Runtime - The Software Outsourcing Newsletter
for Executives and Investors
from Accelerance and Steve MezakIn this issue: The number of engineers in India, China and Philippines may not meet global demand by 2011. That leaves other areas of the world to pick up the slack.
The Looming Shortage of Global Engineers
According to a McKinsey report, there may not be enough engineers to satisfy global demand by the year 2010. This could have a serious impact on your offshoring decisions.
Last year, the McKinsey Global Institute published The Emerging Global Labor Market Report in three sections covering the demand for employees both locally and globally, the supply and how supply is meeting the demand. There is also a special chapter on the demand for employees in the Packaged Software industry.The report was quoted by Mr. S. Ramadorai, CEO of Tata Consultancy Services (TCS), one of the largest Indian outsourcing companies, at a TiE panel discussion here in Silicon Valley. I was surprised to learn that the report predicts a shortfall of suitable young, low-wage professional engineers in India by 2011. In fact, the report says the U.S. and the UK could absorb the entire supply of these young engineers with less than 7 years experience, in India, China and Philippines by then.
What? We keep hearing about an unabated flow of jobs heading offshore. What’s going on?
Good question. The report quotes one observer of the debate as saying “the plural of anecdote is not data”. True, and this report makes up for it.
The report has hundreds of pages that go into the gory details of analyzing, slicing and dicing global employment data in eight different market segments. Exciting stuff – if you are an accountant! But as we have seen, the analysis and some of the numbers are remarkable.
For example, the flow of "jobs" offshore has been overstated by politicians and the media reporting on anecdotes of actual job loss. There is no question that some engineers have lost their jobs, but how many?
Of course, it is more accurate to say that "work" is being offshored, not jobs. The McKinsey report shows that employment is actually increasing in the U.S. in the Packaged Software segment
Let's look at more of the numbers from the Packaged Software segment containing the companies that supply operating systems, ERP software and other applications.
* 7% of the demand for employees in high-wage countries was offshored to low-wage countries in 2003 for a total of 37,000 FTEs (full time equivalents).
* Offshoring is estimated to rise to 18% of employees in high wage countries or 116,000 FTEs by 2008.
* The maximum number of FTEs is 390,000 that theoretically could be offshored in 2008.The report states that a theoretical maximum of 75% of all FTEs can be offshored for R&D functions of new product development, maintenance, porting, support and integration. This means that at least 25% of these positions are expected to stay in the U.S. and other high-wage countries.
Why? The report has a list of the drivers and inhibitors that influence your decision to go offshore.
Strong drivers include cost pressure and the difference in costs between the high and low wage countries. Another driver is your presence in other countries and experience with global software development.
Two strong inhibitors are poor quality concerns and intellectual property exposure. But if you have a high quality offshore software development team and reduced concerns for IP, then I frequently see 100% offshoring of R&D at small companies where budget is more dominant than these risks.
Are there enough engineers available? Maybe not. The report considers whether the engineers in each low-wage country are "suitable" for multinational engagements. Suitability is determined by language skills, cultural differences and inflexible work hours.Here are the percentages and total number of suitable engineers estimated to be available in several low-wage countries:
Engineers
Engineers
EngineersRussia Czech Republic Poland Hungary China Philippines India Malaysia Brazil Mexico TOTAL I used the percentage growth of Engineers presented in the report to estimate the number of suitable Engineers available in 2008. Mexico and Brazil have the highest growth rate at a CAGR of 9% and 10% respectively.
Conclusions:
* There are plenty of engineers. The numbers show a surplus through 2008. The report extrapolates supply and demand to show a possible shortfall in 2011 but many things could change by then.
* Outsource without shame. Everyone is doing it and job growth is predicted for both high and low wage countries.
* Have a balance of in-house technical expertise and offshore technical resources.
* Broaden your search for offshore resources to other countries with suitable engineers.The best way to broaden your offshore outsourcing choices is the Accelerance Outsourcing Jumpstart service. You get a short list of pre-qualified vendors in whatever region of the world you choose.
See http://www.accelerance.com/services.htm for more details.
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The Runtime Bottom Line: The supply of global engineers is sufficient through 2008. If we start running short of suitable engineers later then countries may be able to improve the suitability of their engineers for multinational work and you can use software vendors from other countries emerging as competitors.
Until next time,
Steve Mezak
Accelerance, Inc.
Risk-Free Outsourcing
213 Garcia Avenue
Half Moon Bay, CA 94019
1-650-712-8990(c) 2006 Accelerance, Inc. All rights reserved. You are free to use material from the "Runtime" eZine in whole or in part, as long as you include complete attribution, including live web site link. Please also notify me where the material will appear.
The attribution should read:
"By Steve Mezak, CEO of Accelerance, Inc. Please visit the Accelerance web site at http://www.Accelerance.com for more information and resources on outsourcing and creating great software."
