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Information Technology in Montana – Technology firms come together to boost industry within state

Conor Smith of First Call Computer Solutions http://www.firstsolution.com/ in Missoula knows that a certain amount of information technology work is going to go overseas, but he hopes that the state of Montana won’t send too much of its IT work offshore or even out of state.

By ROBERT STRUCKMAN of the Missoulian

http://missoulian.com/articles/2004/11/16/business/bus01.txt

At his business office on South Higgins Avenue in Missoula, Conor Smith of First Call Computer Solutions described his target customers: small and mid-sized private companies with a mixture of low-key government work, including school districts and the like.

Smith, the managing partner of the small information technology firm, has completed the vendor process to provide state government agencies with Web sites and other technology services, although he doesn’t expect the work to become a central focus.

Yet he does echo sentiments of others in the small but growing high-technology sector in the state. He’s concerned about the trend toward offshore outsourcing, although he knows it is not a black and white issue.

"I’m a business person. Globalization is occurring. I can’t sit back and say I have a right to this money," he said. On the other hand, if the state government buys technology services from local companies, it can play a major role in fostering the small but burgeoning technology industry in Montana, he said.

Offshore outsourcing is not illegal. Nor is it necessarily undesirable. Many in the high-technology industry say it is essential. Yet the subject of foreign outsourcing has gained prominence across the nation in recent years as hundreds of thousands of white-collar jobs have gone to cheaper labor markets overseas. Interest over outsourcing in Montana has mounted in recent months, too, specifically in regard to how state government awards contracts.

Concern among the high-tech community has finally tipped the balance toward action. In mid-September, a group of technology vendors banded together to form the Montana Information Technology Alliance http://www.montanaita.org/ with the goal of promoting and enhancing the information technology industry in the state. The group is young and growing. Smith hasn’t joined yet; he just hasn’t gotten around to it.

The group doesn’t have a formal position on offshore outsourcing. The complexity of the subject is illustrated by the fact that many of MITA’s members have contracts with offshore companies themselves. But member businesses also want to ensure that some percentage of state contract dollars remain in state.

"The IT arena is the largest untapped economic potential this state has," MITA president Glen Gormely said.

Gormely said the state’s failed POINTS project that included millions of dollars in offshore labor was one factor that prompted the founding of the group.

POINTS, which stands for Process Oriented Integrated Tax System, was a $55 million fiasco for the Department of Revenue. Much of the failed project was contracted to an Indian firm. The total cost to taxpayers for POINTS and the band-aid program intended to fix it could come to $77 million.

"That’s what pulled us together. We need to put a stop to this," Gormely said.

Gormely and others in the organization have moved quickly in recent weeks by backing an effort to put a bill before the Montana Legislature this winter that would rewrite the state’s laws regarding its bidding and contracting rules.

Gormely didn’t have details on the nature of the proposed legislation, but he did say that it would not simply award preferences to "in-state" businesses.

It is not as if the state is mailing checks to India addresses, or anywhere overseas for that matter. As an overall slice of the roughly $13.2 million spent last year by the various technology needs of Montana’s branches of government, the share that goes offshore is minor, estimated Jeff Brandt, head of the state’s Information Technology Services Division http://state.mt.us/itsd/default.asp .

About 82 high-technology companies have completed the approval process to compete for state contract work. They range in size from eight employees based in Helena to some of the largest multinational firms in the United States and the world. Many of the contractors themselves subcontract a portion of the state’s work to other companies near and far.

That makes it hard for Brandt to even estimate the amount of money that goes out of state and out of the country.

For instance, TCS America, a subsidiary of an Indian multinational firm with an outpost in Missoula, has about 20 local employees and a Missoula mailing address for its state contract work.

In the modern business world there are few borders, and the state already tried going down the protectionist road.

In the 1990s, the Legislature gave preferences to Montana vendors who competed for state contracts. Then the 2001 Legislature repealed the law and wrote new rules on bidding and contracting that focused on quality and price, said Sheryl Olson, head of the State Procurement Bureau.

Olson has followed the offshore debate as other states have experienced backlash over contract dollars going overseas. She said implementing a preference for Montana companies would be virtually impossible.

For example, she said, "If computer components are purchased from around the world and assembled in Helena, is that a Montan product?"

For that matter, even settling on a definition for a "Montana company" is difficult.

"What is a Montana company? How do you restrict these things? Do they have to have an address in Montana? In the United States? What about the percentage of employees in Montana?" Olson asked.

Actually, Gormely said the percentage of employees in Montana should be the defining factor.

"I feel that’s important. Local vendors tend to have more of a vested interest in the outcome of a project. The work tends to be better. If I screw it up, that’s my livelihood," he said.

Also, a local technology worker, no matter where the employer is, helps to promote a more robust high-tech sector in Montana, he said.

His own resume is an example. For much of the past two decades Gormely has worked in the technology fields in Montana, but he has never been employed by a local company. For years he worked for Bearing Point, a multinational corporation, and now he works for the Helena office of Wisetek Providers http://www.wisepro.com/ , based in Virginia. Nevertheless, he and the seven employees under him have a long-term focus on Montana, he said.

"The bill (in the works) doesn’t say anything about a Montana company but rather Montana residence," he said. Most of the technology organization’s members are national or international corporations.

"Outsourcing is here to stay. But we have to be smart about how we use it. More and more small and mid-sized companies are outsourcing. They need to learn to work with it," he said.

In fact, one of Montana’s most successful home-grown businesses has flourished because of connections to one of the offshore technology hot spots.

Dana Glatz, owner of Western Computer Services http://www.wescoglobal.com/ in Helena, which did nearly $1 million in contract business with state government last year, said he searched for partnerships in Bangalore, India, in 1994 because he needed the affordable expertise. On a typical project, he said, 20 percent of the total dollars will go to his partners in India, allowing him to reduce the total cost of the project by around 40 percent.

Glatz, who started his company in 1978, has 23 employees in Helena and sales teams in Denver and Seattle.

"We do great business (in Helena) and keep the global economy in focus. We can’t swim upstream and ignore the realities of the world," said Glatz, who is also a founding member of MITA.

Still, Glatz also insists on the importance of the state’s technology contracts as a positive force for state’s high-tech companies. But, he said, the emphasis of MITA should be on partnering between Montana technology companies.

"If we work together we can compete better (for state contracts)," he said.

At the Montana Information Technology Services Division, Mike Boyer agreed that the state’s high-tech industry was important. But he said the POINTS project would not have necessarily succeeded if all the contractors had been local.

On- or offshore, Boyer said, the state needs to apply what is jokingly called the "one-throat-to-choke" principle.

The main problem with POINTS was that no one company could be held accountable for the project flopping, he said.

"I don’t think we can avoid all problems by staying local, but you’ve got to have accountability," he said.

Whatever becomes of MITA’s ideas about rewriting the rules on bidding, an association of technology companies is a good first step for the industry in Montana, said Smith in his office in Missoula.

"The more it grows, the better off we all are," he said.

Reporter Robert Struckman can be reached at 523-5262 or [email protected].

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Outsourcing at home

By ROBERT STRUCKMAN of the Missoulian

http://www.missoulian.com/articles/2004/10/29/business/zbus01.prt

While some jobs lost to offshoring, others coming in, officials say

On Missoula’s Palmer Street, within sight of the box stores on Reserve Street, two modest buildings tell a quiet tale of the effect of global outsourcing on Montana.

Amid signs for familiar insurance companies is one for TCS America. The long form of the name is Tata Consulting Services America. It has been sending jobs to India through its Missoula offices for years, said John Riley, who heads the local branch of the New York-based subsidiary of the Indian multinational company.

Riley is quick to add, and many economists agree, that global outsourcing is not a significant factor in job losses in the United States. Over the past decade, though, the issue has gained political prominence as manufacturing centers and, increasingly, white-collar and business-service jobs have moved operations to cheaper labor markets in other nations.

In the past two years, U.S. companies have exported 851,800 office jobs to, among other places, India, China and Canada, according to Daniel Kah, an economist with Austin-based Angelou Economics. Kah recently wrote a report, "The Future of White Collar Offshoring," using data from the U.S. Bureau of Labor Statistics.

The trend is accelerating; American firms increasingly send work offshore for a broad array of services, Kah wrote in the report. Another 832,000 will go overseas in 2005, 963,500 in 2006, and on and on.

It hurts when those jobs leave, Kah said. But what about the silence of heralded jobs that never arrived?

There’s no telling how many of those white-collar service jobs Missoula might have won, had economic trends developed differently, western Montana experts say.

"It’s a lost opportunity," said Rosalie Cates, of the Montana Community Development Corp. Many others, including Dick King of the Missoula Area Economic Development Corp., said the same thing.

"Montana, specifically Missoula, was poised to get a share of those jobs," Cates said.

In the latter 1990s, with an educated work force, low regional wages and a national trend toward increased domestic outsourcing, Missoula stood ready to roll up its shirt sleeves and push paper.

But that’s when offshoring spread from the manufacturing sector to the office buildings. And while Missoula and Montana have gained some jobs from domestic outsourcing – mostly from small firms that work within the medical, insurance and financial fields – the predicted influx of those jobs never occurred.

Cates also said that while it is easy to be upset over the offshoring of jobs, it is neither fair nor appropriate to blame the companies involved.

"If Missoula wants to be successful, in the global markets, in the tech sector, outsourcing has to be present," she said.

Not that outsourcing was unknown in Missoula or Montana in the mid-1990s. Years before his association with TCS America, Riley headed a small company called Apollo Innovative Systems. Apollo was part of another firm, Combined Benefits Insurance Co., which in turn grew out of Blue Cross Blue Shield of Montana.

Apollo and Combined Benefits were part of the explosion of domestic outsourcing. Both began as departments within parent companies. As their share of the work – a few steps in the processing of insurance claims, for example – grew more specialized, they split off from the parent and began offering those same services at low cost to other insurance companies.

Apollo was adept at both winning contracts and finding low-cost work solutions, in part because Riley discovered India’s cheap labor markets in 1997, he said.

That’s why Riley was a natural choice for TCS America when it wanted to expand its North American operations in 2002, said Victor Chayet, a Denver-based spokesman for the company.

White-collar offshoring had already begun by that point. In fact, the way had been paved in large part by Tata Group, the parent company of TCS America. Tata officials had laid the groundwork in India decades ago: endowing colleges and technology schools there and investing in the necessary infrastructure.

TCS America is only one small branch of the diverse Tata Group. The century-old company is to India what Carnegie, Rockefeller and Ford during their heyday were to the United States.

As the U.S. economy rode the technology boom in the 1990s, TCS America and other offshoring companies were perfectly situated to offer high-quality white-collar labor at a low cost, Chayet said.

But U.S. companies quickly realized that it was cheaper still for them to spin off their own subsidiaries in the Indian city of Bangalore and other offshore technology hot spots, Kah said.

"Businesses like IBM and others learned to compete with Tata on price and developed U.S.-based outsourcing with the full spectrum of services here and abroad and American salespeople who could (relate) face-to-face with clients," Kah said.

That’s when foreign-owned subsidiaries such as TCS America broadened their presence in North America. That was commonly done through the purchase of small outsourcing companies such as Apollo. TCS America has grown to more than 50 offices in North America over the past few years, Chayet said.

In March 2003, when the company opened offices in Buffalo, N.Y., Democratic U.S. Sen. Hillary Rodham Clinton was on hand to offer congratulations. The office collaborates with the University of Buffalo on research and development for TCS America, the second fastest growing IT consultancy in America.

"To be sure, the bulk of our employees are outside the country – Brazil, Uruguay, Hungary, China – but our presence in North America is growing," Chayet said. Most of the company’s contracts required a combination of on-site and near-site work, along with the off-shoring.

Riley and Apollo offered TCS America access to the property, life and casualty insurance markets. The purchase of Apollo has "paid off in spades," Chayet said.

For his part, Riley has corralled a significant amount of work, most of which has gone to TCS’ sister company in Bangalore, said Chayet and Riley. TCS employs 21 people in its Missoula offices.

TCS America’s total payroll has grown from 18,000 employees in 2002 to 35,000 employees this year. About 8,000 of its employees are in the United States. Its revenues have also grown, from $1 billion two years ago to $1.6 billion this year.

In a charged election-year environment when economic worries are running high, this can seem like pretty inflammatory stuff.

Chayet said it is the "second largest national issue, next to Iraq."

"It’s an intense environment in which we deliver our services. An Indian company doing IT in America. Š What’s your first thought? There is small whiff of xenophobia in there," he said.

Still, Chayet agreed that there is some truth to Missoula’s "lost opportunity" argument.

"But is all lost? Certainly not," he said.

He cited Missoula’s stable and educated work force and a "pay scale that creates savings" – those familiar, commonly touted factors that are supposed to make Missoula tempting. The onus is on Missoula and Montana to win some of that business, he said. He would like to see it happen; it would be good for TCS.

"TCS (in Missoula) should be like a magnet. It is to our benefit to have a technology community in which to work," he said.

To that end, TCS America may grow its Missoula operations.

"We’re fortifying our already-deep roots in the United States," Chayet said.

Riley, for one, has been predicting TCS America growth in America for years and the time may be right for expansion. He explained that TCS recently went through an initial public offering of stock in India. The process leading up to its public offering took an arduous three years, Riley said. During that time, some of the company’s plans were on hold.

Kah suggested that the political heat about offshoring makes American-based outsourcing more appealing to U.S. corporations. Chayet agreed, but he noted that other factors, including price are important to client companies.

"In every consideration, it’s about serving customers better. We know that the technology we deliver is of great value," Chayet said.

For financial-service companies in particular, the cost savings of overseas operations have been unimpressive, Kah said, especially given security concerns and the higher cost of quality control. Fidelity Investments recently opened a major support center in Kentucky after looking overseas, Kah said. Idaho has had a lot of success recently, too, he added.

Increasingly, TCS America’s portion of the contract work is being done on-site (in the offices of the client company) or nearby, rather than farther afield in India or Hungary, where the company also has offices.

"In some cases, we may demand to be on-site. For instance, it’s too inflammatory to do government work off-site or offshore," he said.

One example of work done by TCS America’s Missoula office involves its contracts with the state of Montana’s Information Technology Division. One of the contracts totals about $100,000 for the fiscal year that ended in June. One TCS America employee, based in Missoula, actually does the labor – mostly programming and support for the Montana Department of Transportation’s Motor Fuels Customs Tracking System.

The employee, who brings TCS America $45 per hour, performs the work on-site in Helena, according to Jeff Brandt of the state’s Information Technology Services Division in Helena, whose department oversees the IT contracts.

Montana has no laws against the state offshoring or outsourcing its contracts. Not that TCS America – it has a Montana address and is part of a company based in New York – would necessarily be excluded by any such law.

And by all accounts, TCS America does wonderful work and meets terrific standards.

As the company continues to grow, some of that work – maybe as many as 200 jobs – might come to Missoula. Chayet thinks so. Riley said, "It might happen any day."

"That’s one of my challenges. We’re looking at how we can give back to the Missoula community," he said. He also said the Missoula offices of TCS has ended its relationship with its sister company in Bangalore.

Still, Riley has not started looking at real estate. But with a company the size of TCS America, expansion certainly is possible.

"When it happens – if it happens – it will happen fast," Riley said.

Reporter Robert Struckman can be reached at 523-5262 or [email protected].

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Part of state’s Internet work sent to Poland

http://missoulian.com/articles/2004/11/17/news/mtregional/news06.txt

By ROBERT STRUCKMAN of the Missoulian

Some of the behind-the-scenes work for the Big Sky state’s "Made in Montana" Web page is contracted out to workers in Poland.

Not Poland, Mont. There’s no such place.

It’s done in the European nation to take advantage of low labor costs.
It is an irony that illustrates the complexity of the high-tech industry in general, the funny contradictions of Montana’s contracting rules, and the fluid and slippery nature of global outsourcing.

While the content of the state’s official Web site, http://www.discoveringmontana.com, is managed by the state, the services that the site offers are not. Those have been contracted to a Montana subsidiary of an international corporation, said Jeff Brandt, the top officer at the state’s Information Technology Services Division.

The subsidiary is Montana Interactive, wholly owned by a company that used to be called National Information Consortium, but is now known by its acronym NIC, said Helena-based manager Rich Olsen. NIC subsidiaries run Web services for 17 states.

The Montana procurement office obeyed state law when it contracted Web services to Olsen’s company about four years ago. State procurement rules focus on price and quality, not the home state or country of a company that provides services, said Sheryl Olson, head of the State Procurement Bureau.

"We can’t write restrictive specifications into the Request for Proposals. It’s against the law," Olson said. In some cases, if there is a legitimate business need, proximity can be a factor.

"If we have a contract for truck repair – if something breaks down – we need to have a response time. So they’d have to be nearby for that," Olson said.

Perhaps surprisingly, Olsen of Montana Interactive says using programmers in Poland speeds up his company’s response time and improves the overall service for the state.

Montana Interactive has a five-year contract with the state to run the state’s Web services. For example, if you renew a professional license or purchase a state hunting or fishing license online, Montana Interactive handles the transaction.

For that service, the company receives a fee. In some cases, the fee is paid by the computer user. In other cases, the service is free.

At any given time, Olsen and his nine Helena employees and one intern work on 10 projects. If the Web services need maintenance or if the demand for hours exceeds what his local employees can do, the overflow goes to the national company.

Some of that overflow might be done in Indiana and some in Poland.

Olsen estimated the Poland work is about 10 percent of his total.

"What it means is that if there’s a problem, we don’t have to stop new development to address it, and we can fix it fast," he said.

NIC’s Poland connection was made when a United States employee of the company with Polish ancestry returned home to his family. Still an employee, he established an office of Web developers there.

"Outsourcing has this bad reputation. If somebody is going to move a factory overseas, I can see how that is deserved. But we’re a better partner for Montana because we can call in those extra services" when needed, Olsen said.

Montana Interactive does significant business with the state. It handles the payment processing for the University of Montana, among other projects totaling about $100 million. Montana Interactive earns a portion of the fees generated. Its profits this year to date are $213,000, Olsen said.

Because Montana Interactive works so closely with state government, its books are relatively open, Olsen said.

"We report quarterly on what we’ve done – how much money we’ve made," Olsen said. The company, whose books are audited once a year, is overseen by a board comprised of private citizens, legislators and state government department heads.

Olsen himself is an active member of the state’s high-tech community. He has been involved in the recently-formed Montana Information Technology Association.

"We’re excited about it. It’s a group of people with the same concerns and objectives," he said.

One of those objectives is to sponsor legislation that will foster the information industry in the state by rewriting the rules of state contracting.

"The goal isn’t to be overprotective. But it asks those companies (with state contracts) to have an investment in Montana. If you’re earning money in the state, employ people here," he said.

MITA has other objects, too. Members network with each other and sometimes bid for contracts together.

Olson at the State Procurement Office finds all this talk confounding. As a state, do we want to hire computer programmers or contract for them? Do we want to pay more to keep jobs in Montana or simply shop for the least expensive contractor who can get the job done? And where does the Made In Montana label fit into all this? It’s confounding.

"That’s the only word for it," she said.

Reporter Robert Struckman can be reached at 523-5262 or at [email protected]

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