OUTSOURCING IT Mike Vu Chinh Dang John Gilligan Rex Santa Cruz Athena Lim Mike Vu Chinh Dang John Gilligan Rex Santa Cruz Athena Lim

What is Outsourcing IT? The exporting of IT-related work from the United States and other developed countries to areas of the world where there is both political stability and lower labor costs or tax savings.

No Child Left Behind Act of 2001  United States ranked No. 18 out of 24 nations  About 1.2 millions students drop out every year  17 % of 12 th grade students scored at the proficient level in 2000  Better education in math and science  United States ranked No. 18 out of 24 nations  About 1.2 millions students drop out every year  17 % of 12 th grade students scored at the proficient level in 2000  Better education in math and science

Porter’s Five Forces  outsourcing labor and productions a company can save 30-70% in expenses  competitive advantage over rivals  services or product that a company has would offer a lower price and offer a higher quality  threat of substitutes  product that is cheaper and better in quality than everyone else  outsourcing labor and productions a company can save 30-70% in expenses  competitive advantage over rivals  services or product that a company has would offer a lower price and offer a higher quality  threat of substitutes  product that is cheaper and better in quality than everyone else

Porter’s Five Forces  buying power  company can afford more products and the company can be a major player in the industry  Supplier Power  concentrating its required materials at a lower cost  Barrier to Entry  Makes it harder for other companies to enter because of the higher entrance cost  buying power  company can afford more products and the company can be a major player in the industry  Supplier Power  concentrating its required materials at a lower cost  Barrier to Entry  Makes it harder for other companies to enter because of the higher entrance cost

Porter’s Value Chain

 Cheaper advancements in technology will help with companies primary activities.  Parts of the company’s primary activities are being outsource to cut cost.  When cost is lower it is passed on to the customers.  A better customer relationship at a lower cost and better quality  Cheaper advancements in technology will help with companies primary activities.  Parts of the company’s primary activities are being outsource to cut cost.  When cost is lower it is passed on to the customers.  A better customer relationship at a lower cost and better quality

Outsourcing is not as bad as it seems  Adds $214.2 billion to the U.S. GDP  Creates 317,000 new jobs  Cost savings are more attractive to investors  Adds $214.2 billion to the U.S. GDP  Creates 317,000 new jobs  Cost savings are more attractive to investors

Outsourcing I.T.  After 9/11, Computer economic slowdown, these effects caused a declined the purchase and software develop of computers. During this point of time, software companies loss almost 25% of sales.  By 2015, 3.3 millions I.T. jobs would be outsources to India or China.  In 2000 to 2003, many of the programmer salaries were $130,000. Currently, programmer salaries are $40,000, but there are some programmers are out of the job.  After 9/11, Computer economic slowdown, these effects caused a declined the purchase and software develop of computers. During this point of time, software companies loss almost 25% of sales.  By 2015, 3.3 millions I.T. jobs would be outsources to India or China.  In 2000 to 2003, many of the programmer salaries were $130,000. Currently, programmer salaries are $40,000, but there are some programmers are out of the job.

 Many of them in I.T. started in this profession because they lost their jobs because of outsource. They went back into schools or a trade trying to start a new career without fear of being outsourcing.  According to, “Economists Ashok Bardhan and Cynthia Kroll of the University of California at Berkeley estimate that in July of 2003 between 25,000 and 30,000 IT (information technology) positions were outsourced to India alone.  500,000 jobs lost due to corporations sending to many third world countries after 2009?  Many of them in I.T. started in this profession because they lost their jobs because of outsource. They went back into schools or a trade trying to start a new career without fear of being outsourcing.  According to, “Economists Ashok Bardhan and Cynthia Kroll of the University of California at Berkeley estimate that in July of 2003 between 25,000 and 30,000 IT (information technology) positions were outsourced to India alone.  500,000 jobs lost due to corporations sending to many third world countries after 2009?

What companies are risking?  One problem companies would faced when outsourcing are geographic locations  Second issue facing American corporations, if the countries went under some sort of natural disaster, or social uprising, or lack of communications’ between corporate headquarters and the faculty located in the country  Final risk facing American consumers, are their personal information safe?  One problem companies would faced when outsourcing are geographic locations  Second issue facing American corporations, if the countries went under some sort of natural disaster, or social uprising, or lack of communications’ between corporate headquarters and the faculty located in the country  Final risk facing American consumers, are their personal information safe?

Unemployment  Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work  As of August, 605,000 jobs were lost  Unemployment rate rose to 6.1  Board of Labor and Statics  25,000 people applied at the new Wal- Mart in Chicago. Only 325 positions are available  BLS implied outsourcing is creating JOBS!  Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work  As of August, 605,000 jobs were lost  Unemployment rate rose to 6.1  Board of Labor and Statics  25,000 people applied at the new Wal- Mart in Chicago. Only 325 positions are available  BLS implied outsourcing is creating JOBS!

Opportunities and Advantages for ITO vendors - Enormous Employment Opportunities -Encouraging Wage increases -Market Share -Overall Growth of the developing country

Because of its resources, India has become one of the most important global off shore destinations primarily because of the rising number in English speakers.

Potential Opportunities

Disadvantages for ITO vendors Effect on local economy? India 7% Philippines 3.5% Argentina 4%

Q: Do ethics play a role in outsourcing work? A: Though business relationships are more economic in nature, their moral and ethical dimensions have an equal impact on profitability. - Ranjini Sivaswamy Q: Do ethics play a role in outsourcing work? A: Though business relationships are more economic in nature, their moral and ethical dimensions have an equal impact on profitability. - Ranjini Sivaswamy

“We have to stop providing tax breaks for companies that are shipping jobs overseas and give those tax breaks to companies that are investing here in the United States of America.” Obama’s stance on outsourcing: better education = better job training = better job opportunity H1-B Visa Program tax benefits for companies that DON’T outsource

Outsourcing IS vs. IT  Dependence and Exit Barriers  Physical IS Security  Logical IS Security  Legal Ties and Consequences  Dependence and Exit Barriers  Physical IS Security  Logical IS Security  Legal Ties and Consequences

Physical IS Security  Loss of control of physical security  Now requires assessment of outsourcing firm based on one question  “Does the Outsourcing Firm have the underlying firm’s best interest at hand?”  Loss of control of physical security  Now requires assessment of outsourcing firm based on one question  “Does the Outsourcing Firm have the underlying firm’s best interest at hand?”

Dependence & Exit Barriers  Set contract between two parties exist  Firm must turn over control of IS  Functions may not always be executed upon contract termination  Changes can’t always be done w/out consent of both parties  Set contract between two parties exist  Firm must turn over control of IS  Functions may not always be executed upon contract termination  Changes can’t always be done w/out consent of both parties

Logical IS Security  Most risky concern associated with outsourcing  Increased number of users of systems  Increase chances of system being breached  OF obtains access to all information  Trade Secrets, software, customer info.  Leads to a loss of confidentiality  Most risky concern associated with outsourcing  Increased number of users of systems  Increase chances of system being breached  OF obtains access to all information  Trade Secrets, software, customer info.  Leads to a loss of confidentiality

Legalities & Liabilities  Outsourcing is not considered fiduciary  The party entrusted isn’t responsible for services that are delivered upon termination  No specific obligations are needed to be fulfilled  Contracts are signed on an “As-is” basis  All liabilities held against originating firm  Outsourcing is not considered fiduciary  The party entrusted isn’t responsible for services that are delivered upon termination  No specific obligations are needed to be fulfilled  Contracts are signed on an “As-is” basis  All liabilities held against originating firm

Why IT and not IS?  IT outsourcing indicates lower risk  IS deals with the business side of organizations rather than technology  Reduction of operational costs aren’t worth the liabilities & downfalls  IT outsourcing indicates lower risk  IS deals with the business side of organizations rather than technology  Reduction of operational costs aren’t worth the liabilities & downfalls

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