How to Save the IT Industry in 4 (Not So Easy) Steps

When you hear U.S. politicians railing this loudly against corporate outsourcing, you know it’s an election year.

With job creation a prime campaign issue, the O-word is a hot topic across presidential primary debates, congressional committees and the president’s State of the Union address. Setting aside the fact that those running for office really mean to rally against offshoring, not outsourcing — after all, U.S. corporations are replacing American workers with direct hires overseas, and a company can theoretically outsource domestically without net job loss — their proposed solutions would likely do little to stem the flow of IT jobs overseas.

Many of the suggested initiatives, including those put forward by President Obama, are focused mainly on manufacturing, rather than services such as IT. And those that could impact the IT services industry — legislation to limit visas for foreign IT professionals or to compel U.S. corporations to report employment figures by country — are hardly comprehensive cures for what ails the American tech sector.

When it comes to offshoring, “while politicians need to be seen to be against it, they do little to prevent it,” said Phil Fersht, founder of outsourcing analyst firm HfS Research.

If government leaders really want to retain (or regain, depending whom you ask) America’s competitiveness in the global IT service market, here are some changes that could actually make a difference:

Rebuild Brand USA

Much political hay has been made recently of select American companies repatriating their manufacturing operations — not as a patriotic act, but because the cost of sourcing the work stateside had become competitive with overseas options. And that may be the case for some IT work as well: Boise’s labor rates are coming in line with Bangalore’s.

The problem, according to Fersht, is that India now the dominant IT services brand in the world. And government and industry groups in competing countries are all hard at work creating and promoting their own IT services identities. The United States? Not so much.

“We’ve even seen enterprises actually declining to use onshore U.S. IT services firms which underbid their Indian competition, because they are so invested in the Indian IT brand,” Fersht said. “The Chinese and Indian governments, as examples, constantly invest in their local business to help them grow and be successful.”

A stronger American IT services trade group would help, too. Monty Hamilton, CEO of Atlanta-based IT and BPO provider Rural Sourcing — not generally a fan of government intervention in industry — wouldn’t mind a little NGO support. “There is a successful model that the U.S. can implement to better position us to compete for and win more technology jobs,” Hamilton said. “The model is NASSCOM.”

Become the (Data) Host With the Most

If you build it, they could come. “If the federal government wants to grow [IT] jobs, they should provide incentives for building data center capacity,” said Mark Ruckman of outsourcing consultancy Sanda Partners. “Make the U.S. the place where international companies want to host their data.”

That kind of initiative could boost not only the domestic IT services industry, but the hardware and construction sectors as well. But only if the United States doesn’t scare off overseas outsourcing customers with data privacy concerns. Government leaders should consider “limiting the ability of the U.S. government to use the Patriot Act and other tools to access corporate data as desired,” Ruckman added. “Many [foreign] companies that would bring IT services and data to the U.S. prefer to send IT services and data to Canada or Europe to [avoid] the long arms of the FBI, Justice Department, CIA and Department of Homeland Security.”

Devise a Long-Term Plan for Resurgence

Some observers also argue that U.S. policymakers have been short-sighted in their planning.

“The U.S. government is not overly concerned with a long term-view of anything,” said Adam Strichman, founder of Sanda Partners. “The farthest their eyes can see is four years, which is not enough time.”

Not so the Chinese, who have been barreling through consecutive 10-year plans for global IT services ascendancy. “They have decided that they will be the de facto choice for IT outsourcing, and they are now restructuring aspects of their society so that in 15 years, they can’t be beat,” said Strichman. Those plans encompass everything from English language programs and IT literacy education to physical infrastructure designed to cater specifically to the IT services industry.

“They have an integrated economic plan to take the IT flag from India and plant it squarely in China,” Strichman said. Creating such a comprehensive plan along with economic incentives specifically designed to increase IT isn’t easy, but the United States has a head start.

“We have the infrastructure, which is the hard part,” Strichman said. “But we don’t have the incentive plan which is available in other countries.” Those incentives could include payroll tax benefits for companies hiring U.S. IT professionals, or tax incentives for individuals working for those companies.

Invest in IT Education Reform

The federal government must take a more active role in U.S.-based IT education and training initiatives, said Marc Tanowitz, principal for outsourcing consultancy Pace Harmon. What’s needed — from pre-k all the way through post-secondary school — are rigorous programs to teach practical and effective IT skills for the next century, he says.

Rather than a focus on routine IT tasks that will never return to the United States, KPMG research director Stan LePeak would like to see a greater emphasis on core tech skills, emerging technologies, and creative IT problem solving.

“We also need some strong federal and state guidelines which encourage public school systems to provide significant computer literacy programs similar to math, science, and language arts,” adds Strichman.

Government could also play matchmaker for public-private partnerships to groom the next generation of IT talent. Or it could direct mid-career workers in other dying industries to the profession, “creating programs that retrain the unemployed and under-employed for IT related jobs,” said Mary Beth Kush, senior director of Acumen Solutions, which recently invested in a development center in Cleveland.

And then there’s an idea that, thankfully, is already on the table — making college more affordable. “Other countries don’t require a 30-year mortgage to get a degree in computer science,” said Strichman, suggesting that the federal government should tie federal funding to restrictions on the cost of an IT-related degree. “Will flooding the market with low-cost computer science majors be the best plan? I don’t know,” he said. “But it is better than flooding the market with the world’s most expensive IT personnel.”

Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section.