Nerds need not apply: tech staffs dwindle as companies spend billions outsourcing their needs.

Just about anybody born since 1970 has been told to get a job in computers. City colleges and tech schools flood the airwaves with their commercials quoting recent graduates who claim a degree in computers changed their lives.

Indeed, technology does make life easier for businesses and for people. To stay competitive in this day and age, the latest and greatest technology is necessary, even to make mundane back-office procedures like payroll cheaper and quicker. But is it so necessary that companies have to keep on platoons of information technology (IT) staff? Some very big tech names are saying absolutely not.

Database giants SAP and Oracle and tech standard-bearer IBM would be more than happy to take your day-to-day IT needs off your hands, doing the dull work from inside world-class data centers they operate across the globe. Some clients pay top dollar to outsource their technology, under contracts often approaching US$100 million, in hopes that the investment will lead to a return of at least 20% from the cost savings. That adds up: According to International Data Corporation (IDC), a U.S. market tracker, IT spending in Latin America should hit $27.20 billion in 2005, up 20% over the past two years. Services--which includes outsourcing--account for one-third of total IT spending.

In just two years, IBM doubled its outsourcing business. The total value of contracts signed in Latin America surpassed $1 billion by 2004. Until 2002, most of Big Blue's business in the region came from the subsidiaries of multinationals, says Juan Fernandez-Oliva, general manager for IBM Latin America. Now, more Latin American companies are signing on. "The Latin countries are clearly seeing outsourcing as one of the ways to get benefits to their own businesses" he says. Focusing on mundane tasks keeps the chief information officer (CIO) away from doing his job of figuring out what technology is needed to enhance a company's core competencies; that lost time cuts into efficiency, says Fernandez-Oliva.

But what about lower-level employees that did the work that an outsourcer is doing now? Arguably, they are no longer needed--at least in the offices of the actual companies. "In companies where IT is not the core business, they have to re-deploy those people who are surplus or they have to restructure those people" says Fernandez-Oliva.

Oscar Cortes, a delivery project executive at IBM in Chile, was one of those people. He once worked on the tech staff at Corpbanca, a financial institution that signed a $5.7 million services deal with IBM in 2001. Cortes and six other employees moved to IBM, where they worked on the Corpbanca contract. All six remain. Today, Corpbanca saves $1 million a year on IT costs. And Cortes couldn't be any happier. He says he's earning more, working for a company that is more compatible for a techie like himself, all the while dealing with other clients in Chile's banking industry. "If I am going to be a race car driver, I'm going to ride with Team Ferrari" says Cortes, who spent eight years at Corpbanca before going to IBM.

Bottom line. For some companies, the very nature of their industries forces them to be cost-conscious. Retailers, for example, earn less than banks. The decision to outsource saved Gigante, a Mexican grocery chain, an estimated 20% on its IT costs, counting direct savings and added efficiency, says Mario Mora, systems director at Gigante. Any savings helps a retailer's bottom line in Mexico, where competition has become fierce in recent years.

"The most important thing is that I have heavy budgetary pressures, like any other retailer" Mora says. IBM took on 14 Gigante employees, all of whom are still employed, according to Mora. That leaves Gigante with a lean and cost-friendly tech staff. "I can dedicate my time to business solutions and put aside dealing with technical details," Mora says.

The ex-CIO of Brazilian airline Varig, Jose Carlos Martinez Sabate, says his staff of 540 fell to 40 after the airline signed a contract with IBM to modernize its IT infrastructure. The investments also were seen as a way to ease Varig's way into the Star Alliance, which groups carriers including United, Lufthansa and Air Canada.

"The company cut operating costs by 18%," says Sabate, who was able to get 70% of laid-off workers rehired elsewhere. Upper management took notice, and Sabate was asked to oversee other cost-cutting programs within the company. Today, Sabate manages outsourcing at Telemar, a Brazilian telecommunications company. He says that CIOs now must look at third-party IT contracts as an opportunity, even if that means making tough decisions, like cutting staff.

"The CIO must understand that companies always look to reduce costs as part of their best practices, and if he keeps defending corporate assets that don't add value to the business, then he runs the risk of himself becoming a line item of the company's costs, and ultimately, disposable," says Sabate.

Outsourcing contracts does not mean companies must give up control of everything that has memory and a monitor. SulAmerica, a Brazilian insurance company, signed an $80 million, 10-year contract with IBM, a deal that the insurer hopes will cut costs by 25% over the life of the contract, according to IBM. Under the terms of the deal, IBM will operate the company's IT infrastructure in one of Big Blue's data centers.

Nevertheless, the contract does not cede all technology policy to IBM, says Luis Furtado, SulAmerica's company's vice president for technology and systems. The company kept 500 tech employees. "IBM will act as more of a physical operator, but management of the proprietary IT will remain with SulAmerica," says Furtado.

Brazil has long been a key market for IBM, says Rogerio Oliveira, president of the company's Brazilian operations. "Brazil as a country also grew as one of the very best places to export services--better time zoning with the Americas compared to India and China, and a large quantity of English-speaking people. It's highly competitive in developing software for mainframe platforms with a not-very-expensive labor force," says Oliveira.

Customers range from banks to retailers to oil companies, such as Brazilian state-owned oil giant Petrobras. To make exploration for oil and gas more efficient, Petrobras chose to store information on IBM servers, to better analyze and store data. "The IBM solution offered the best technological features and price," says Anicelso Bissoli, coordinator of IT services at the Petrobras office in Espirito Santo state. "The results were beyond our expectations, reducing tenfold the seismic processing time."

Other clients say they have no choice to keep their core software management in-house. Financiera Compartamos provides low-interest loans to the country's poor, mainly rural women. The bank's business model apparently works: Revenues and clients have grown by 50% over the past few years, says Federico Hernandez, systems director at the bank, which operates a network of 94 branches in 22 Mexican states and has more than 250,000 borrowers. Up until a few years ago, Financiera Compartamos could manage back-office affairs on its own computers. But when it began to grow, it realized it needed some help. "A couple of years ago, we began to see that this system was coming up short," says Hernandez.

Outsourcing was a relatively easy decision for the company to make. It could grow without the hassle of hiring more staff, such as database administrators, often the first to go after a contract is signed with an outsourcer. The company shopped around and eventually chose Oracle to manage its IT systems. "Since our core system was developed in-house, a significantly-sized team has stayed to provide daily operational support," says Hernandez.

The contract with Oracle definitely has saved money, says Hernandez, although he declined to provide specifics. Yet, should the bank want to bring branch offices into its central network, it would pay more. For example, the bank now pays $2,639 a month to Oracle for accounting-related services. That figure would jump to $12,000 a month if the bank chooses to bring Oracle's system to its branches. Oracle won't house specialized banking software solutions, either, Hernandez says. "I would prefer that the same supplier provide everything," he says.

Streamlined. For technology providers, the cost-savings figures have proven to be a valuable sales pitch. "If you spend $1 on software you are probably going to spend two or four times that a year on managing that software," says Alberto Chacin, head of Oracle's On Demand services for Latin America. Companies tend to spend too much on hardware and lose money when replacing software, he says. With Oracle On Demand, Chacin says, a client can pay a fixed monthly rate for services and rest assured that all applications are stored in a state-of-the-art data center, such as one Oracle operates in Austin, Texas.

Not all companies outsource their IT needs to cut costs. Some do so to boost revenue, often by streamlining operations to become more efficient, says Miguel Cruz y Celis, general director for Mexico and Central America at SAP. Once money that was spent maintaining systems is freed up, a company can pay bills or raise capital spending however it feels fit, such as Mexican conglomerate Alfa, a SAP client that saved $35 million in two years.

Or, a smaller one. Latin America's growing companies are becoming more involved in global business by selling to larger companies around the world. They also, increasingly, must deal with multiple currencies. The need to be more efficient is becoming an imperative. Mexico has been a strong market for SAP. The number of clients there jumped by 400 to hit 850 in the last two years alone, says Cruz y Celis.

"Small and medium-sized businesses in Mexico are subject to the competitive forces at the global level," he says. "It could be that larger companies are competing with them in Mexico, or that they are part of a productive chain selling to larger companies that demand digital communication and selling and purchase orders."

--With Mery Galanternick in Rio de Janeiro