The term outsourcing covers a multitude of sins, and has expanded considerably from its original model which was exemplified by EDS in its heyday, namely, of buying “big iron” data centers from major corporations, along with their employees, and operating them on their behalf.

As for your comments on Accenture and IBM, are you certain you are not including their computer consulting business in with your definition of outsourcing? I consider those to be separate activities, and the companies do as well.

My brother worked for EDS for 20 years, and spent a couple of years at Accenture in its outsourcing area before moving to HP. He found outsourcing at Accenture to be a small, underresourced business not well understood or appreciated by management. And in a way, with good reason. The mainstream consulting projects produce high current income. The outsourcing projects (nearly all of which had a hardware component) were lower margin annuities. Partnerships tend to have trouble handling that sort of business. The partner who sold the deal wants front end credit, since he may not be there for the term of the deal, and high bonuses makes their less attractive economics look even worse.

Both Accenture and EDS are having trouble in their corner of the outsourcing market against IBM and HP which bundle equipment sales into their offerings and can take a lower blended margin.

Again, it’s only one source, but my brother and his colleagues seem always to be competing with HP and IBM. I never hear of Infosys or WiPro, which to me says that the US firms aren’t going after their markets.

As for IT employees, I know of the practice only with investment banks who do indeed use a lot of consultants. And the middlemen do not play the same role as outsourcers. They are “agencies” and act as headhunters. They screen candidates, pass along resumes, and take a percentage. Unlike outsourcers, they do not negotiate project scope, price the project, or, most important, play any role in providing the service.

“First is that US companies have completely and uncharacteristically ceded a major multinational industry to an emerging nation. ” —

The above is not completely true. Accenture, an American company is doing quite well in tapping the talent in developing countries, and in teh case of India, is able to compete effectively with Infosys, TCS..etc. IBM is another company which comes to mind.

And — “So we have the prospect of US companies paying a middleman’s markup to hire domestic workers. How smart is that?” —-
The banking industry is notorious for hiring huge number of contractors (paying middle men who are both American and Indian). The mangers seem to prefer the disposable nature of contractors when the IT Dept. has a good budget.

Ven

-A-