Sunday, April 25, 2004

Local tech firms
defend outsourcing

Sending programming work
overseas lets Hawaii companies remain competitive

James Kerr sits down in front of his laptop and types in the Web address of, a virtual marketplace for freelance software programmers around the world. His face brightens as the page loads.

"Is this unbelievable or what?" asks Kerr, president of computer-services company SuperGeeks, while scrolling wildly through the bios of some of the 71,000 programmers -- many of them in underdeveloped Asian countries that can offer ultra-competitive rates.

"I'm like a kid in a candy store."

Others are less enthusiastic about the site's possibilities. With an election approaching, outsourcing has become a political football due to concerns about the wholesale export of American IT jobs, and several states are considering legislation to staunch the flow.


That leaves small local IT entrepreneurs like Kerr feeling like they're between a rock in a hard place. They don't like being painted as anti-American, yet outsourcing is a crucial weapon for staying competitive in the increasingly cutthroat and globalized IT industry.

"I'm disappointed by all that talk. It doesn't make much sense anymore," says Kerr, whose firm does software programming and system architecture work in addition to its bread-and-butter computer repair.

"Everything is so global now and its shortsighted to say we should only 'buy American'."

For Kerr, the numbers speak for themselves. Software programmers in the U.S. charge anywhere from $60-$300 an hour.

"I couldn't take on an top-notch in-house local programmer for $60,000-$100,000 a year without a ton more work," he says.

As a result, much of Kerr's work goes to people like Ricardo Budianto, a programmer in Indonesia who does "coding", or software programming, for just $15 an hour, a tidy sum in that country.

The flow of jobs to cheaper overseas workers has grown rapidly in the past couple of years as American firms outsource everything from data entry operations to call centers. A recent report by global consultants Ernst & Young LLP said the outsourcing sector in India -- a hotbed of outsourcing due to its low-cost, English-educated workforce -- grew by 50 percent for the second straight year in the 12 months that ended March 31.

"You can't go into this type of business these days without that international leverage," said Kevin Horio, a Maryknoll High School graduate who founded locally based software services firm Dimensia Inc. in 1996. The firm, which crafts software mainly for East Coast clients, began outsourcing programming work to Asian countries about four years ago in order to stay competitive.

"If we hadn't started outsourcing, we'd still be in business but it would be a much tougher sell," he said.

Horio said efforts by the state to spur the growth of Hawaii's high-tech sector, such as the Act 221 tax credit for technology firms, are helpful. But in order for local companies to stay nimble in the ultra-competitive hi-tech field, they need to jump feet-first into outsourcing.

Horio said Dimensia's future lies in the opportunistic strategy of developing and spinning off proprietary software programs that solve the types of problems its clients most often bring to the company.

By sending the nitty-gritty programming work to coders in Shanghai and elsewhere, Dimensia, which employs about a dozen people full-time in Hawaii, is able to focus on the creative and design work that will drive the company forward and help it create more local jobs.

"It's the small to medium-sized companies like us that really need this," he said. "Big Fortune 500 companies can easily set up their own overseas operations to improve their bottom line a little. But to us, the cost savings are major."

Local entrepreneurs involved in outsourcing admit being stung by the growing anti-outsourcing sentiment.

But that sentiment flies in the face of 15 years of American trade policy, said Virendra Nath, founder of HDEP International, which employs overseas workers to perform data entry and transcription work for mainland insurance companies.

"We've put great pressure on other countries to open up their markets. If we now close off the outsourcing market, other countries might shut off their industries again," he said.

Nath, who now has 650 workers in the Philippines and his native India, founded his company in Hawaii in 1983 to serve insurance companies that could not find stable or dedicated American employees.

"Clients tell me they can't keep staff for this kind of work because McDonald's is paying more," he said.

It's a trend that will continue as other countries catch up to the U.S. in technical skills, said Dieter Ernst, an East-West Center expert on the impact of globalization and information technology on economic growth.

Ernst said outsourcing's scatter-shot nature has led to a lack of reliable data on the phenomenon, thereby fueling an "irrational" debate in the U.S. and making policy remedies hard to formulate. Ultimately, though, America needs to address the underlying causes.

"We need to think more about what we can do in our country to improve education, not just in specialized technical fields, but also for more general 'integrated solutions' capabilities," he said.


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