BusinessWeek on Outsourcing
hotsauce writes "BusinessWeek has a couple of stories on the outsourcing of white collar jobs to India. One is a cover story on GE's fundamental research lab in Bangalore where scientists work on everything from the aerodynamics of turbines to plastics' molecular structure. The other is commentary on "America's worst-kept secret", and the effects of the upcoming elections on it."
I find this whole spitting and cursing quite funny. A few years ago we had people losing jobs in the manufacturing industry and all I heard from IT professionals was, "oh, why don't they up skill like us", well, here we are, and no longer are India and China the "T-Shirt" making haven of corporate America. Corporate America now see that these countries not only have cheaper labour but also, the people are just as qualified and just as many people "there" who can produce new and exciting ideas and products when given less R&D dollars.
What I find funny is when I hear people complain about this shift off shore. Its the old story, when your neighbour loses their job it is called a recession, when you lose your job it is called a depression.
Erotic uses a feather; Pornography uses the whole chicken
Well, /. does not source 'new' news, it merely brings stories together in a mish-mash that is more-often-than-not revevant to the /. target audience.
/. is not a live feed from Reuters, if you want that then hire a Reuters machine, this sort of story on /. to sit back and think about, a week or even month here or there doesn't matter much.
Does it matter if this story is highlighted one week later than another? It is relevant but even this article doesn't bring some hot-off-the-press story, it is a sit back and think about it piece. The tech outsourcing trend, as mentioned in the article, goes well back to the 90s, so if an opinion piece is published now, or last month or next week, it is equally relevant as we're talking about long term trend.
To extend your argument would be to say "why didn't BusinessWeek come up with this idea sooner?", why not a month sooner if all the facts were still in place,or a month before that? Or, as this is not new information, just a collection of old information with some insight, why couldn't you have done it?
karma karma karma karma karma chameleon, you come and go, you come and go.
What really kills me about outsourcing is that companies don't realize just how they are damaging their future in so many ways. I will give just two.
1) You lay someone off here in the U.S. as an example. Guess what, that is money that is not going to be used to buy products that most likely the parent company makes to some degree. Does someone in India buy dishwashers, tablesaw, etc. Not to be mean but not in the volume as here.
2) Tribal knowledge that is desperately needed to stay within a company for future development. That is all gone, and personally the quality that comes from an outsourced job is short of atrocious. That comes from watching quite a few projects at two different companies go completey down in flames.
Sorry, outsourcing is going to tear this economy in the U.S. to pieces. Quick short-term gain for a long-term failure!!!!
Well, it's not news in the original sense of the word, but it seems to be yet another example of the other kind of news, the institutional news. This means that something becomes news if an institution that's known to be a news source -- Slashdot, for example, or Google News (they also list(ed?) press releases as news) -- reports it as such. Being reported by such a source somehow makes a fact more true, more reliable (If it isn't on the news, it didn't happen, right?) See, for example, how people still feel the need to read about a car crash they witnessed. Or how several hundred people felt the need to read about Saddam Hussein's capture on Slashdot -- they probably wouldn't have believed it otherwise...
Hell is not other people; it is yourself. - Ludwig Wittgenstein
It like your chain of thought, but could I reverse it? When the price drops on, for example, software is has to be done by a lot cheaper labour.
Alternatively, you could say when the price drops people can spend their income on buying another product they couldn't afford to previously.
So, say all prices dropped by 50%, $1 could buy twice as many goods/services as it could before, so there are twice production opportunities for these things.
Now, there may be a chicken and egg problem here as prices halving may mean revenue for workers halves so they don't get the opportunity to buy twice as much, but as long as there is lag (caused by savings substituting income in the short-term or severance pay) in the equation lower prices mean demand for more products, more employment, more production, more consumption.
When you and everyone else will pay more for locally produced goods then the Chinese crap at Walmart they'll change.
This is good news. It will drive wages up in India, wages down in the west, but make goods cheaper in the west. This way everybody profits. The only pain is short term shifts in employment patterns.
Eventually with the barriers to trade removed by advancing technology, the whole world can enjoy the same level of wealth.
Yes it did.
And what did that mean for future generations? They would not have to work 14hrs/day in a textile factory, they went into higher value-added professions, earned more, had more, skill, better education.
Although the textile workers at the time did not like becomming unemployed, it did their future generations good.
What strikes me in all of this is that we are talking about an essentially corporate phenomenon. Corporate entity producing proprietary intellectual property (IP) finds it has to lower the cost of producing it. Why? Well, IP is essentially becoming free due to pressure from free IP like open source software. This is really just the continued trend of IP's marginal value and cost toward 0.
So, where is money to be made? It's essentially in applying the now near 0 cost IP to people's actual business problems. That's where most OSS-based houses make their money.
We want everything to be cheap. Extremely cheap. And even cheaper. As soon as a manufacturer starts demanding money for US-made quality people being to bitch about high prices and coporate greed. Nobody is paying a fucking dime more just because it's US-made. Why should we do ? Slave child-workers will to it cheaply in Tibet or Taiwan. Oh, and evil company outsources my job to India, these evil bastards, they are just in for the money, these bloodsuckers !
Take e.g. Apple. Saving US jobs by US goods in the US. But when they charge prices to substain these US jobs everybody whines about teh evil Steve Jobs. Just look at the frontpage and the "iPod battery costs money= TEH EVIL" stories. And this bigotry doesn't even rule Slashdot, it rules the whole country and makes it on the frontpages of NY Times and Newsweek.
Outsourcing justs means: we get what we pay for.
Owner of a Mensa membership card.
Many of us expect too much!
Last night I went to the company xmas party. The subject of Christmas bonuses came up. The average bonus was $2000. EVERYONE got a bonus. People complained: not big enough.
The company GAVE away an average of 2K to people just because... and people still complained ("I remember the 20K bonuses at dropdotbomb... this just does stack up" - an actual quote).
I am not saying the greedy CEO's and stockholders aren't to blame also - they are. But this kind of attitude just goes to show that many American works expect far more than they are worth.
If US companies want to combat outsourcing they have to start from the bottom - offer lower pay to incoming workers, and somehow get rid of the top heavy "older" workers (attrition, lay off, whatever) from the 90's.
The excesses of our recent past are smothering us!
A question: how fast are salaries rising in India? I am betting you won't see Indian companies buying the naming rights of football stadiums and offering half a years pay as a signing bonus.
I am very small, utmostly microscopic.
As a recent Ph.D. graduate in Chemical Engineering, this is nothing new. When I entered graduate school 10% of my fellow class mates were US citizens. Our finest graduate schools in the technical fields (engineering, physics, medicine) have been training foreign students for a long time now.
Global workers trained here are just as effective and talented as native US workers. The notion that US citizens are somehow more innovative is just that a notion. They get the same education what US citizens get. They are equally as qualified, and WILL work for lower salaries in their native contries. The real reason that US students aren't going into these fields is that they don't have the work ethic or the dedication for it. They would rather sell wireless phones for commision and make a quick buck than educate themselves for the future of our country.
In terms of solutions to this problem:
The answer in NOT legislation. This problem has to be solved by the US providing technical people where it is obvious that they are the best people for the job.
In terms of developing countries: In particular this is a great opportunity for India where they can bring about social change in their country. Well at least until some time down the road when we outsource their jobs to some other developing country.
Outsourcing to other geographical locations is not new and has happened to manufacturing, and it is happening with technology now.
A long time before then. It's called imperialism, where a country takes advantage of lower living standards elsewhere to maintain an artificially high standard back home. In the long run, though, it exhausts the resources without adequately putting back or compensating. Sure, the Indians might think they're getting a good deal right now, but it's draining away their best resources from improving their own country, and they become even more relying on the western countries.
Regards,
--
*Art
P.S. We can save a LOT of money by outsourcing the military, say, to Pakistan...
ESR, never shy of controversy, writes in his blog: Salaries are dropping. Time to celebrate! . He claims that the outsourcing trend will ultimately benefit Americans; that's just how the free market works. You may not agree with him but read it anyway for an alternate viewpoint.
That's all well and good, but if your job was the one making the product at $1, and they decided to outsource it to [insert country here] for production and you're now unemployed and have no income, does it matter that the item which used to cost $1 is now $0.50? You can't afford it because you're worrying about your [insert payment schedule here] bills.
I am not a protectionist/communist/anti-freetrade person. I actually think capitolism is the way to go, but unless we get our act together and start inventing new technologies and exploiting them here, we are in for some rough times ahead.
WTF? Over?
There is a huge difference.
At that time those bad jobs was going and was replace by better jobs further up the chain.
These days the jobs being outsource are the jobs at the top of the chain.
It's research and development; it's financial services and so on. There are no jobs further up the chain.
This is not going to go well.
Although the tech people I know that have been on the bench a while do eventually seem to fall into another tech job. But it's different. Contract work instead of perm and there's a lot more bench time between jobs.
Bank cash and keep your bills down when you're working. Maybe one of these days we'll have a story on /. about the worlds longest chain of wi-fi connected latte' carts.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
Speaking from experience with H-1B contactors and L-1s working in the U.S., the cost savings these companies seem to "realize" for I/T is not as rosy as one would think. Most managers that make these decisions can barely understand a balance sheet and an income statement, but they can certainly read a stock price. When outsourcing looks like an option, you have to look at all the hidden costs that lurk about doing it before you dive in.
Unlike unkilled and semi-skilled manufacturing jobs, where the tasks performed are route and routine, a lot of programming jobs require heavy amounts of cooperating and coordinating to get a successfull result. The proper analogy to draw with your client is that of the homebuilder/architect and the homebuyer. Although the programmers may be Mexican immigrants who work less than minimum wage and get paid cash under the table to send to their poor families in Guadalajara, these folks still need the same amount of (if not more) specific direction to build a home that will be fit for you and your family to live in. Translating back to I/T, you may be mired in many, many more meetings, buried in email, and endless phone calls with your overseas colleages just to keep the train on its tracks and moving in the right direction. Be careful what you outsource.
Ever heard the old addage "too much of anything is not a good thing?" Same principle here. A proper mix of outsourced labor and internal I/T staff can build successfull solutions with less cost than the tranditional MIS department (in less time is another story). Some jobs are perfectly suited to be outsourced, such as the DBA, data-warehouse specialists and some of the programming. The traditional PC helpdesk has also been successfully outsourced overseas, but you better hope that your callers can tolerate the Bombay accent on the other end of the phone.
Some jobs cannot be outsourced without expecting a downturn in quality or a corresponding increase in time spent doing your project, such as technical writing, quality assurance, project and program management and many other jobs that require intense amounts of personal and communication skills. Hardware, network and software installs should NEVER be done by outsourced personnel. You also want to keep the programmers who are working on the big things, such as architecture shifts and regulatory changes (e.g. HIPAA) on staff for the tight projects where you don't have the luxury of time on your side.
Outsourcing CAN be done, without firing your entire I/T staff, alienating everybody and stirring up bad blood. Find jobs for the folks who are being placed out or train them to do the jobs you aren't sending out of the company.
And even when you get to the state where you can do offshore and realize a gain, you still have to keep busy monitoring everything much more vigilantly. Outsourcing companies charge vastly different prices for the same tasks, and contracts don't span very long. There is also the question about what happens to your intellectual property when it's going out of your country's borders: if you are compromised from an overseas vendor you may be left with little or no recourse (which is why so many CEOs are lobbying Congress). The cost of securing a favorable contract with an overseas parter also adds to the cost, unless you are doing it through a U.S. firm (but don't think that those international legal firms' fees WON'T be passed down to YOU). I doubt that most PHBs will get outsourcing done right without paying a large sum of dough to outsourcing specialists (hmm maybe a new career option to layed off I/T workers?).
Where does this experience come from, you ask? Well, I was replaced by Indians several years ago, which then followed up with a massive layoff at the company I used to work for. They are paying less money for the labor, but since I left they have had more projects fail miserably than before. They may have let off with benes and pension plans, but they traded it in for huge sums of airline fees to sh
When they offshored the textiles jobs, I did not speak out because I wasn't a textile worker.
When they offshored the steel mills, I did not speak out because I didn't make steel...
We (as in the IT-industry) have been telling our customers that they shouldn't pay for anything for so long that now they don't anymore.
To take an example: People will not even pay 15 bucks or so on high quality shareware games that gives hours and hours of endless fun. They don't want to pay $100 or so for a good personal firewall. They gladly pays it for a two person dinner that lasts one hour. It's madness.
We have brainwashed people into not buying our stuff no matter how cheap it is. WE GOT TO STOP DOING THIS!!!
As profits roll in for companies that outsource our jobs the least our government could do is tax that money and use it to reeducate the unemployed.
it's draining away their best resources from improving their own country
How?
There is a differance between textiles, which has raw materials, and the service sector which just requires people.
In India call centre workers get paid more than fully qualified doctors. Most of this money will find it's way into the local economy. If anything can be said of this outsourcing trend it's that it's going to bring India kicking and screaming into the First World.
Do you mind, your karma has just run over my dogma.
Since dropping the gold standard the scarcity of money is controlled by the govt.
It also opens the door to currency speculation (see the 30-40% devaluation if the baht for a case study or Britain's Black Wednesday).
-50% inflation would seriously harm the USA's balance of trade as foreign currency would suddenly be able buy twice as many US dollars.
I'm sure any president would shit his pants if suddenly the national debt doubled, oh wait, increasing the national debt by lowering taxes to win votes seems to have been US domestic policy for years, as well as plenty of other 'conservative' nations. Conservative, what a joke!
Let's blame Thatcher & Reagan, they started it!
There are places where the networks are not touching,and there are places where they are-Boeing's Lori Gunter
And come out of school with a degree in "software engineering" makes you a software engineer? It takes years and experience in real projects to become a valuable one. As the projects are being outsourced, your chance of experiencing one is becoming less while the software engineers in the other side on gaining.
It's even worse. Don't forget that we're still importing foreign labour, as well as sending work overseas. Plus as pointed out in the article. Our "core" knowledge is going overseas. If your "secret sauce" is overseas? Then of what need is there for the "core" company? The article also mention's only that it's more expensive here, but doesn't mention weither companies have pursued moving around in the US to cut costs. You know, the same suggestion that the "just move" crowd trots out for labour. There obviously is some place in the US that's cheaper than India that companies are moving to. Also the fact that Indians (and others) are well educated AND moving into the higher-level jobs, bodes ill for the "go to school", or "get retrained" crowd. Then last there's the "jobs that can't be outsourced". First as I pointed out above, what makes you think it will be filled by a US worker, when an "imported" worker will work for less, and be less "problamatic" than a US worker? Second is there enough "face to face" jobs to sustain the US?
Yes, it was part selfishness. It was also part optimism. The general story used to sell these sorts of policie is the old: "some jobs will be lost, but in the long run we'll all gain-- all you have to do is retrain for a more cutting edge area."
It was easy enough to believe this was true when manufacturing jobs were going overseas. It was a terrible thing for the peope losing their job, but we sincerely believed that new opportunities would open up for those with a forward-thinking attitude, because we were Americans and that's the natural order of the world. You'll see many Slashdot posters taking that line even today-- comparing the current loss of jobs to the industrial revolution, etc., admonishing us all not to worry, we just have to wait for all the great new even-higher-level jobs that are due to us now that we've offshored those pesky coding duties to foreigners.
Problem is, it's increasingly difficult to see where these new opportunities are going to open up. In the past we had the advantage of a) having more natural resources (coal/steel/etc), and b) being one of the most educated countries in the world. But in a global economy, natural resources don't matter, and we're fast losing our advantage in education, now that India and China are producing thousands of brilliant students (with enough highly-educated people that GE can open a pure research lab over there). Note that India and China are smart enough to adopt national policy to educate their people, while America is allowing its educational system to go to the wolves.
So when this new opportunity comes along-- be it nanotech, biotech, whatever is next-- what insures that Americans won't lose it to foreigners? Unless it's something that by nature can only be done by US workers (and what would that be??), we're screwed. So I think the reason people are panicking now has something to do with the realization that there is nowhere to go from here-- that we've finally been pushed into the ceiling of our own capabilities, and the magical "retrain and retool" approach pro-globalization folks have advocated is not going to carry us when foreign workers can do the same and cost 1/50th as much to feed and house.
It boggles the mind that someone with access to a computer could draw such ignorant conclusions.
American companies are diverting billions of dollars that are being pumped straight into the Indian economy -- giving jobs, money, and hi-tech experience to tens of millions who would otherwise have had to do with much less in a country that has epitomized "poverty" for the last hundred years.
What resources are being "exhausted"?
I lived in India before the real boom started to happen, and I maintain friends who still live there. Your assessment of the situation couldn't be further from the mark. People I know who weren't able to afford even basic medical care are now looking at sending their kids to college.
I'm sure that you're well meaning with your "anti-imperialistic" bleeding heart rhetoric, and some lame moderator even marked you as "insightful" -- but try to think a bit before you put forth opinions that hurt real people with real problems in other parts of the world that you haven't taken the time to really understand.
Why are you letting these clowns ruin our country?
>
If anything can be said of this outsourcing trend it's that it's going to bring India kicking and screaming into the First World.
They may wait a long while. Even with this boom they have with the outsourcing trend their HUGE population (more than 1.05 billion) means that it will be very hard to lift the country into the standards of the First World.
I am so sick of hearing tech workers whine about loosing their jobs to outsourcing. Yes it is a problem. Yes it is unjust. Here's the travesty:
It's our own damn fault.
IT workers have allowed themselves to be pushed around by business owners because of their high wages/salaries. At the end of the day the result is ugly:
* Entire business units with at will contracts
* No established standards on who can do the work
* No use of worker leverage to get better working conditions.
Here are three solutions:
1) Get laws passed requiring foreign companies to be held to US standards for handling data. Restrict outsourcing only to nations willing to play by our rules - like HIPPAA, Fair Credit Reporting act etc.
2) Unionize. Get collective bargaining agreements that offer a level of protection against unfair labor practices and ensure fair working conditions (none of that emergency saturday meeting to test loyalty thing). Mass layoffs and other job actions become a little more difficult as workers have to be paid per the CBA rather than individually negotiated. CBAs also allow the union a say when outsourcing occurs. Unions aren't tough to start, either. Call the US NLRB for mor info.
3) Establish licensing requirments. Construction workers (who really aren't that far off from IT Contractors) have been very good at getting better wages, conditions, etc in a business where people are a dime a dozen and you can use foreign workers.
-- $G
And what happens when a good portion of the workforce ends up like that? Who is going to buy your products? Outsourcing comes across to me as the current equivalent of the dot-com pseudo-boom. At first people are making money, but after a while reality starts catching up.
I'd like to propose a few changes to the corporate tax structure.
No investment or R&D tax credits for offshore work.
No dividend tax exclusion for profits earned offshore.
A return to the 90% marginal tax rates for offshore profits.
Henry Ford was able to make money by paying his workers much higher than the average salaries and at the same time, he increased the market for his cars because more people could afford them.
A Shadeless room is a brighter room.
The "resource drain" is that fewer Indians will train to become doctors. In the long run, it will hurt them due to fewer doctors.
Whether this "resource drain" is a significant problem remains to be seen. It might not be. It might be vastly outweighed by the benefits of all the work coming in. But it is there.
I think we're on the same page of music...I was implying the same you are...what if this trend continues? Then we're all screwed. I think you're also right that it's a bubble right now and sooner or later things will normalize. I read a story last week about Dell bring some of their help desk seats back to the US because of the India operations not living up to expectations. I think it was for the enterprise customers. My mother owns a Dell and had logged about 40 hrs in phone calls last year at this time going through their damn script of how to fix a modem they thought had a driver issue and turned out to be a hardware problem (defective). Most of the hours logged were with India.
I hate taxes, but your ideas are worth considering because something needs to level the playing field. I'll be damned if I let my tax dollars subsidize outsourcing and not raise my voice about it.
The middle poster (inode_buddah) was correct in pointing out that while some products are now made overseas, when can you remember a company lowering the price on any of their goods and NOT call it a sale or special purchase or whatever.
"Since you all are such good customers, and we are saving a shitload by making our product in [insert country here], we're going to knock 10% off the suggested retail price."
WTF? Over?
Do you mean funneling the wealth to a smaller percentage of people and increasing the masses dependence on these people?
Are you saying that it is more important for BigCompany to make money than you? BigCompany needs the money more than you do, so it can invest the R&D dollars to improve our society, because you can't?
A year ago I got laid off from my high-tech job -- not because it got outsourced, but due to industry consolidation. Many of the headquarters strategy jobs ARE redundent when two large companies merge. Fortunately, I was in a position to retire and am back in graduate school, studying economics this time. There's a fascinating long-term economic question implicit in your situation, and mine.
Your job, you say, can't be offshored because you have to be present to do it. However, the students that are the root source for your job have to have enough money that they can afford to be there (your description is almost certainly college of some sort, not K-12). In many cases Mom and Dad are paying some or all of the tuition bills. If Mom's high-paying research job goes to India, they will have a harder time paying those bills. Fewer students at school, fewer sysadmin jobs. Presumably the Indian researcher can now afford to send their kids to college (in India, they're not being paid enough to send them to the US), where there will be increased demand for your type of sysadmin. Indirectly, your job can be sent offshore.
When a big multinational corporation moves jobs from one location to another, the demand for goods and services at the first location must decrease. We have seen this operate on a small scale -- the big factory that employed many of the townsfolk closes, and soon after that other businesses start to close or scale back because demand decreased. Now we get to see if it is possible for it to happen on a national scale -- if enough companies send enough jobs to India and China, can they cause significant decreases in demand for goods and services in the US?
I think it was Keynes who first described "the corporate paradox of thrift." While a move that lowers costs may be good for an individual firm, if all firms make similar moves it may be bad for all the firms collectively IF the cost savings is translated into decreased demand for goods and services. TTBOMK, this has never actually happened. Improved productivity eliminated an enormous number of farm jobs 100 years ago -- they were replaced by manufacturing (and yes, I'm sure there were people who really wanted to be farmers who permenantly lost that type of job). Cheap overseas labor and improved technology eliminated a lot of manufacturing jobs -- they were replaced by jobs in growth fields such as IT. Will there be new growth areas this time, or will we see permenantly higher unemployment and lower incomes?
So tax dollars should be wasted on expensive overpaid Americans instead of on cheap Indians thus saving more money to be used on OTHER social programs?
Mac OS X and Windows XP working side by side to fight back the night.
Stop laying there on your collective asses and do something about it. Contact your congress critter in your home state and bitch until ledgislation so that state and federal contracts can't be giving to companies that outsource overseas.
Unless you write your letter on the back of a $500 check, it won't do any good. They are better paid by lobbyists.
-------- -------- Support Wesley Clark for president!!!
The thing that is different now is how transparent borders have become. In the past, the cost of moving an industry abroad guaranteed that it had an incubation period, perhaps a lengthy one, in the U.S. However, from now on, that incubation period may be terribly short. When a new industry comes along, it will very rapidly take advantage of the telecommunications systems we have, the low cost of transport, and the rising ability of offshore providers to quickly ramp up and produce. The fact that India and China have huge populations, attending better schools, becoming better educated, means that when these new, presumably knowledge-related (whether bio or whatever) industries come about, they can have a ready pool of educated labor immediately. Those foreign nations currently getting the benefit of our off-shoring will use that money to improve their infrastructure, airports, transport systems, telecommunications, education and so on, and thus be much more able to compete with us than in the past.
I believe that we in the western world, not just the United States, are going to experience a painful period of global re-adjustment. For centuries, our better educational systems, liberal social systems, open legal systems, superior technology and such have given us the ability to dominate the world. However, we have been busily exporting those benefits in the hope of gaining trading partners for our goods. The reality is though that world out-numbers us, and as they become more on-par with us and able to compete for our jobs at a far lower cost, it will be only natural that our standards of living fall while theirs rise.
I'm just glad I didn't buy a stupid-expensive house with a stupid-expensive monthly mortgage commitment a few years ago... people paying $3000 a month for an urban home better hope their industry doesn't feel the global pricing pressures too soon.
Larry
We are all being played for suckers. In the 20th century, the fight was generally US corporations vs. foreign corporations. Our corporations were strong, smart, and we could be more innovative than a factory in Japan and win the fight.
Now our corporations are selling us out. If a factory in the US comes up with a revolutionary new way to do something, resulting in a 50% drop in costs, the global corporation says "Great! We'll implement that in China and save 90%!"
The battle is now the corporation vs. the workers.
As a worker, it's pretty hard to win when no one is on your side.
Also, India's great big challenge is not just decreasing poverty levels, which have already fallen by 50% in the last decade, but introducing governance reform; there is, for instance, no reason why the national road network should be so bad, or why there's so much filth in urban India's streets.
Not to say we shouldn't be focussing on outsourcing, just that it would be extremely naive to believe that India will step into the so-called First World with it alone. A lot more can be done to improve the quality of life of most Indians.
More than mere navel gazing.