Government must stop offshoring: Lundy

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Promised cost savings from IT offshoring could ‘evaporate’ under the ‘further burden of administration’, Shadow Minister for Information Technology, Senator Kate Lundy has claimed.

Promised cost savings from IT offshoring could "evaporate" under the "further burden of administration", Shadow Minister for Information Technology, Senator Kate Lundy has claimed.

Lundy called on the Federal Government to ban the offshoring of ICT services by departments and agencies, not just to fuel local industry development, but "purely because it is so difficult to guarantee both the security of their systems, and the privacy of personal information contained in them".

Speaking at a 'Women are IT' panel discussion in Melbourne, Lundy cautioned ICT purchasers - in particular the CIOs of Government departments - to pay closer attention to claims regarding cost savings through offshore IT labour made by outsourcers.

"ICT purchasers - and I hope the CIOs of Government departments are listening - need to be aware that promised savings in ICT projects have a habit of evaporating," she added.

Referring to Telstra's $75 million deal with technology company Infosys announced last month - which she claimed could see up to 180 Australian jobs go offshore from Telstra's existing IT contractor, IBM Global Services - Lundy expressed disappointment about the Government's inaction.

"Telstra's offshoring plans were raised with the Government, in its role as majority shareholder, and it chose to do nothing. Perhaps this is typical of a Government which has consistently promoted Australia's use of ICT, whilst neglecting our ICT production," Lundy said. "I don't believe that offshoring will provide companies like Telstra or the ANZ the savings they are expecting," she added.

IBM GSA and Infosys were unavailable for comment at time of writing.

However a Telstra spokesperson commented: "we have never said [outsourcing] is about cost savings, but instead it's about quality, cost effectiveness and improved cycle times."

Comparing the average annual wages of systems programmers in Eastern Europe, Russia, or Asia and the sub-continent to the wage of the Australian equivalent can make offshoring seem attractive to most CIOs, Lundy said. But wage analysis alone is an inaccurate way of measuring the benefits, she claimed.

"[CIOs] think, 'Why am I paying $50,000 per annum for a programmer in Australia, when I could be paying $10,000 per programmer in one of these countries?' However, it's never that simple," she said.

Lundy made reference to reports from various analyst firms, which suggest the savings promised by adopting cheaper foreign labour can be eaten up by the further burden of administration. "Some reports estimate that an overseas worker can cost a company four to eight times the cost of their salary through transitional costs such as laying off current staff and setting up business overseas, the costs of managing an offshore contract, and productivity costs," she said. "According to META Group, organisations going offshore will experience lags in productivity which can add as much as 20 percent in additional costs to the contract."

The Shadow Minister also took the chance to have a stab at the Government's ill-fated IT outsourcing model.

"The Australian Government has some pretty nasty war stories about the consequences of believing certain ICT firms which told them how, seemingly co-incidentally, the taxpayer would be better off if they bought into their preferred ICT procurement model. I'm sure the Department of Finance and Administration will never forget how projected savings under the Government's IT Outsourcing model turned into a $5 billion debacle," she said.

Further concerns surrounding offshoring include the security of ICT systems outsourced overseas, and the privacy of Australians whose information may be kept on these systems in Australia.

"Unfortunately, when ICT systems are outsourced it becomes much more difficult - and certainly much more expensive - to guarantee these security and privacy standards," she added.

"When one thinks that under the Howard Government our ICT trade deficit reached $14.4 billion in 2001-02 alone (equivalent to 65 percent of the Current Accounts Deficit for that year), one has to wonder how much more ICT business we can afford to lose from Australia," she said.

Exporting ICT jobs offshore also could lead to "Australia losing its capacity to compete in this sector" and "dulling the capabilities of our ICT labour force through under-utilisation" Lundy said.

Australia's ICT industry must take steps to combat the growing trend of offshore outsourcing or risk job loss. "If we are complacent, or if we resign ourselves to this phenomenon, it will be just the beginning. The truth is, we can't simply give up, we must take steps to combat this trend," said Lundy.


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