Outsourcing Growing Beyond India 374
PreacherTom writes "One of the most controversial aspects of the global economy has been the newfound enthusiasm of companies, freed from the constraints of physical location, to outsource jobs. No country had embraced tech outsourcing with more passion than India. Of late, problems are beginning to arise in Indian outsourcing: engineers will start a project, get a few months' experience, and then bolt for greener pastures. The level of attrition can cause the turnover of a project's entire staff within the course of a year. Combine this with salaries in Bangalore that are rising at 12% to 14% per year and it is no surprise that companies are looking beyond India to a slew of emerging hotspots for IT, such as Brazil, China, and Vietnam. Will Ho Chi Minh City be the new Bangalore?" From the article: "India remains an IT outsourcing powerhouse, with $17.7 billion in software and IT services exports in 2005, compared with $3.6 billion for China and $1 billion for Russia... India's outsourcing industry is still growing at a faster pace than that of... other wannabe Bangalores... By the third year of an outsourcing deal, after all the costs have been squeezed out, companies get antsy to find a new locale with an even lower overhead."
What did they expect? (Score:5, Insightful)
Outsourcing is bad (Score:5, Insightful)
We've had this discussion before. (Score:5, Insightful)
But why would that country's people be any different?
The fact is, once the outsourcing staff has the knowledge and experience that was previously YOUR expertise, there is no reason for them to keep working for you. Eventually, they start their own companies in your market and replace you.
Don't focus on short term profits at the expense of long term survivability.
Why prolong the inevitable (Score:3, Insightful)
Re:We've had this discussion before. (Score:5, Insightful)
That's a discussion we need to have. (Score:5, Insightful)
It is far more profitable for a CEO to wreck and sell the company than it is for him/her to actually spend time running the company.
The following is a long diatribe.... (Score:4, Insightful)
Outsourcing is neither good nor evil, but the motivation behind outsourcing tends to be overwhelmingly merciless and short-term. Taking a knowledge activity and attempting to turn it into a commodity or near-assembly line function is, I suppose, a managerial Holy Grail worth undertaking in different guises each decade.
Consider H1B visas. Is there a shortage of IT workers in the US, or a shortage of *cheap* IT workers in the US? Most major media publications are overwhelmingly guilty of dropping the telling adjective, and the quotes they gather all support a lack of IT talent, no qualifiers added.
We who work in this space, live in the space, can confirm some of this. It *is* hard to find a superior talent for an IT position above entry level. However, it's not impossible if you have a salary and excellent position to offer.
So, when I read about outsourcing arbitrage and the chase for ever-cheaper talent, I just wait it out. Eventually, all of the talent, cheap or not, will come to fore and then the real shoot-out over quality and reliability can begin. Does anyone truly believe there's a hidden cachet of Polish supercoders who haven't been discovered because they lack the Internet connectivity? Does anyone see the inherent flaw in that premise, and by extension, any argument like it?
I'm not overly impressed with a single outsourced individual or group in my eleven pro years of IT, and that includes old Anderson Consulting of 1995 up to Patel Consulting of 2006. The prestige of the firm should only get them an interview: talent and not cost is what you'll need to survive.
As a final note, what, if anything, will the US do if it successfully outsources all of its IT functions? Does anyone expect anyone to major in CS in this country, knowing that electricians make far more and took less formal schooling? I think not. You can't outsource a physical service.
-BA
Outsourcing is good, loyalty is bad (Score:5, Insightful)
Oh yeah, that includes patriotism as well btw. Typically they want you to die for their benefit.
Re:Outsourcing is bad (Score:1, Insightful)
I disagree (Score:4, Insightful)
1) If you hire your son to mow your lawn, there is nothing stopping him from hiring his friend in turn... ala Tom Sawyer. If the job is unacceptable, make the terms part of the contract.
2) Customer service is not a function of outsourcing, it is a function of cost. You can have equally horrible customer service inside the US itself.
3) High turnover is also not a function of outsourcing, it is a function of management. If an employee has no training and advancement path then it is up to the employee to figure out their own. This is true of any company in any country.
All these problems would exist if the companies in question practiced homesourcing, where a company like IBM hired a temp agency in Alabama to support their developers in San Jose.
Again, why give work to a neighbor or a friend when you can do it yourself?
Answer: Because division of labor and speciality encourages increased productivity when both parties can do separate things more effectively than both parties replicating work.
In this case the flaw with outsourcing is that there was not a good reason or a good implementation for the division of labor.
Re:We've had this discussion before. (Score:5, Insightful)
In all reality, this is a significant part of what globalization was supposed to do... improve the economy of the nations that are the worst off economically. There was only a small window of time where the megacorps could make the insane profits off trade disparities. That window is closing as trade gaps begin to narrow between countries that have products or services to trade and the supply and demand begin to equalize.
The race to the bottom (Score:4, Insightful)
This is the biggest problem I have with globalization: we have removed all constraints from capital and freed it from all other considerations. It is truly a race to the bottom - who has the lowest labour costs, who has the fewest environmental restrictions "wins" some starvation wage jobs until we can find someone else who can be exploited even more.
The fear used to be that jobs were being sent south to Mexico. But when Mexicans workers start demanding fair wages, we sent the work to Viet Nam, where people earn $2 per day. But even that looks pretty expensive when there are people in China willing to work for $.50 a day.
It's exploitation plain and simple, and we don't care because we are insulated from the uglier aspects of it. Of course, we are getting screwed too - those over-priced sneakers are now manufactured for a fraction of what they used to cost, but we still pay roughly the same price at retail. At least the shareholders are happy, but if they could find someone who would work for $.25 a day, they would be even happier.
Whenever someone argues in favour of a living wage, we are told it is too expensive. What a shame that poverty has become an official requirement of our economic system.
If we found ourselves working in the sweatshops for less than a buck a day, I wonder if we would be grateful...
Re:Outsourcing is bad (Score:2, Insightful)
Re:Outsourcing is good, loyalty is bad (Score:5, Insightful)
Err, no, "they" don't: "Now I want you to remember that no bastard ever won a war by dying for his country. He won it by making the other poor dumb bastard die for his country." (General Patton)
Re:That's a discussion we need to have. (Score:5, Insightful)
A former manager of mine had an insightful take on this:
Back in The Good Old Days(tm), employees (including top execs) would work for a single company for many years, then retire, drawing a pension. Because of that, there was built-in incentive to make sure the company had long-term stability.
Nowadays, executives are disposable employees like you and me. Therefore, they have no reason to care whether the company is long-term profitable. They know they'll be elsewhere in a few years, so why not plunder the company in the meantime?
Re:Supply.... (Score:3, Insightful)
There's will come a time when the supply of IT workers will match or exceed the demand.
Take an econ class. You don't even know how to use the terminology right.
And as technology improves, the run of the mill business programming will become so easy (adding, updating, deleting data from RDMSs, biz logic, etc...) that the only need for real programmers will be for systems and development software (reason why MS Office is soooo popular! You wouldn't believe how many VBA apps I've seen on Excel!!! And all you need is the office developers to support ALL of those biz "programmers".). And that will be a much smaller labor market (hence plenty of supply) for programmers.
In my experience, the number of professionals who want to learn anything about IT besides "type it in here and press this button." is exceedingly small.
Even now, the number of people who are capable of doing IT work, let's say 70th percentile of the population, means there are over a billion people on this planet with the brains to do the run of the mill programming.
There's about 3 Million people in the US and about 800,000 people working as software developers. That means, in the US. about 0.267% of the population is a software developer. I doubt that we'll see drastically higher worldwide programmer/population rates any time soon.
However, I do thing that the vast majority of human activities can be made more efficient through software. So as the world's population becomes more computer-using I'd expect the market for software to expand greatly.
I say there's plenty of supply and salaries will always get lower - overall - regional differences may apply.
There were certain countries that had a waiting, highly-trained work force but they couldn't get the work because of high transaction costs. The internet drastically lowered the transaction costs but did not eliminate them. During the time when those costs were plummeting, we saw a massive influx of new developers into the market. So, the countries that had highly trained workforces sitting on the sidelines are all now pretty much in the game, So, I wouldn't expect to see another influx like that unless there's another radical change in the transaction costs.
The problem is that the remaining transaction costs are pretty hard -- mostly organization and physical.
In other words, the "damage" is pretty much done. Frankly, I think the world as a whole is better off due to outsourcing.
Re:Outsourcing is good, loyalty is bad (Score:2, Insightful)
http://www.snopes.com/quotes/goering.htm [snopes.com]
Re:Outsourcing is good, loyalty is bad (Score:3, Insightful)
Re:Supply.... (Score:5, Insightful)
You may be right, but the "higher levels of abstraction" will,
in my opinion, call for more knowledge, not less, requiring
more skilled persons, not less.
Until the point that we have true AI, that is. ( And it will
still be true, but handled by the AI. )
Solve the right problem (Score:1, Insightful)
The HR policies of some companies are frightening, they want employees to be loyal, but they dont honor loyalty. And they are the once who recruit employees who have jump companies at whim, I heard cases where a people have stayed in their jobs at an average of 6 months, I wonder how they get picked up at all.
So if there is a lesson that the outsourcing firms should take, it is this:
1. Award Employee loyalty
2. Stop recruiting people who jump companies, even if they are from your competitors.
3. Question bosses who have low employee retention rates, most of the time 'they' are the problem.
4. Tune your HR policies, its evident that they dont have an eye for talent, less for an unbiased compensatory practice.
Re:Supply.... (Score:3, Insightful)
20 years ago you could produce what was considered commercial quality code for those days and make a living off it with knowledge that was equivalent to 1-1.5 years of university education, sometimes less. Nowdays 4 years of college are not always enough to get you through your first day in the job.
outsourcing to the USA? (Score:1, Insightful)
Re:Outsourcing is good, loyalty is bad (Score:3, Insightful)
Re:Reap what you sow, suckaz (Score:3, Insightful)
There are so many flaws in this thinking I don't know where to start.
First of all, CEOs don't reap what they sow. They'll only be CEO for a few years, they'll make a shitload of money, and when they leave they'll get an even bigger shitload of money as a golden parachute. You can't blame someone for taking that kind of work, and the long term implications of what they do won't affect them. Somebody will reap what they sow, but it won't be the CEOs.
Secondly, when did they "kill the industry" in the US? I'm working in "the industry", and this job gives me the most dollars-per-effort ratio of anywhere I've ever worked. Unemployment in IT in the US is what, 2%? That's hardly a dead industry.
Third, I don't know if you remember the bubble years, but turnover was pretty damn high in the US at that time. I recall the conventional wisdom was you'd make the most money if you moved on after two years, and lots of people did. I stayed at one company for four years and the only original coworkers who were there when I left were people who couldn't leave until their green card came through. When it did they left that day. Turnover is a sign of a good job market. People will stay in crappy jobs if there isn't anything else available.
If outsourcing moves on to other countries, so what? We went through the same thing with Japan. As countries emerge from the third world their economies create more demand for these kinds of skills than supply. In another generation American companies will be competing with Indian companies for high-tech workers in Africa, but due to cultural and time zone issues there will still be jobs in the US for people with skills.
Big surprise (Score:3, Insightful)
What folks are complaining about is simply signs that there's a sellers market for programming skill in India these days. This will raise Indian salaries to the point where Indian salaries plus transaction costs are the same as US salaries. Another thing I've seen is that the average skill level level of Indian programmers isn't as high as it once was. Which isn't the same as saying the Indians are losing skill -- it's the opposite. The time was when nearly every Indian programmer you met was probably brilliant. There are more great Indian programmers than ever, but there are also lots more mediocre ones than there ever were.
I expect India's programming talent pool to continue increasaing, but you can't grow such a skill based industry overnight without compromising a little on quality and losing some price advantage.
There will never be another outsourcing phenomenon like the India. India has had three great advantages: (1) a huge and highly educated middle class population; (2) widespread English fluency; (3) stable government and laws. There isn't any other place remotely like it.
The next great outsourcing horizon will be
Re:What did they expect? (Score:3, Insightful)
Anyhow, the more people get working, the more demand there is, which means more sales.
If you were to suddenly wave a magic wand to make half the US population disappear, then would that suddenly mean a flood of job openings due to all the people suddenly not showing up for work? No, that's stupid -- there wouldn't be a flood of job openings, since all those missing people means lower demand and thus fewer jobs required.
Conversely, the more people working, then the more demand there is, because the overall market size is larger due to these newer consumers.
Re:What did they expect? (Score:5, Insightful)
It's not a zero-sum game.
"Desperate" is a very relative measure, and as India, China and other countries in the Asian sub continent improve their wages, education and quality of life to make greater wage demands, where will the multinationals go? And do you think those that have gained skills and wealth will suddenly drop back into subsistence farming, or maintain at least some quality of life? You know, after SE Asia is raised above the poverty levels it currently has, there isn't a great deal of the worlds populace left to exploit for 10 cents a day... and most of it is in Africa.
Keep the work moving, keep employing new people in new countries, and we might, JUST MIGHT even out the worlds wealth distribution a little.
Re:Outsourcing is good, loyalty is bad (Score:3, Insightful)
Re:The following is a long diatribe.... (Score:3, Insightful)
The US hasn't even been able to outsource all of its manufacturing jobs.
What will happen (what is happening) is that there will continue to be a need for some level of IT functions in the US, especially of the "rapid response" variety, but perhaps at a slightly lower employment level or pay level (look at automobile manufacturing in the US, where even foreign companies are building new plants here, but they don't have union contracts that pay people not to work).
There will be an increase in US "value added" IT work such as business case development, systems analysis, requirements gathering, project management, and test development. Actual coding and testing is the easiest thing to outsource.
Mind you, there are also other fields opening up, such as biotech and quantum computing. Plus when all the cheap labor of the world is fully employed, robotics.
Re:Supply.... (Score:2, Insightful)
Re:Calling Outsourcing "Bad" (Score:3, Insightful)
It's a negative sum game (Score:5, Insightful)
America's booming IT industry is a thing of the past, as the entry level jobs needed to train people for higher end jobs no longer exist in America. Our IT industry will continue to shrink until it's completely gone, and all that is left in America are people jobs. The low paying cashier and medical clinic crap, with a smattering of middle class nursing jobs and doctors being crushed by malpractice premiums in malpractice award-capped states.
For globalism to succeed, successful nations must be impoverished.
Now where, you ask, is all the growth coming from? Simple. America is drowning in utterly unmaintainable consumer and national debt. Eventually that all has to be repaid.
Pray ye diligently that ARMs stop rising and that home prices stop falling in the superhot markets of today, or you may find yourself eating the words you're thinking of responding to me with - because that's all you'll have to eat when the shakedown comes.
Re:What did they expect? (Score:2, Insightful)
Except knowledge left behind is a type of wealth that is worth far more then the superficial dollars and cents that you are talking about. Further, history does not support your hypothesis. Japan, Korea, and Taiwan all are examples of outsourcing's effects. First they made green plastic army men, next they made electronics, then they started doing engineering. By that time the people had enough disposable income to demand a large percentage of what their country was producing.
Certainly change is hard, but if someone else can build something better then I can, then I just have to build it better or quit. If I focus on something I'm better at I can actually obtain more than if I focused on a task that I was only moderately good at. For example, I don't grow the corn in my frosted flakes because I suck at farming. I can actually have more corn flakes by focusing more energy on a job that I'm better at rather than do both. If coders in Vietnam are better (including cheaper) then I have to do it better than them (try quality) or do something else.
Finally, if a region becomes poor again thats their own damn fault. If someone gives you money and then leaves, you still have money. I don't claim that outsourcing isn't taking advantage of poverty, of course it is and thats the point. But obviously its a good deal for those that take it, otherwise they wouldn't. Ask the Japanese if they resent being taken advantage of and ask everyone in the United States if they would rather still pay RCA's prices for TVs rather then Generic-Asian-Co's (not to mention cars).
Re:We've had this discussion before. (Score:2, Insightful)
Hmm, how come I never get to talk to the "relatively fluent" Indians?
Re:Supply.... (Score:3, Insightful)
I know it seems a little pedantic to quibble over terminology but when you start thinking like this you can end up with all sorts of nonsensical conclusions. This is a case in point. Since we are talking about curves that intersect curves, talking about one as being higher than the other makes no sense.
This terminology and the difference between demand and quantity demanded is one of the points that's driven home in any decent intro microeconomics course. Hence, we have someone trying to hold forth on Economics, a subject in which he obviously has no training. Being a proto-Economist myself, it drives me nuts when people who have no training try to do Economics because everyone seems to think they are qualified but few people have had even a single course.
For a better explanation than I'm managing at this point check out this [humboldt.edu] and take a look at the section "A Shift versus a Movement Along a Demand Curve".
And to quote you out of order:
As an aside, I'm an older developer (about 18 years of experience) who went back to do a math/econ degree.
Problems with University Economics (Score:2, Insightful)
The graphs sometimes contained too much information, somtimes not enough. Nobody understood that when you draw a supply vs demand curve, you're implicitly claiming to know the elasticity (via the slope). On the other hand it only shows you what's going on in one time frame but I rarely see people draw more than one curve per discussion.
Re:The race to the bottom (Score:3, Insightful)
Most corporations are completely amoral. A select few are arguably evil. They are all in a desperate search for short-term profits to the exclusion of all else. If they ever paid their staff more, it was a matter of necessity not choice.
If you examine corporate behaviour in the economic incentive zones in South-East Asia, it is clear that any statements you might hear about corporate responsibility and ethical behaviour are just bullshit PR.
I would recommend Naomi Klein's book No Logo [nologo.org] for a better picture of how we are treating people who have few other options other than starving.
And rather than give it to them, we spend resources to search out other people to exploit. That's the problem. Fine, let capital go where it wants, but make sure that labour and environmental standards go with it. If that were the case, we would not be open to charges of exploitation.
As it is, we give illiterate peasants the choice to starve, or work for starvation wages in sweatshops. If the workers complain and try to improve their lot, we shut down the sweatshops and move them somewhere else.
I can see how it works to the advantage of the executives who run the corporations that exploit their workers, and I can see how it works to the advantage of Western consumers, but I don't see how it works for the advantage of the oppressed people at the bottom.
Exploitation by any other name...
The only difference is that we benefit from it at the moment...
Re:outsourcing to the USA? (Score:3, Insightful)
Re:The race to the bottom (Score:3, Insightful)
And yet
You don't help the poor by looking at their list of options and eliminating the one they actually chose.
Re:Get over it. NOW. (Score:2, Insightful)
Therefore, if you're the type of engineer that is GOOD AT WHAT HE DOES, and gets the job done right the first time, YOU WILL NOT BE OUTSOURCED.
You're looking at it only from an engineering perspective, and you may be right in that perspective. However "IT Outsourcing" does not just refer to engineering or software development. It also covers services and support. A much wider range than what you're pointing to.
I didn't make my original statement without consideration. Several years ago I spent some time as part of a consulting team doing outsourcing evaluations in one services field. Yes, I'm being generic. At the time India was attempting to get into that field, but realistically, they were a joke. The quality of work they were producing was so bad, it was ridiculous. The only thing recommending them at all was that they were doing it for 25% of the cost. There were a number of other outsourcing companies providing this service, with quality ranging from "good" to "oh god no!" The big selling point was always price. There were a lot of organizations looking to cut costs, and this was one of the prime targets.
What we quickly learned was that what these organizations were looking for from us was not an honest evaluation of whether outsourcing this was good for the organization, but a rubber stamp approval of their decision to outsource. One of the worst cases was an organization we did, where the department we evaluated was in the top 1% of the field. Our recommendation was "under no circumstances should you outsource. You have one of the best departments in the country, you'll never find anyone who will give you the quality and performance that you already have." Two weeks after our presentation, they announced their new outsourcing contract, and fired the entire department. The only solace I take from that was that the contract turned into an expensive nightmare for them.
That's why I took exception to the statement that if you're good, you won't be outsourced. Yes, sometimes outsourcing is a good idea. But I've also seen too many cases where it was a bad idea to begin with, but because "it saves money" (even when it doesn't), it still gets done. Competence is no security, sad to say.