Why Outsource When Workers are Willing to Telecommute?

An anonymous reader asks: "Corporations and management resisted telecommuting for years, now jobs flow to distant nations. Did telecommuting become acceptable because of the greater distance? Because some form of on-site management persists? Because labor laws are favorable? Because a well paid middle class is a political threat? Is it really as simple as money? I'll work cheaper if I can choose where I live and work. Must I leave my country to do so?"

Comments

You're willing to work cheaper, huh?

[Schlemphfer]

From the article summary:

I'll work cheaper if I can choose where I live and work. Must I leave my country to do so?

Yep. And you must also accept a salary of around $5,900 a year, assuming you're relocating to India. You said you would be willing to work cheaper, but I doubt you'll want a job at that salary.

But I_I_ telecommute

[Hayzeus]

... and I can assure you that this kind of goofing of is rarely a prob... oh -- wait a minute -- God I love the sound Squidward makes when he walks. Cracks me up every time. Hold on -- let me freshen up this martini and I'll be right back...

Apples and Oranges

[Waffle Iron]

Bosses don't think of outsourcing as telecommuting because the outsourced employees aren't working from home. They are usually in an office being supervised by someone. Bosses can relate to that; they can't stand the thought of somebody sitting at home working in their underware.

To the boss, the fact that the fully clothed workers' hourly wage is 1/4 that of the unshaven half-naked ones is another big factor.

Overseas labor is mucho cheaper than anything here

[x_man]

The average Indian programmer costs $20/hr in wages and benefits while the average American programmer costs $65/hr.* Therefore you would need to take a 69% paycut in order to be competitive. You would be better off moving to your favorite part of the country and waiting tables.

*Source: Arizona Republic, July 14 2003

It's been tried before

[vishakh]

Companies did embrace telecommuting before. It did go through a phase when it was hot, but things eventually cooled down. I remember reading about this on my "Social Analysis of Computerization" class. The reasons given were that:

- Teleworkers are harder to monitor.

- Apparently, telecommuting hit productivity hard.

- Workers aren't in office enough to get promotions.

- In the office, there aren't enough people to keep ideas going.

- Working at home can be distracting.

- Telecommuting breeds resentment among co-workers since they are anonymous to each other and also because non-telecommuters might dislike others getting such a "rosy" deal.

Ultimately, however, it came down to managers being distrustful of new ideas. They dislike having to put such a high level of trust on employees that they rarely see. They like things the way they are right now and wouldn't really like to see them change. Maybe after some time passes, when many current prospective telecommuters rise to managerial positions, we might see telecommuting establish a strong presence.

A telecommuting worker still needs to be managed

[jjohnson]

The problem with workers telecommuting is that they need to be managed individually; the lure of Indian outsourcing is that someone else is managing them. In short, if the relationship with the Indian shop is set up correctly (specs go one way, code goes the other), the management overhead goes down as well as the cost. The interface is (theoretically) cleaner. I've never heard of an Indian outsourcing arrangement where the coders were in India and their immediate supervisor was in the U.S.

The comparison with telecommuting is shallow, and not very good.

Re:It really is that simple.

[SoTuA]

Not as cheap as someone oversees. What is considered good money in India wouldn't be a living wage in Silicon Valley, or in most of the United States.

Too true... while workers in the US might work cheaper while telecommuting instead of going to the office, they will need a salary that allows them to live, wich means a salary that let's them live paying US cost-of-living. For example, here in Chile a computer engineer (computer engineering in this country (at least in the Universidad de Chile) is more or less like a MsC in Computer Science, six years of studying everything from advanced calculus to economics to algorithms to AI to BD to Software Engineering to OS to...) goes out, fresh out of school, to earn about US$12k or 14k a year. Sounds like peanuts in the USA, but here it allows you to rent a place, pay your bills, buy your food, and car payments. Low cost of living where you are hiring means your workers will be satisfied for less. In no way you are ripping them off. I know *I* would be too happy with a US$24k/year job :)

You can split the pay of one US worker and use it to hire more people, wich are capable of doing the work of that one US worker and more. It's only a matter of sending someone here to do face-to-face interviews so they can pick the ones who REALLY speak english.

Wrong Answer

[Dr. Bent]

Telecommuting will not save your job.
Working longer hours will not save your job.
Working for less money will not save your job.

If you think it will, then you're looking at this problem in the wrong way. You will never be able to beat the cost of offshore labor. Even if you could, you wouldn't want to. There's a reason it's so cheap...everything here costs 10 times more (rent, food, clothing, etc...) than it does in India and China.

It's like trying to beat Tiger Woods at golf. Maybe...maybe...if you train really hard, sacrifice your family and friends, and everything you ever knew or loved, you might be able to beat him in a round of golf if you were having a good day and he was having his worst one ever.

But a much simpler way to be him would just be to school his ass at Tiger Woods PGA Tour 2003' for the PS2. The game is a lot easier if you change the rules a bit ;-).

The weakest point of outsourcing is the lack of communication. Developers in India can't communicate with customers here because:

1) English is not their native language
2) There's no face to face communication
3) They're 12 hours ahead

And if you can't talk to the customers, you can't solve new problems. Old problems are easy to solve. Those are the kinds of things that can be effectively outsourced. Building yet another e-business website with a shopping cart and inventory control; Creating one more payroll processing system based on an SQL database; It's the well understood problems, where the customers know exactly what they want, that can be outsourced. Everything else seems to fail.

And that is the IT Industry's saving grace. Using new technology to solve new problems that are not well understood will always have to be done here, because solving those problems requires constant and effective communication with the "customer" (the users of the sofware).

Software is slowly and painfully learning the lesson that manufacturing learned a long time ago: "Build where you sell". If engineers can't talk to the people who will be using thier products, they won't know what to build. Most problems in software are not well understood enough to be completely spec'd out by an intermediary party and passed onto the engineers for implementation. That is why lots of outsourcing ventures fail, and that is why the innovators here in the States will always have a job.

Re:It really is that simple.

[SpaceCadetTrav]

If everyone took jobs for $28k, who is going to pay for universal healthcare?

Why Silicon Valley Costs Too Much

[Nova Express]

One troublesome fact unvoiced in these discussions over why some companies might outsource jobs is the fact that the government of California has made it prohibatively expensive to employ people there, with the result that businesses are leaving in droves.

Take a look at this article in Fortune . With it's high taxes it's long been more extensive to do business in California than elsewhere, but Governor Gray Davis and the Democratic-controlled legislature have enacted so many costly new taxes and regulations that businesses have finally had enough.

A few tidbits from the article:

• "The state has lost 289,000 manufacturing jobs since 2001."
  
  
• Davis and the legislature have approved new legislation that will increase some businesses' costs per worker "by $4,000 to $5,000 a year."
  
  
• "The legislature made workers' compensation more expensive by mandating a large increase in benefits. California businesses now contribute the highest premiums by far per $100 of employee wages: $5.85, vs. a national average of about $2.50. Yet instead of cutting costs, as other states have done, the legislature recently raised maximum benefits by 71%, from $490 per week in 2002 to $840 in 2005. Countrywide and Verizon both pay four to five times more in workers' comp per employee in California than in Texas."

I have a programmer friend in California that was bemoaning this very negative business atmosphere last week in reference to this article. "In 2001, Abrahamson said, South Coast Building Services paid $500,000 to insure its workers for on-the-job injuries. A year later, the company's bill more than tripled to $1.7 million. This year, the tab nearly tripled again to $4.8 million, enough to erode the firm's profits on its $33 million in revenue."

Quoth my friend "I knew it was bad, but I had NO idea it was THAT bad. 1000 employees, and $4.8 million in workmans comp. Holy fuckin' cow! No *wonder* it's so damned hard to find a job!"

During the Internet boom, the Davis administration spent money like drunken sailors rather than laying the groundwork for sustainable growth. Now it looks like they may finally have suceeded in killing the golden goose.

Silicon Valley on the cheap. I did it, so can you.

[LibertineR]

I make close to $200K. I parked the Navigator and Viper and started taking Caltrain. I save $200 a month on gasoline, and I get work done on the train instead of sitting on hwys 17-85-101 on my way to work. Instead of the $10 I spent on two lattes per day, I now brew my own coffee in the morning and carry a thermos. Thats another $250 per month. Movies every weekend? Fuck that; NETFLIX rocks, and I can make a dozen hotdogs for what one costs at the Mountain view cinema. $50 per month.

Going to Nola's or Baha Fresh everyday for lunch? Not anymore dude. thats $300+ a month reduced to $100 by bringing my lunch from home. Now that I ride the train, I dont stop at Fry's twice a week to "just look around" like I used to tell my wife. An easy $150 a month saved just by staying out of the book/CD/game aisles. If I need something now, Ebay has it. Drinks after work with my team? Once a week instead of 3-4 times. Thats another $100 saved.

In one year, I have saved enough to help me make down payments on two rental houses, with positive cash flow coming in, that goes straight to the bank until I have enough to buy another one.

If you can give up some of the ego stuff, you can live just fine in the Valley. Now, when I go out in my Viper on the weekends, I dont give a shit about how much the gas costs. I havent filled up in 3 weeks.

If you want an idea of how cheap...

[dido]

Imagine earning the equivalent of US$160 every month. Can you folks in America live with such a wage? That's how much money I'm making right now, and while it's not exactly a lot, it's enough for me to pay the rent and utilities, buy enough food to for me and my girlfriend to eat well every day, and allow us to have a little more fun besides romping around on the bed. :) (it's not enough for us to consider getting married and having children though) What do I do that earns me such a pittance? I deploy and design enterprise Linux systems, and write custom Linux software as well. The fact that I work for a new and impoverished startup company skews things a bit, but the facts remain. Even as much as US$500 a month is considered a very good wage where I come from. Would you folks in America even consider such pathetic wages?

I can buy a pack of cigarettes here for the equivalent of less than 50 US cents. A home-cooked meal of chicken or other meat costs around 75 US cents per person. My daily commute to work is slightly less than one US dollar. Water and electric bills amount to roughly US$8-$10 per month. Rent, US$60 per month. That's what life's like in the Third World, folks. Come by and visit sometime.

Re:Silicon Valley on the cheap. I did it, so can y

[LibertineR]

I gave up Kobe beef, and am now just getting by on USDA prime. The horror!

Re:Silicon Valley on the cheap. I did it, so can y

[Tackhead]

> I make close to $200K. I parked the Navigator and Viper and started taking Caltrain. I save $200 a month on gasoline, and I get work done on the train instead of sitting on hwys 17-85-101 on my way to work. Instead of the $10 I spent on two lattes per day, I now brew my own coffee in the morning and carry a thermos. Thats another $250 per month. Movies every weekend? Fuck that; NETFLIX rocks, and I can make a dozen hotdogs for what one costs at the Mountain view cinema. $50 per month.
>
>Going to Nola's or Baha Fresh everyday for lunch? Not anymore dude. thats $300+ a month reduced to $100 by bringing my lunch from home. Now that I ride the train, I dont stop at Fry's twice a week to "just look around" like I used to tell my wife. An easy $150 a month saved just by staying out of the book/CD/game aisles. If I need something now, Ebay has it. Drinks after work with my team? Once a week instead of 3-4 times. Thats another $100 saved.

After-tax, he's saving $200+250+50+200+150+100 = $950/month.

Now dig this. With combined California + Federal taxes on $200K at around 43%, that after-tax savings is equivalent to a pre-tax salary raise of $20000 - about 10%.

> If you can give up some of the ego stuff, you can live just fine in the Valley.

Preach on, brother. You just got yourself a 10% raise, with zero change in your standard of living. (Well, apart from no longer "just looking around" at Fry's, but hey, we all gotta make sacrifices. I'd spend less time "just looking around" at Fry's too, if someone was giving me a $20000 raise for it :-)

Suggested summer read: The Millionaire Next Door: Surprising Secrets of America's Wealthy.