That Giant Sucking Sound
That Giant Sucking Sound
Date: Monday, May 13, 2002 4:09 PM
*** H-1B NEWSLETTER ***
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So many stories about outsourcing are in the news I just thought I would
share a few links (A few of the articles are no longer online so I
reproduced them). Outsourcing is a major issue and is directly related
to
H-1B. That is because cheap labor overseas is replacing American workers
instead of them coming here on H-1B.
Either way this spells big trouble for the American workforce.
If you don't have time to read anything else, scroll to the bottom of
this
newsletter. I was working on this newsletter and saw that little blurb
about
the ITAA. That is what set my alarm bells off and inspired me to write
the
previous newsletter "ITAA vs. AFGE". I still haven't received a reply
from
AFGE about why they insist on hiding their web pages about this
controversy.
http://news.com.com/2100-1040-277506.html?legacy=cnet
India becoming world's back office
These 18- to 26-year-olds work for an international unit of eFunds and
handle direct telemarketing calls from customers halfway around the
globe
for U.S.-based call center operator West TeleServices.
http://news.com.com/2100-1001-803367.html?legacy=cnet
IBM to outsource desktop manufacturing
IBM is choosing its battles, and manufacturing desktop PCs isn't one of
them.
http://www.247customer.com/pages/launch-04122015.html
When Palo Alto, Calif.-based AltaVista decided to outsource customer
support for the services and products it offers on its portal, it zeroed
in
on 24/7 Customer.com, a startup that runs a support center in Bangalore,
India. "We did look at many different locations -- the Philippines,
Costa
Rica, India, and so on," says Jeffrey Ferro, customer care manager at
AltaVista. "We decided on India and 24/7 Customer.com due to the low
cost
vs. the high return in quality and experience."
http://www.rediff.com/money/2001/apr/21job.htm
The company was reported as saying that the average pay of US employees
whose jobs are slated to move to India is $32,000 per year. Transferring
the
work to India will save about $30 million to $60 million, the company
was
reported as saying.
http://iwsun4.infoworld.com/articles/ca/xml/01/07/02/010702cacity5.xml
Even as local companies decrease new hires, multinational companies such
as
Lucent Technologies, Hewlett-Packard, and Oracle have announced plans to
expand their software development and design centers in Bangalore this
year
because of the cost advantage and availability of talent.
http://www.suntimes.com/output/zinescene/cst-fin-ecol061.html
Workers in Pakistan are bulk of firm's staff
An Evanston software company has succeeded in the tough dot-com
industry,
thanks in large measure to a work force made up largely of software
developers in Pakistan.
*** This is no longer available online ***
Quark shifting jobs to India
Denver workforce halved while 300 join firm overseas
By Andy Vuong
Denver Post Business Writer
Friday, April 05, 2002 - Quark Inc., one of Denver's most successful
software makers, has cut its workforce here in half while significantly
increasing operations in India over the past year, according documents
obtained by The Denver Post.
The privately held company's staff in Denver has dropped to about 200
employees from about 440 in July. During that time, Quark has hired more
than 300 engineers in India.
The shrinking local workforce, coupled with the company's growing
presence
in India, has fueled rampant speculation that Quark plans to move most
of
its engineering positions - essentially the brains of a software maker -
from Denver to India.
The company denies it.
"Denver is and will continue to be the nerve center for our global
operations," said spokesman Glen Turpin. "This is the brains of the
operations."
Turpin said Quark is hiring at all of its offices, including Denver. But
none of the company's nine job openings in Denver are for engineering
positions, according to its website. The company lists 12 job openings
in
India on its site, most of which are for software developers.
And some software engineers in Denver have been told that they will be
laid
off within two months once their jobs are filled in India.
"Fred (Ebrahimi, Quark's chief executive), several years ago, discovered
the
economics of (employing) software programmers in India," said Thad
McIlroy,
a San Francisco-based electronic publishing consultant who has tracked
Quark
for more than 15 years. "He's not the only one. All of the expenses
related
to programming would be at least two-thirds cheaper in India."
Quark acknowledged that it has laid off some Denver workers over the
past
several weeks and has filled some of those jobs overseas. About 20 local
employees have resigned or been laid off in the past week.
"We're looking for the best place to get the job done. In some cases, we
have chosen other locations other than Denver," said Jeff Mantz, Quark's
director of operations.
Mantz said the job cuts were based on performance. "The folks that we've
let
go here recently really haven't measured up," he said. "It's not
necessarily
a reduction in force."
In an interview last May with The Tribune, a newspaper in Chandigarh,
India,
Ebrahimi said he planned to hire 500 engineers in India. He also said
the
drop in the company's U.S. workforce during the economic downturn was
part
of its strategy.
Ebrahimi wasn't available for comment Thursday.
Quark wouldn't disclose its total workforce in India. But Quark
executive
director Bal Sehgal in January told Express Computer, an India-based
weekly
publication, that the company has 325 engineers at its recently opened
research-and-development center there. Sehgal also said the company
plans to
hire 300 engineers over the next four months and plans to make India its
R&D
hub.
"Fred has never made it a mystery that he would want to only have a
small group of designers here," a software engineer who has worked at
Quark's Denver office for more than five years said on the condition of
anonymity. "Three years ago, when he was planning an office in India, he
said he would have all of the development in India."
Tim Gill started Quark in 1981 with a $2,000 loan from his parents. The
company grew into a desktop publishing powerhouse with 1,000 employees
worldwide, 2 million customers and annual revenue of more than $100
million.
Its flagship product, QuarkXPress, is the overwhelming leader in desktop
publishing software.
Gill left the company and sold his 50 percent stake in October 2000 to
pursue philanthropic endeavors. It is widely assumed that Ebrahimi
bought
Gill's shares, though the company never disclosed details of the
transaction. Ebrahimi, who joined Quark in 1986, already owned the other
half of the company.
Until his departure, Gill was the company's technology leader while
Ebrahimi
handled business operations, said consultant McIlroy.
Ebrahimi has tangled with many of the company's engineers after taking
over
the technology operations from Gill. "There's a personality clash going
on
here," McIlroy said.
Ebrahimi has said he prefers desire over skill from his engineers.
"There is something more important than skill. We want to look for a
certain
character," Ebrahimi told The Tribune. "I am seriously considering
hiring
non-engineers to do IT work because they bring a human side."
Despite the differences between Ebrahimi and some of his engineers,
Quark
has continued to thrive, McIlroy said.
"Fred's an awfully good businessman. I don't think anyone has ever
accused
him of not being sharp or shrewd," he said. "But if Fred was as bad as
people have said he is, the company would not be as successful as it
is."
*** This is no longer available online ***
High-Paid Jobs Latest U.S. Export
Firms' shifting of technical work to Mexico and China to cut costs
bodes
ill for many laid-off Americans.
By EVELYN IRITANI, Times Staff Writer
For more than a century, Emerson Electric Co. rode the business cycle,
expanding when sales were high and cutting jobs when revenue went south.
That is still the strategy as the U.S. economy is poised to turn the
corner,
but there is a twist: The St. Louis-based multinational won't be hiring
at
its rural Mississippi plant--that facility is shutting down. Instead, it
expects to be hiring in China, the Philippines or Mexico. And it won't
just
be assembly-line jobs going offshore. Emerson hopes to move at least
half of
its engineering work to China and India.
Emerson's example bodes ill for millions of laid-off Americans, who may
never see their jobs return with the economic recovery.
The increased flow of trade and investment across borders played a large
role in the economic expansion of the last decade. Now, during an
economic
contraction, the flip side of globalization is apparent: U.S. firms are
finding cheaper places to do business where they also can sell their
goods.
Along with computer chips and airplanes, it is jobs and investment
dollars
sailing offshore.
"We want to make sure when we come out of this recession we'll be
ready,"
David Farr, Emerson's chief executive, told analysts recently. "When we
finish this calendar year 2002, 70% of our manufacturing will be in
low-cost
countries. That's a significant change from where we were before."
In recent months, Emerson announced the closure of its plant in Oxford,
Miss., and cutbacks in Montreal. A factory in Monterrey, Mexico, is
closing
and some of the work is being shifted to China. By the end of this year,
the
company will have shuttered 50 facilities and cut its work force by 10%.
"We've got to get the same amount of output, the same level of
technology
without spending as much capital," Farr said.
Others are close behind. Black & Decker Corp., the nation's largest
power
tool manufacturer, has announced the closure of three plants, including
a
400-employee Pacoima facility, and a shift of that production to Mexico,
China and Eastern Europe. Battery maker Evercel Inc. is closing plants
in
Connecticut and Virginia and moving assembly work to a joint-venture
plant
in Xiamen, China. Lear Corp., the world's fifth-largest auto parts
maker,
said it will eliminate 6,500 jobs and close 21 facilities, nearly
two-thirds
in the higher-cost regions of the U.S., Canada and Europe. The company
would
not provide a breakdown of where the jobs would be lost.
Lear Chief Executive Bob Rossiter said the restructuring represents
"tough
decisions to right size our company for future success."
Emerson's decision to move the work of its Oxford plant to Mexico and
China
means that 500 jobs--a quarter of the town's manufacturing base--will
disappear.
When Max Hipp, executive director of the Oxford-Lafayette County
Economic
Development Foundation, first heard the bad news, he tried to persuade
the
town's largest private employer to stay. But Oxford, a town of 11,756
where
the median income is $20,383, already offers some of the cheapest labor
and
operating costs in the United States.
"We talked about ways to save it, but with something of this magnitude
and
the type of competition we face, there's really nothing we can do," the
Oxford native said. "If we eliminated their [Emerson's] entire tax
burden,
that wouldn't make a difference."
Labor leaders and other globalization critics had hoped the airport
shutdowns and lengthy border delays that followed the Sept. 11 attacks
would
prompt U.S. firms to keep work at home.
"Certainly we hope that American companies will be feeling patriotic and
they will have some commitment to their communities and their workers
and
will address their cost pressures in some other way than by
outsourcing,"
said Thea Lee, an assistant director for international economics with
the
AFL-CIO in Washington.
"With profits at the lowest percentage of corporate revenues in the
postwar
period, firms are being forced to reevaluate their business models and
figure out whether or not things can be done more efficiently," said
Ross
DeVol, director of regional studies at the Santa Monica-based Milken
Institute. "The recession just accelerates that trend."
Manufacturing jobs historically have been the most vulnerable to global
competition, but the latest round of outsourcing also is hitting
telephone
operators, graphic designers, accountants and engineers.
Trade experts argue that this global repositioning is healthy, simply
stepping up the shift of the U.S. economy toward a more high-tech
provider
of services and more sophisticated products. By taking advantage of
lower
costs abroad, U.S. firms can retain their competitive edge and gain
inroads
in fast-growing markets in Asia and Latin America.
The beneficiaries include export-oriented developing countries slammed
by
the U.S. slowdown. Leading that list is China, a more attractive place
to
operate since it joined the World Trade Organization in December and
agreed
to play by global trade rules. In spite of the global downturn, foreign
investment in China was up 14.9% in 2001 from the previous year,
according
to China's Ministry of Foreign Trade and Economic Cooperation.
U.S. firms are attracted to outsourcing because it makes it easier to
adjust
their production and transfers the overhead costs and labor expenses to
their subcontractors. From 1996 to 2000, outsourcing by U.S. firms
tripled
from $100 billion to $345 billion a year, according to John Challenger,
chief executive of Challenger, Gray & Christmas, an international
outplacement firm.
Since the September attacks, companies are scrutinizing their supply
chain
for weaknesses and looking more carefully at the stability of their
foreign
suppliers and the countries where they do business, said John Coyle, a
professor at the Center for Supply Chain Research at Pennsylvania State
University's Smeal College of Business Administration.
"Sure they're really concerned [about Sept. 11] and they've put in place
safeguards, but no one is saying, 'We're not going to be global,' " he
said.
In the U.S., labor-intensive jobs in textile and apparel manufacturing,
toys
and light electronics migrated long ago to low-cost production areas in
Asia
and Latin America. Now, it is more sophisticated industries such as
semiconductor and aerospace manufacturing and network computing that are
moving offshore, in part because a strong dollar raises the price of
U.S.
exports.
Belt-tightening in the battered commercial aerospace industry has forced
companies such as Honeywell International Inc. and General Electric Co.
to
look south for cheaper sources of components. Honeywell, which purchases
15%
of its $1.4 billion a year in raw materials abroad, held a suppliers
conference recently in Monterrey.
"We still probably do less off-shore sourcing than most industries, but
with
the dollar where it has been the last couple years, there's even more
pressure to look offshore," said Joel Johnson, vice president of
international affairs for the Aerospace Industries Assn. of America.
"Aerospace companies are doing more and more work in Mexico."
Michael Stow, president of Orange-based Arden Engineering Inc., is
bucking
the trend. Though he lost some commercial aerospace orders in the Sept.
11
fallout, he has picked up business on the military side. By forging
long-term contracts with raw-material suppliers and upgrading his
machinery,
he has been able to keep his 85 jobs in the U.S. and stay competitive.
He
also produces more sophisticated structural components that aerospace
firms
are less willing to source abroad.
But thanks to infusions of foreign investment and technology, developing
countries are moving up the manufacturing chain quickly.
In Emerson's reconfigured world, power modules or motors would be
designed
in St. Louis but engineered and produced in Shenzhen, China, or
Mexicali,
Mexico. Customers calling Emerson's ClosetMaid subsidiary would talk to
an
operator in the Philippines. An accounts-payable center in the
Philippines
or India would handle the bills for all of North America, a
consolidation of
400 offices.
China is fast becoming a linchpin in Emerson's global empire,
contributing
44% of last year's $1.7-billion sales in Asia. In addition to being a
cheap
manufacturing base, China represents one of the world's fastest-growing
markets for Emerson's power conversion and compressor technology and
plant
automation systems.
CEO Farr believes Emerson has a lot to learn from China about producing
a
good product at the lowest price.
"They can engineer a product so much faster than we can," he said. "They
can
get a product family out in 12 months when it would take us two years'
time."
*** This is no longer available online ***
Industry braces for outsourcing fight
IT issues awaiting as Congress readies for a new session
By Gail Repsher Emery
Attempts to limit government outsourcing will again be a flash point for
the
information technology industry when Congress comes back to Washington
Jan.
23.
IT contractors fought attempts to restrict outsourcing that appeared in
myriad bills last fall, and they expect to face similar challenges this
spring. The Government Accounting Office's Commercial Activities Panel
is
due in May to report on its investigation of the A-76 outsourcing
process,
which could trigger either support for outsourcing or a backlash against
it.
"It's going to be very political year. Both sides are going to dig in,"
either promoting or moving to restrict outsourcing, said Booth Jameson,
director of global government affairs for the federal unit of Electronic
Data Systems Corp. of Plano, Texas.
One piece of legislation defeated last year was a budget amendment
proposed
by Rep. Neil Abercrombie, D-Hawaii, that would have let Defense
Department
workers compete for thousands of jobs held by contractors.
Still considered a threat is the Truthfulness, Responsibility and
Accountability in Contracting Act, introduced by Rep. Albert Wynn,
D-Md.,
which would force contracting competitions between the public and
private
sector.
"We have no reason to believe that proponents of the TRAC Act won't
continue
to press that issue," said Olga Grkavac, executive vice president of the
Information Technology Association of America, an Arlington, Va., trade
association.
Mike Rious, senior legislative assistant for Wynn, said the congressman
would consider attaching the TRAC Act to a larger bill to help it get
passed, but would want to have a hearing first. That hearing would be
set by
Rep. Tom Davis, R-Va., chairman of the House Government Reform
subcommittee
on technology and procurement policy.
David Marin, spokesman for Davis, said he expects outsourcing to be "an
issue in perpetuity," although he didn't expect a hearing on the TRAC
Act in
2002. "We held a comprehensive hearing on the legislation and the issue
of
outsourcing in general [last year]," he said. "If there are new issues,
we'd
like to hear about them."
Outsourcing is just one of several issues left unresolved by lawmakers
as
they rushed to complete appropriations bills and pass various security
measures before leaving town last month. Industry lobbyists say Congress
is
expected to consider numerous bills of vital interest to the government
IT
community, ranging from tax credits and trade to homeland defense and
cybersecurity.
Industry executives will advocate for several legislative provisions
that
could boost their bottom lines in the tough economy, including a
permanent
extension of the tax credit for research and development, accelerated
depreciation of IT assets, services acquisition reform and trade
promotion
authority for the president.
The R&D tax credit, which ends in 2004, allows companies to invest in
advanced research areas, and is essential to their long-term planning
and
budgeting, advocates said.
Accelerated depreciation of IT assets would allow companies to write off
the
costs of high-tech equipment more quickly. Then they wouldn't have to
hold
onto outdated technologies in order to realize full tax deductions. The
result would be increased savings for the firms and the creation of more
tech jobs, advocates said.
The success of the provision is uncertain, however. Republicans and
Democrats have included it in their economic stimulus bills, but the two
sides have not been able to agree on an overall stimulus package.
"The good thing is that everyone is talking about [depreciation], but
unfortunately, it's caught up in bigger fights over the economy,"
Jameson
said.
If Congress can't agree on a stimulus bill, an accelerated depreciation
provision might be approved if it is attached to another piece of
legislation, he said.
"I would not be surprised to see attempts to attach it to some train
that is
moving," Jameson said.
Efforts to reform services acquisition procedures should begin early
this
year with the introduction of the Services Acquisition Reform Act by
Davis.
The bill would create a chief acquisition officer position within every
federal agency and encourage the use of award-term contracts,
multiple-year
contracting and past performance as a standard for contract awards, so
that
best value - rather than lowest price - drives the procurement award
process.
Trade promotion legislation passed the House Dec. 6 by one vote, and
industry executives hope the Senate will approve the measure as well.
The
legislation requires Congress to vote on trade treaties without the
ability
to amend or otherwise modify them.
"While IT spending growth at home has slowed, growth in other
international
markets remains strong. Competitiveness for many IT companies will
depend on
their ability to access these global customers on favorable trading
terms,"
said Harris Miller, president of ITAA.
John Palafoutas, senior vice president for domestic policy at AeA, a
Washington high-tech trade association, said he thinks the Senate will
approve the measure.
IT industry executives will also closely follow legislation that could
bring
them work in information security, make it easier for government clients
to
buy products and services, and affect their ability to recruit and
retain
workers.
Government IT contractors are particularly interested in legislation
that
would fund additional homeland security projects, such as airport
security
technologies and information sharing among law enforcement agencies,
Jameson
said. They'll also be watching for the legislation to reauthorize the
Government Information Security Reform Act, which requires federal
agencies
to report on their security measures. The reauthorization bill,
sponsored by
Davis, would require agencies to implement security best practices and
adopt
minimum standards.
Legislators also will pursue the expansion of emergency procurement
procedures beyond the Defense Department to all government agencies.
Provisions in the 2002 Defense authorization act include reclassifying
goods
and services to fight bioterrorism as "commercial" items, allowing for
simpler, faster contracting procedures.
"Emergency procurement legislation will be among the first items [Davis]
will push," Marin said. Davis introduced legislation Dec. 6 that would
simplify governmentwide procurement procedures for items used in
humanitarian, peacekeeping and counter-terrorism efforts. Palafoutas
expects
the industry will have to work hard to protect programs that help
recruit
and retain workers. If unemployment continues to rise, he expects
lawmakers
to re-examine the H-1B visa program.
The visas are commonly given to highly skilled foreign IT workers. The
cap
on the number of H-1B visas, at 195,000, is in effect until 2003. The
most
recent figures from the Immigration and Naturalization Service, issued
in
November, indicate that 163,200 H-1B visas were issued against the
fiscal
2001 cap, and that 29,000 applications were pending at year-end that
could
bring the 2001 total to 192,200.
"If unemployment is up, legislators are going to be saying you've got to
be
hiring U.S. workers. That rhetoric is going to be very compelling to
some
people, even though [the visas are] providing skills we just don't have
here," he said.
The industry may also have to press for legislation that would prevent
the
Internal Revenue Service from withholding employment taxes from employee
purchases of company stock under stock purchase plans and from incentive
stock options.
A moratorium on the withholding expires in January 2003. If the ban is
not
reinstated, the IRS will begin taxing compensation that has not been
received by employees, Palafoutas said.
"I think companies are going to stop giving these incentives, and
employees
will get hurt," he said.
Staff Writer Gail Repsher Emery can be reached at
gemery@postnewsweektech.com.
Olga Grkavac of the Information Technology Association of America said
her
organization believes TRAC Act supporters will "continue to press that
issue."
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