Outsourcing[ not a threat]

[Arjun Shastry]

Chicago Tribune journalist Steve Chapman explains:
Outsourcing and trade are no threat to jobs
Published February 19, 2004
Consider two countries. One is a developing nation with lots of dirt-cheap labor that has become an exporting giant. The other has been importing more and more products from abroad and losing manufacturing jobs by the millions. You might guess that the first country is China. But the second? That's China, too.
From 1995 to 2002, it lost 15 million manufacturing jobs. Its imports have grown rapidly in recent years. Yet you can hardly say those trends are symptoms of decline, since China's economy is perennially among the world's fastest-growing.
[Full text removed--Mark Herschberg]
[ February 20, 2004: Message edited by: Mark Herschberg ]

[Jason Cox]

You know what bugs me about these recurring articles?
They're written by journalists, not economists, who act like they have a clue but really don't. One of my duties back in the bad ole days before I went into IT, was to prepare and supply various reports to news agencies. It was always fascinating to see what was and wasn't considered "newsworthy", how many of the facts they would omit from a report, and how often they just plain got it wrong.
I see many journalists defending outsourcing, and the weak little remark at the end of this one about India hiring 6 reporters to cover US companies doesn't convince me this guy is in the same boat. Those 6 reporters will likely be covering US companies' activities in INDIA!
I also don't really have an issue with outsourcing. Labor unions have made manufacturing jobs cost prohibitive in the US. A lot of manufacturing jobs are moving away from Union States as well. I see this even if the Unions are obscuring it from their constituents. Not all of those jobs are overseas, but yes some of them are going there.
The problem though, is that there are fundamental differences between send manufacturing jobs overseas and sending white collar jobs overseas.
For one thing, many white collar jobs handle critical or highly confidential information. We're sending these jobs to countries where there are fewer protections and also making it easier for organized crime to get this information. This bothers me.
Another problem is that it shows a real disregard for customers. A company that has moved its call center to a foreign country and then expects me, a paying customer, to try and decipher what their representative is saying is basically telling me they don't value my business very much. It's difficult to vote with your wallet here either, because a typical customer doesn't know what kind of support they're really getting until after they've bought a product or signed up for a service. The company basically has you at that point, and dealing with subpar service is just rubbing salt in the wound.
Here's the kicker though, the one thing that really bothers me. The two major claims for outsourcing, high tech work in particular, is that it's "cheaper" and "better quality".
Thanks to the nature of my work, I've been able to talk to a lot of people in my field. I know project managers at several large companies. They all say the same things, even though none of them know each other.
The average cost, just in payment, for an off-shored worker is about $40,000 a year. Now, granted, the worker will only see $11,000 to $22,000 of that with the rest going to their parent company. Wait? What parent company? Isn't off-shoring part of the globalization of American companies? Aren't these workers an extension of their own work force?
Nope, it's a farce. Almost all of these workers are hired through third-party companies.
Still, $40,000 a year is cheap, right? Well, except it doesn't take into effect the other costs that go into doing a project off-shore. The extra time needed costs money. Time is money in business. The extra effort that is usually involved costs money, because effort takes time, and time is money. Of course, no one has stopped to measure this because the only people who can are the corporations who are doing it. If they were to admit that they're probably spending just as much for a single worker as they would for an American worker, the whole sham would fall apart and their stock price wouldn't look as good.
Further adding to this is that most companies I've talked to are using at least 3 off-shore workers to do the job of one domestic programmer. So, it's too expensive to pay one person $75,000 a year (and realistically it's probably less than that if you consider the nature of the work being off-shored) but hiring 3 people for $120,000 is saving money?
Ok, what about better quality? Well, for the past two years I believed the complaints from my colleagues in other companies were merely justification for not wanting to do off-shore. Every one of them said the same thing - "The code is crap". Often it was that exact phrase, but I took it with a grain of salt because I have worked with a lot of Indian programmers on H1-B visas, and these guys were pretty sharp. Why would it make a difference in code quality if there were here or there? Basically I wrote it off as sour grapes.
I was wrong. I did a code review on an off-shore project. The code was about to enter production and it was going to enter it regardless. However, I had the time and I wanted to look at it. I was asked to do so by the project manager who had too much to do already.
It was terrible coding. It was stuff that I wouldn't have written in my first year of IT. My friend, acquaintances, colleagues, were all telling the truth. This stuff was really bad. Maybe it was just this project? I went back and talked to the project manager about what I had found, he confirmed that was pretty much par for the course. Although he did say he'd let the off-shore talent know what I had found.
Am I totally against off-shoring? Nope. Outsourcing/Off-shoring has been going on for a long time. It can work, and it can save money. The problem is not outsourcing itself. The rampant outsourcing going on is a symptom of a much greater problem. If we eliminate outsourcing, we're not dealing with the problem. It's like taking Advil to get rid of the headache your brain tumor is giving you.
The problem is, outsourcing has become a fad. An executive announces they're going to start outsourcing and the stock price of the company sees an increase. Stockholders make money, executives get bonuses, but not a lot gets done. Nothing is really gained because the outsourcing efforts they implement are haphazard and the products delivered are low quality. Customer service suffers as well (call-centers, remember?) Basically, everything you shouldn't be doing with a successful, long-term business gets done.
If you're eliminating jobs and replacing them with off-shore talent, you've missed the point of outsourcing. Outsourcing saves money by shifting low-end work to low-paid workers. It's about NOT having your super senior developer who probably averages $50 an hour to spend a week doing clean-up, tedious coding, or menial tasks. But why hire a junior programmer in for a temporary job? Isn't this what off-shoring is for? Reducing the cost from $50 an hour for low-end work to maybe $25 and only doing it for as long as you need it? Furthermore, you're freeing up your $50 an hour employee to do $50 an hour work instead of wasting their time (again, time is money!) doing tasks that any code monkey could do.
Which is not to say you never need junior level talent either. Outsourcing should be about "just in time" talent. It works, I've seen it. I've seen it on large projects as well. Unfortunately, for about every successful outsourced project, there have been about ten unsuccessful ones. If it's not saving money, why do it?

[Terimaki Tojay]

Originally posted by Rob Aught:
You know what bugs me about these recurring articles?
...
If it's not saving money, why do it?

Right. If it does not save money they will NOT do it. It is as simple as that. You can't fool all the people all the time. BUT if it does save money, you can't stop it. Practical account figures can only determine whether it is beneficial or not. So I don't understand what's the point of all the theory that you have given.

[joe shudras]

is probably a plus for the economy in the long run

Is he talking weeks, months, years, decades or centuries?

[Jason Cox]

Originally posted by Terimaki Tojay:
Right. If it does not save money they will NOT do it. It is as simple as that. You can't fool all the people all the time. BUT if it does save money, you can't stop it. Practical account figures can only determine whether it is beneficial or not. So I don't understand what's the point of all the theory that you have given.

Because, more often than not, it ISN'T saving money.
[ February 19, 2004: Message edited by: Rob Aught ]

[Stephen Pride]

Very good summary, Rob. I'll add my $0.02 ...

Originally posted by Rob Aught:
For one thing, many white collar jobs handle critical or highly confidential information. We're sending these jobs to countries where there are fewer protections and also making it easier for organized crime to get this information. This bothers me.

This scares the living daylights out of me as well. It wouldn't be so bad if we - as customers - had a choice on how are information is stored/protected, but we dont. We just have to rely on the company to make it secure. I recall an incident not too long ago where a lady(?) in Pakistan who was working for an American outsourcing company threatened to divulge customer information because she wasn't happy. Very scary.
While I don't think this will be the norm, I do think it will occur in greater numbers than before.

Another problem is that it shows a real disregard for customers. A company that has moved its call center to a foreign country and then expects me, a paying customer, to try and decipher what their representative is saying is basically telling me they don't value my business very much. It's difficult to vote with your wallet here either, because a typical customer doesn't know what kind of support they're really getting until after they've bought a product or signed up for a service. The company basically has you at that point, and dealing with subpar service is just rubbing salt in the wound.

My own company has moved a lot of their internal (and external) technical support offshore. Recently, I submitted a work order via an online tool to have an Ethernet drop activated in my office. A day later, I decided to cancel the order, but needed to call the technical help desk in order to do so. After going through a miriad of touch-tone menus on the phone, I finally reached a human - a foreigner with hard-to-understand English. It took me several minutes of repeated dialog just to describe my problem. And even then, the person still could not figure out that I had submitted a work order and just wanted it cancelled - (they thought I was having problem with the tool itself). Finally, after about ~15 minutes of talking, the problem was finally resolved. What should have taken 5 mins max, took ~15 mins due mainly to a language barrier. I don't get paid a millionaire's salary, but the 10 extra minutes spent by me probably cost the company a few $$$'s. However, multiply that by 10's or even 1,000's on a daily basis, and the cost really adds up.

Ok, what about better quality? Well, for the past two years I believed the complaints from my colleagues in other companies were merely justification for not wanting to do off-shore. Every one of them said the same thing - "The code is crap". Often it was that exact phrase, but I took it with a grain of salt because I have worked with a lot of Indian programmers on H1-B visas, and these guys were pretty sharp. Why would it make a difference in code quality if there were here or there? Basically I wrote it off as sour grapes.
I was wrong. I did a code review on an off-shore project. The code was about to enter production and it was going to enter it regardless. However, I had the time and I wanted to look at it. I was asked to do so by the project manager who had too much to do already.
It was terrible coding. It was stuff that I wouldn't have written in my first year of IT. My friend, acquaintances, colleagues, were all telling the truth. This stuff was really bad. Maybe it was just this project? I went back and talked to the project manager about what I had found, he confirmed that was pretty much par for the course. Although he did say he'd let the off-shore talent know what I had found.

Yet another side effect I can relate to.

[Terimaki Tojay]

Originally posted by Rob Aught:

Because, more often than not, it ISN'T saving money.

So this fad will not last. What's your problem then?

[Jason Cox]

Originally posted by Terimaki Tojay:

So this fad will not last. What's your problem then?

I have several problems -
Putting people out of work in the name of corporate greed and bad math.
Claims that it is "good for the economy" when only those who already have plenty of money are benefitting.
The total disdain for customers, the very people who provide the company money.
The shrinking of the middle class. Sure, unemployment is going down, but that's because we have more and more people with CS degrees delivering pizzas or working in lumberyards. There is a belief in America that anyone can attain middle class status with some work and education. It used to be a very achievable dream. Now, it seems like the goal is to STAY middle class.
[ February 19, 2004: Message edited by: Rob Aught ]

[Terimaki Tojay]

Originally posted by Rob Aught:

Putting people out of work in the name of corporate greed and bad math.

I think that is a very flimsy argument. As a fact, corporates ARE greedy. No surprises there. Whether it is Bad Math or not, it can only be determined by the company accounts. In theory you may prove it as bad math, but what is actually happening can be known only from company finances. If the company finances are good , it is NOT a bad math no matter how much you argue with your theory.
People say necessity is the mother of invention. I say, in these days, greed is the mother of invention. Most of the inventions these days are done by corporates. By their employees, whose sole objective is to help the company make more money any how. For one successful invention there might be thousands unsuccessful. The unsuccessful ones also cost money. (And successful ones cost jobs ) So do you want all efforts for inventions to stop because they cost money (or jobs)?
Offshoring is one such effort to save cost. Whether it really saves money or not can only be determined later. Then it will either be a sucessful or unsuccessfull invention.
The bottom line is that if companies are offshoring, they do see some benefit. Not all CEOs are stupid. May be they are. But how can you say that now??? May be 5 years down the line, you can. But not now. Because this is experiment phase. Everybody is learning. It is bound to cost money.

[Jason Cox]

It's starting to become clear that you're only looking at one part of my arguement and ignoring the rest.
Outsourcing is not new, the costs are measurable and they're mesaurable now.
Corporations are not greedy, corporations are about making money. There is a difference. Greed can kill a corporation, and it has many times. Profits are great, but focusing on the short-term only can have severe consequences which can hurt us later. The problems we're seeing are from people worrying about the short-term and how it benefits them only.
I'm not for the abolishment of outsourcing work, but I am for taking a common sense approach. What we have going on right now is harmful. It's benefitting a handful of people at the expense of many others with long-term consequences that the few benefitting will never pay. Those consequences will be passed along to the employees underneath them and their customers.
I don't see why I should just accept it and be happy about it. I am very interested in using outsourcing to improve business and development processes. I am not so interested in improving stock price. Stock price will improve if the company does well, I want the company to do well. I'm interested in the long-term though, because I'd rather make a lot later than a little bit now.
But churn-and-burn executives and stockholders don't plan on being around or holding their investments that long. So they'll justify anything in order to get their money.
And India has a lot to lose from these harmful practices as well. Sure, they are benefitting now, but what happens if all these US companies pull the plug when they stockholders realize the "savings" are, more often than not, a total fabrication? We're not building a long-lasting and prosperous future with Indian development groups. Instead we're setting them up for a fall. Is this going to be good for India or any other country we outsource to?
Sure, they're benefitting now, but like their US counterparts, they will end up paying the cost for these practices. Simply put, it's not in their long-term interests either.

[Terimaki Tojay]

Originally posted by Rob Aught:

Claims that it is "good for the economy" when only those who already have plenty of money are benefitting.

That's capitalism for you. Do you want a socialist/communist govt.

Originally posted by Rob Aught:

The total disdain for customers, the very people who provide the company money.

Switch company. Simple.

Originally posted by Rob Aught:

Sure, unemployment is going down, but that's because we have more and more people with CS degrees delivering pizzas or working in lumberyards.

Well, may be CS graduates are going to be extinct. Just like Civil Engineers in India (ok, that's an exaggeration but not much. Nobody wants to get into Civil Engg. course there ). Or Typists . There could be many examples.
The point is, just because they are CS graduates does not entitle them for a plush job. More MBAs are getting jobs. Why don't you consider that??

[Stephen Pride]

And India has a lot to lose from these harmful practices as well. Sure, they are benefitting now, but what happens if all these US companies pull the plug when they stockholders realize the "savings" are, more often than not, a total fabrication? We're not building a long-lasting and prosperous future with Indian development groups. Instead we're setting them up for a fall. Is this going to be good for India or any other country we outsource to?

Or when the companies realize that country XYZ is better/cheaper than India. With rising salaries, this will be inevitable there, too.

[Terimaki Tojay]

Originally posted by Rob Aught:
It's starting to become clear that you're only looking at one part of my arguement and ignoring the rest.

Which argument of yours did I ignore? You changed your post after I had replied. Still, I made another post to answer all your arguments.
Outsourcing is not new, the costs are measurable and they're mesaurable now.

Originally posted by Rob Aught:

Corporations are not greedy, corporations are about making money. There is a difference. Greed can kill a corporation, and it has many times.

So what's new in that? Corporations have been dying in the past too. Greed is one of the many reasons. It is not like they want to die. Everybody wants to live for ever and for that they make decisions. They die because of bad decisions.

Originally posted by Rob Aught:

Profits are great, but focusing on the short-term only can have severe consequences which can hurt us later. The problems we're seeing are from people worrying about the short-term and how it benefits them only.

Yes, true. But the corporate executives and shareholders have to worry about that. Otherwise "their" corporation will die. That's their problem. Someother corporation will eat it up. Why do you worry about a corporation dying? For one dead there are hundred others to take place.

Originally posted by Rob Aught:

I'm not for the abolishment of outsourcing work, but I am for taking a common sense approach. What we have going on right now is harmful. It's benefitting a handful of people at the expense of many others with long-term consequences that the few benefitting will never pay.

OK, then what you essentially want is more regulations. You want ALL coporations to look at long term goal. Fine. It is one step towards socialism/closed market/communism.

Originally posted by Rob Aught:

Those consequences will be passed along to the employees underneath them and their customers.

Yes. So don't join such corporations. Nobody is a saint. All employment is at will. If you don't like your boss/company, you'll quit at the first opportunity. Will you stay in the company just because it does not off shore?

Originally posted by Rob Aught:

I am not so interested in improving stock price. Stock price will improve if the company does well, I want the company to do well.

But I (an investor) am. I want to invest in a corporation that can give me quick returns and big returns. What are you going to do about it? Stop me from investing in the company?
If you are the owner of the company, you can decide how you want your company to grow. That's your right. You cannot direct somebody else's company to direct how they should run their company.

Originally posted by Rob Aught:

I'm interested in the long-term though, because I'd rather make a lot later than a little bit now.

Sure. You are one type of investor. Don't invest in companies that promise good returns in short time. They are more risky. There ARE such companies too. Invest in RailRoad companies.

Originally posted by Rob Aught:

But churn-and-burn executives and stockholders don't plan on being around or holding their investments that long. So they'll justify anything in order to get their money.

Again, the owners of the company will decide whom to employ as the CEO. Not you. May be if you own the company, you'll fire your CEO if she talks about offshoring. Nobody can stop you from doing that.

Originally posted by Rob Aught:

And India has a lot to lose from these harmful practices as well. Sure, they are benefitting now, but what happens if all these US companies pull the plug when they stockholders realize the "savings" are, more often than not, a total fabrication? We're not building a long-lasting and prosperous future with Indian development groups. Instead we're setting them up for a fall. Is this going to be good for India or any other country we outsource to?

Frankly, let's not even go there. You know as well as I know that corporations don't care about India. What is India to them? Nothing. Place to get work done cheaper. That's all. And Indians also know that too. As I said before, if the experiment fails, everybody will lose money. Including India. If it succeeds, everybody will make money, including US.

Originally posted by Rob Aught:

Sure, they're benefitting now, but like their US counterparts, they will end up paying the cost for these practices. Simply put, it's not in their long-term interests either.

May be you are right. But again, you cannot decide this on their part. They have a right to decide what they want to do. What is good for them.
Are you suggesting that Indian companies or Indian programmers should say, "No, Uncle Sam. Thank you. We will not do coding for you"?

[Terimaki Tojay]

Originally posted by Rob Aught:

Outsourcing is not new, the costs are measurable and they're mesaurable now.

Sorry, missed this one.
Well, if they are measurable then they have also decided whether they want to continue off shoring or not. If their decision does not match yours, then your measures are different. (Note: I did not say wrong. Just different.)

[Tim Holloway]

What frosts me is clueless reporters reporting on clueless economists. The articles, I've noticed tend to be about 1/3 new material and 2/3 repeat of the last one. Which could be pardonable, since a lot of people haven't been reading this stuff on a daily basis - except for the fact that a lot of the repeated info is out of date. As a common but extreme example, including the 2001 projections for number of new US IT industry jobs over the next decade.
Economists rend to see only the rosy side of offshoring - the cost savings. I really can't wait until some economist jobs get offshored. There's no reason not to. Financial analysts already are.
The capitalistic system is no more a panacea than communism was. One of its most notorious failings is its myopia. One of the primary reasons why life is 8-12 times more expensive in the US is that the environmental nest-fouling that comes from a company looking only to its own profitability has been curtailed. One company unrestrainedly emitting industrial toxins is profitable, if objectionable. Hundreds of companies doing the same thing poison their own futures as they impact the health of both employees and customers.
In this country we have a mobilizable middle class that lobbied for a leveled playing field that eliminated the financial incentives for emitting untreated industrial wastes. Other countries have either too few industrial waste concentrations or too powerless a populace and they undermine that level playing field. A good chunk of the benefits of industrial offshoring come from that fact.
Which illustrates why a single-viewpoint analysis of the situation is perilous. A country whose industrial costs are low is likely to enjoy lower costs of living for the non-industrial jobs as well. Industrial workers, after all have to eat and they can't work factories productively AND farm for all their food as well. So knowledge workers partake of the benefits of lower living costs and underbid knowledge workers in countries where the cost of living has risen to support the higher costs of running environmentally cleaner factories.
That, also has ramifications outside the immediate issue. If we lose enough white-collar jobs, we lose customers not only for the expensive locally-produced goods and services, but for the imported ones as well, starting with the incomes of those who charge for importing, but eventually filtering back to the lower cost originating countries. Supply and demand. Or more accurately, Demand and supply.
All this would be of acedemic interest except for the sheer magnitude of the differentials between East and West. Just as in the case of two mismatched voltage potentials, the greater the mismatch there is of economic potentials, the greater the likelihood that the differential will adjust catastrophically rather than gradually.
The happy-faced (non-offshored) economist who can only see that large chunks of capital are being freed up and not the loss of circulating capital that comes from massive un/under-employment is simply promoting supply-side economics. As I've said before, supply-side is the economic equivalent of moving something by pushing a rope. It's not that it's totally invalid, just horribly inefficient.

[Rufus BugleWeed]

A good chunk of the benefits of industrial offshoring come from that fact.

Yeah, let's not neglect social security, medicare, the prescription drug plan, being the world's policeman, or OSHA.

[Serge Adzinets]

Here's another interesting article about outsourcing: "The New Face of the Silicon Age"
http://www.wired.com/wired/archive/12.02/india.html?tw=wn_story_top5
"Change is the only constant".

[Axel Janssen]

I have no idea where all this outsourcing thing is going to end.
Currently I am not convinced that this massive outsourcing taking place in US IT is really based on hard figures, simply because there is no empiric data and lot of software projects are quite individual beast.
Don't know about management in US, but here in Germany I live with the maybe terrible prejudice that 60% of the buy-a-IT-project responsibles base their decision on articles of the national favourite IT-decision-takers weekly mag "Computerwoche". Rest of the crowd base their decision on something between personal briliance and total wackyness.

Currently outsourcing is heavily promoted in IT business mags. But this might change with time or not. We freakin' don't know.
I am a friend of idea of free trade. Fair trade? Life never have been "fair" anyway.
@Capablanca: Problem of article is that it speaks about American. There is no American. Society is segregated in social group. If on the margin US as whole does benefit does not mean that IT-employee-segment wouldn't be worse off after more outsourcing.
regards Axel
[ February 19, 2004: Message edited by: Axel Janssen ]

[Terimaki Tojay]

Originally posted by Serge Adzinets:
Here's another interesting article about outsourcing: "The New Face of the Silicon Age"
http://www.wired.com/wired/archive/12.02/india.html?tw=wn_story_top5
"Change is the only constant".

An exceprt for the article:

The others are quick to note that, of the 70 or so companies in the world that have earned this designation, half are from India. Over several days, here and at other companies, I hear this factoid repeated like a campaign talking point.
Translation: We're not just cheaper, we're better.

Wrong.
Translation: We're not just cheaper, we're good.
CMM Level 5 is not about comparison.

[Rufus BugleWeed]

Nearly everybody on this board has read a discussion on the value of certification.

[Matt Cao]

Hi,
If outsourcing is not a threat, then why one side spend money for damage controls, and the other side spend money for lobbying more works.
It is so bad/so bore that some people have to escape the reality by watching a semi-down syndrome Chinese guy singing: "She-Bang, She-Bang, and Shoo..." Or maybe just me.
Regards,
MCao

[Ken Boyd]

I agree with Rob Aught on some points.
Hope it will not repeat Internet boom & burst, where any new idea use to fetch $$$$$..
First understand do you need outsourcing?? don't just do it because other companies in your field is doing so.
One thing is for sure that when you want highest quality work you need best resource in the business & that won�t come cheap no matter where you are�
just my thoughts..