 100K and more you can install applications to watch things using SNMP and/or custom agents.  Humans haven't watched water processing, nuclear facilities or fuel distribution for a very long time.  Problem is the same systems act as the auto repair and alert systems.  When they go down in a heap of bricks they don't notify on anything.  There are system in those data centers that should never be off and everyone is very quiet about, except the Engineers and Tech asking for a hand on forums.

 

This weekend has been insanely busy.  This week is going to be worse.  I'll also guess it'll be a sleeping bag week/month with shifts until all the NMS systems are back up and reporting where the damage is in the datacenters.  

 

Layer 3 Excelsior!!

Mon, 11/05/2012 - 01:26 | 2947879 Milton Waddams
Milton Waddams's picture

seriously, someone do something that reduces the minimum wage to zero.  because that is precisely how many rentenmarks some extremely professional people are willing to work for.

Mon, 11/05/2012 - 01:51 | 2947908 laomei
laomei's picture

Cut back on outsourcing? Sorry to say, but that doesn't change anything.  Those workers don't just magically forget their skills.  They go work for your competition and bring your own methods along with them.  Or they simply become your competition in new ventures... again, bringing all those skill sets with them and beating the crap out of you with your own stuff.

 

Whoops.

Mon, 11/05/2012 - 02:16 | 2947926 Oh regional Indian
Oh regional Indian's picture

Your handle suggest you are writing from China.

Truth is, it's really easy to move Soft jobs (like IT) to low cost locations. I read/hear that the Phillipines is eating India's lunch in Call Centers. As is Ireland as it sinks further into it's call center driven booms demise.

95% of Indian IT worker's are doing little value addition. That is a truth that Indian's find hard to face. They are employed as cheap key-pushers. Setting them free will do what? How many low-level IT employees can start companies? Very few. And the Entrepreneurial Eco-System in India sucks, big time too.

Nope, not going to fly. At least CHina has it's factories and raw materials.

ori

Mon, 11/05/2012 - 08:40 | 2948159 Shelby Moore III
Shelby Moore III's picture

At least CHina has it's factories and raw materials.

Which is a $trillionsmongously huge, unprofitable (subsidized with low knowledge slavery) liability for China:

http://www.zerohedge.com/news/2012-11-04/age-it-outsourcing-over-now#comment-2948132

Mon, 11/05/2012 - 10:07 | 2948338 IBelieveInMagic
IBelieveInMagic's picture

Offshoring is a function of USD reserve currency. Will survive as long as USD is king.

Mon, 11/05/2012 - 13:14 | 2948990 Matt
Matt's picture

From my experience, the Indians knew what they were doing but no one could understand them. The Filipinos have no idea what they are doing, but they have really clean accents so anyone can understand them.

Mon, 11/05/2012 - 10:42 | 2948434 CPL
CPL's picture

No, like North America they just drop out and move to a new career.  Truck driving is a popular vocation.  After dot.com went and dot.bombed, the one place you could find an engineer for hire was Tim Hortons and Rona.  House painting pays more than IT and Engineering right now.  So be careful on assuming the career armour is made of anything but cardboard when trends in other countries illustrate otherwise.

 

Admittedly the more enterpeneurial will simply make a good situation out of the bad.  But overestimating that drive in people to continue working in their trade is naive.  Most people show up for a check and a meal, they honestly don't care enough about their industries and will move towards the path of least resistance.

Mon, 11/05/2012 - 03:01 | 2947951 DarkWanderer01
DarkWanderer01's picture

 

Some key drivers for outsourcing are high costs of having employees in USA with all the insurance and social security baggage. Then the US has a very litigious environment.

IT outsourcing won't go away until this changes.

Reduced outsourcing will be painful but ultimately good for India as they will be forced to graduate from service delivery which is easy and risk free to building and owning products.

 

Mon, 11/05/2012 - 03:52 | 2947977 sethstorm
sethstorm's picture

Then what happens if the cost is higher to outsource than to provide direct-hire, FT/Full Benefit within the US, to best serve US customers?

Outsourcing cannot go on forever without it being sucessfully regulated into oblivion.

Mon, 11/05/2012 - 09:53 | 2948299 Bobbyrib
Bobbyrib's picture

There will always be a place to outsource that provides a cheaper alternative. Maybe next time you call customer service you will speak to Borat..

Mon, 11/05/2012 - 10:39 | 2948423 IBelieveInMagic
IBelieveInMagic's picture

King Dollah my friends. King Dollah!

Mon, 11/05/2012 - 03:19 | 2947961 Tekrunner
Tekrunner's picture

I think there's a lot of misunderstanding about this... First of all, just because a dip happens doesn't mean it's the end of an "Age". Outsourcing pulses back and forth as economic conditions vary, but so far the structural reasons remain. Second of all, outsourcing != offshoring, and this doesn't mean the end of offshoring: not only do multinationals have their own offshore centers (that they could develop if they stop outsourcing), if demand falls then IT companies are going to go offshore even more to reduce costs.

And finally, call centers are not IT. They're not magically coming back to the US. Don't dream.

Mon, 11/05/2012 - 03:49 | 2947975 sethstorm
sethstorm's picture

When it can be killed, perhaps it would be wise to ensure it stays dead courtesy of regulation - where every single business interest complains (on deaf ears).

Mon, 11/05/2012 - 04:30 | 2947991 ebworthen
ebworthen's picture

People doing I.T. in the field are not paid well, drive their own cars (not paid mileage), given one hour for a complete laptop teardown/rebuild.

The folks in the call centers are not the ones who fix it, so it's usually "replace motherboard" because it hits the most bases and they are in India or somewhere far away which makes it very hard to diagnose anything.

The people who do the actual work on the phone, and who walk into a customer's home - get paid the least.

Typical American management.

Pretty soon there won't be anything but a screen:  no hard drive, and only enough processor to send, receive, and display; and your problem will be diagnosed by a computer remotely over wireless.

The cloud, everything is going to the cloud.

"Press 1 for computerized self-help in English please."

Self-pump gas.

Self-checkout at the grocery store.

Self-help for your device.

Good luck!

Mon, 11/05/2012 - 06:27 | 2948058 Overflow-admin
Overflow-admin's picture

"Pretty soon there won't be anything but a screen:  no hard drive, and only enough processor to send, receive, and display; and your problem will be diagnosed by a computer remotely over wireless."

 

Your information looks outdated, we already got that hardware since 1993. Would you like to have one installed?

The I.T. Team

Mon, 11/05/2012 - 09:56 | 2948312 Bobbyrib
Bobbyrib's picture

The solution as many have stated before is community. Grow your own food and pay as little in taxes as possible. Save for medical costs (if possible) as well.

Mon, 11/05/2012 - 10:49 | 2948461 IBelieveInMagic
IBelieveInMagic's picture

Yep. Also drink moderately and wipe the seat after your job.

Mon, 11/05/2012 - 11:47 | 2948684 Acet
Acet's picture

Agree with most of what you said.

Not to worry, the Cloud is mostly a craptacular amount of hype, just like Social Networks were supposed to be the new way of making money - lots of financial types have been trying to reinvent the Technology bubble since the last one burst.

Data stored "in the Cloud" suffers from the "Any random Government can get their hands on your data and give it to your competitors if the Cloud happens to store it within their borders" problem and the current collapse in law and justice in the US and other Western nations will soon (if not already) prove that no Government can be trusted. Also Always-on, high-speed Internet connectivity is still more expensive in the mid and long term than a cheap PC per-worker and a bunch of Linux servers in a basement.

Overlaying all this is the long-running tradition in most of the IT industry of bugs, fuckups and disclaiming all responsability for anything - hardly the kind of track-record you want for a company you will outsource your critical infrastructure to. We're already seeing the fuckups happening in things like part of the Amazon Cloud dying and you can be pretty damn sure Amazon is not paying a penny to nobody in compensation.

If you want to worry, certainly in the consumer space I would worry about the rise of smart-phones:

- If somebody comes up with a seamless way of getting powerful enough mobile phones (remember, Moore's Law still works and computing power doubles every 18 months) to integrate with wireless keyboards and your home TV screens you might just start seeing people using their mobile phone as a portable source of computing power to replace their desktop PC or Mac.

Mon, 11/05/2012 - 04:40 | 2948001 Shevva
Shevva's picture

???? That's why IBM employing thousands of people at a site in the UK here is suhtting down and moving 2/3rds of it's staff to India?

Mon, 11/05/2012 - 06:33 | 2948061 Tekrunner
Tekrunner's picture

In IT, outsourcing != offshoring, though the two can overlap. The opposite of "outsourced project" is "in-house project", not "made-in-USA project".

Mon, 11/05/2012 - 12:00 | 2948747 Acet
Acet's picture

Now UK companies can pay IBM £1000/day for a superior form of random Indian coder who's just been hired of the street and doesn't really have any skill for programming.

Accenture has been doing the same thing for a while now.

Maybe that's why Outsourcing is going down: as the traditional companies that provide outsourced IT resources replace more and more high quality local resources with the cheapest possible barelly trained random monkey coders, so the companies that were sending them business are finding out they it's cheaper and better to directly hire local contractors than to pay the IBM tax for the chance of maybe, if you're exptionally lucky, getting a good guy from India. In fact, some of the best coders of Indian origin are very likelly to be some of those very same local contractors (the good ones often imigrate and in Western IT markets where there's no glut of hiring, only the best survive as freelancers).

Mon, 11/05/2012 - 05:05 | 2948016 devo
devo's picture

Now that the fat/bottom line has been trimmed, we'll see how good an inflation hedge stocks are.

High inflation = fewer sales = less revenue = oodles of misses

 

Mon, 11/05/2012 - 08:56 | 2948172 virgilcaine
virgilcaine's picture

There isn't an ounce of demand left in the Economy, so no demand , no output, no IT projects. .

Mon, 11/05/2012 - 09:59 | 2948285 falak pema
falak pema's picture

the IT projects will all focus on deleveraging and eventually on relocalisation in an "optimal" fashion, around multi-dimensional multiservice hubs, that try and protect local value added by a sophisticated layer of managerial multifunctional complexity.

If you are no longer a  simple product maker but an integrated solution provider over product life span, you have a competitive edge. Integrate, modularise, include maintenance and recycle skills, in product/service package and you redefine the market.

All based on technology, and obviously now, Internet type skills. As 100% in-house or local does not exist. Balance for competitive advantage stays the key to market survival. And the market is not just home its the world. 

Having said that the inevitable trend will now to be to increase local integrated content. Transport, energy, and finance all push in that direction along with the "qualitative" constraint of nation-state social employment. 

PS : Note to RM on Apple- Google/Samsung mobile phone segment war.

CHART OF THE DAY: Smartphone Shipments - Business Insider 

Reggie, this is right down yor street !

Mon, 11/05/2012 - 09:07 | 2948186 KidHorn
KidHorn's picture

I managed a group of software developers in India for about 5 years. No matter what you read or hear, they are not as good as US developers. They cost a lot less, but you get what you pay for. My day would typically start with a conference call to Bangalore at around 7 AM EST. It was their end of day. I would spend most of the call explaining what they needed to do the next day and what they did wrong the previous day. I would answer their questions. They would say they fully understood what to do. I would follow it up with an email. The next day, they would do it wrong and I would spend my working day fixing it. Some of their code was so bad, I had to completely rewrite it. We would hire 10 of them instead of 3 in the US, but 10 of them weren't as productive. In the end, I don't think we saved any money by offshoring. I suspect many of the companies that were big proponents of offshoring are discovering the same thing. The savings are slim to none. Plus, their work culture is completely different than the US. I would constatly get emails asking for me to send an email to their boss stating what a great job they are doing. I honestly didn't know who did what specifically. They were a large mass of people doing work and I mainly dealt with the manager, who I picked mainly based on how well I could understand what he or she was saying.

Mon, 11/05/2012 - 09:34 | 2948253 alentia
alentia's picture

During the past year Indian skill levels are increasing. The bad ones are let go, the good ones, who learns and adapt quickly are staying.

It is true, the language is the issue. However working with them for about a year and you start to understand what they are saying. If not, there is always an e-mail and chat option.

Productivity of Indian labour is about 60-75% of North American as I can see it at this point of time specifically to infrastructure outsourcing model. That is enough to justify only 30% cost of labour or less.

Customer dissatisfaction - client usually have an option to pay for Indian or domestic labour and chooses Indian due to its cost. So customer has no rights to complain.

Infrastructure outsourcing is still very profitable for both the client and service company and current trend is only a fluke. More and more accounts are jumping into the bandwagon.

The major issue is tensitions between clients management and service company. Many directors and managers in clients companies are stripped of responsibilities or moved to different positions. They are jelous and see service company and employees as enemy for a very long time. They are trying to do anything possible to convince VPs to go back to in-house model until realize it will not happen.

When dust settles and everyone accepts new reality.

As long as the cost vs time and quility will be preferred, there will be no switch back on the horizon. The research is wrong.

Mon, 11/05/2012 - 12:18 | 2948791 Acet
Acet's picture

In my experience, Indian management is craptacular.

This is probably something to do with a culture which is far too concerned with status and face, pay scales where low-level managers make more than senior coders and with the problem (which we also had in the West during the IT boom) that in a fast growing company in such an environment, the best coders demand bigger rewards and so get promoted to management (because of the status and the pay-scales) and then suck badly at it since the skillset that make a good coder is not the same as the one that makes a good manager.

I was reading the grandparent post about the India-based coders saying they understand and remembering my own realisation that in a public meeting they will always say they understood it, even (especially) if they didn't understood it at all. This is one of the cultural differences between India and most Western nations and source of many problems.

It would take a huge collapse in offshoring IT to India AND a change in cultural perceptions of face and status AND a shakeup of management practice before offshoring anything to India is not a loss-making exercise in frustration.

Mind you, when you bring Indian coders to the West, under Western management structures and they settle and learn the local culture, many are actually very good.

Mon, 11/05/2012 - 10:18 | 2948369 Bobbyrib
Bobbyrib's picture

KidHorn,

Corporations usually "overlook" what's best for their business for what's cheapest, or whatever the corporate bureaucracy is pushing. Corporation in my experience are not logical. A lot of them are run like the government.

Mon, 11/05/2012 - 09:23 | 2948224 bugs_
bugs_'s picture

I think profitable businesses realize that outsourcing increases costs in the long run.   I am seeing new stuff get insourced while businesses try to manage their legacy things with outsourcing.  HP has been letting go expired H1B's like there is no tomorrow.  In a bizarre twist they are calling back retirees after massive staff cuts.  It is like a mirror image of the 90's.  Reversion to mean?

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