Global outsourcing providers have major surprises in store Providers of global outsourcing

services will come under increasing scrutiny over the coming year as buyers look to achieve the best results from contracts, warns Diamond Management and Technology Consultants.

In a forecast of trends, published ahead of its annual global outsourcing study, Diamond's sourcing practice claims that buyers who are disappointed with the performance of outsourcing companies are likely to bring back some of their work in-house.

Nonetheless, Diamond emphasised that the trend was "by no means the death knell for outsourcing", predicting continued growth for the industry within both the IT and business process sectors.

China in particular is expected to take advantage of its role as host of the 2008 Olympics to demonstrate its place as "an outsourcing super-power", with previous Diamond research indicating that the number of buyers who expect to outsource IT functions to the Asian nation grew by 48 per cent between 2004 and 2006.

Diamond also stressed that some buyers would want to establish closer relationships with outsourcing providers, with some already visiting their offshore training centres for extended period in order to improve working relations.

There is also expected to be a growing call for employees at outsourcing firms to undergo security checks.

"We are going to see companies scramble to find advisors who not only have the skills to review contractual agreements, but who also are willing to provide hands-on management of offshore resources at remote locations, and who can design and track meaningful measures of provider performance," said Tom Weakland, head of Diamond's Strategic Sourcing Advisory practice.

Meanwhile, new research has indicated that fears over increased regulation and compliance demands are making major companies reluctant to outsource their finance and accounting activities.

A survey of FTSE 350 executives by business consultancy LogicaCMG found that 68 per cent were put off outsourcing such functions due to current regulations.

H-1B limits, outsourcing and Rome

The H-1B visa limit for 2008 has been reached, a feat managed in one day. In fact, the US Citizenship and Immigration Service received 150,000 applications as of Monday afternoon, even though they are only allowed to issue 65,000 visas (plus 20,000 more for individuals with Master's degrees).

Demand, clearly, has exceeded supply. Further, given the rather protectionist climate in the United States, I don't foresee any change in this situation in the near future. The irony is rich, indeed, given that such limitations on visas merely enhance the real threat to America's global competitiveness by making wholesale outsourcing more appealing, a point made most recently by Larry Dignan.

The mantra seems to be that we should keep skilled workers OUTSIDE the country (and thus available to enrich foreign companies) because they might undercut American wages. Well, how about setting H-1B workers free so that they are allowed to apply to any company they want once they receive their visas? That way, it wouldn't matter that companies are obligated to pay market-matching wages for H-1B imported hires (which is a difficult to police standard, anyway). They would have to pay quite well if that new hire from Delhi isn't to surf to a neighbor company a few weeks after arriving on American shores.

This distinction has little relevance, however, if you believe that both labor imported through the H-1B program and corporate access to overseas outsourcing companies are bad things, as many globalization skeptics clearly believe. Such opponents, at least in Talkbacks on various sites across the web, often compare the United States to the Roman empire as a means of stoking fears of a Roman-style imminent collapse. Lou Dobbs, CNN's resident globalization skeptic and unnoficial "chief spinner of talking points" for the movement, appears to be the source of such arguments, as I've seen them repeated verbatim on pieces he has authored for the CNN website. Then again, it's possible he copied them from someone less well known.

Either way, it's a nonsense comparison. Rome fell for a variety of reasons, among them poor and overly-centralized leadership (the emperors make great theater for a reason), poor treatment of non-Roman members of the empire (slavery was rampant throughout Roman territory, and creatively-disgusting methods of state-sanctioned abuse were common), limits on upward mobility, and an inability to make the world outside the empire reliant on its existence (thus making them more likely to want to raid it; if the Huns had come to help to construct buildings and roads, Rome would not have fallen). Last, Rome's empire existed 2000 years ago, when far-distant manufacturing on scales common today and near-instantaneous communication over a global network weren't even imaginable.

It's worth remembering that one of the strengths of the Roman empire was its ability to draw product from far flung regions, to the limited extent that was possible in ancient times, thus accelerating the economy in ways other empires did not. On the other hand, the creation of artificial and rigid categories of human beings helped to make Rome's empire unsustainable, and that has more in common with protectionism than globalization. With globalization, the developing world receives a strong source of income, and in return we get PCs that cost $500, something that benefits all the IT workers reading this blog because it means computing is nearly ubiquitous (at least in the developed world, where $500.00 isn't that expensive), which boosts demand for software and IT services.

Can people be harmed in the short term by globalization? Yes (though I would argue that there are better ways to deal with that than blocking foreign competition, perhaps through direct assistance to those affected; that's certainly a better way to spend $750+ billion, which is the current bill for the war in Iraq). However, short term adjustment leads to long term gain, and in the long term, our children will inherit the earth. What kind of America do we want to hand to them, one that has hidden behind protectionist barriers and is thus unable to deal with market realities (and has built up a lot of international resentment in the process) in order to avoid short-term pain, or an America that has figured out what it does best and does that profitably?

We can't ignore forever the developing world's desire to escape poverty. All they ask is the right to sell their products and services to us. Peace through shopping, in other words. In return, we get lower prices that create new economic opportunities, creating virtuous cycles similar to the spur cheap computing gives to the demand for IT services.

Dragging self back to the original point, H-1B programs are less of a risk than outsourcing. Create a restrictive H-1B program, and you cause American companies to hire them in foreign locations (which costs much less), or leave them to enrich companies offering outsourced services.

That's like jumping from the frying pan into the fire.