The Changing Face of Offshore Programming

teambpsi writes "BusinesWeek Online has an opt-ed piece on the trend in offshore programming pricing going up, with domestic rates going down. As a contractor, I've seen the downward pressure on contract gigs now to rates lower than what I was charging over five years ago. Dell Computers recently announced that it was bringing its customer service back on-shore, I wonder if this might be the start of some bigger trend -- maybe 'buy american' could be our new battle cry ;)"

Comments

Economics, not dogma

[jmorris42]

Don't expect any success with simply screaming "Buy American". Offer a better value proposition.

You are closer to the customer, not thousands of miles away.

You understand their problem better than some Indian programmer who doesn't truly grok the underlying American business practices being codified into software.

You are operating in their time zone.

etc.

That will win business a lot better than trying to shame a potential customer into paying more just because you are an American.

It will all balance out

[samdaone]

This is keynesian economics at its best. Acutal supply and demand. Now that contractors and programmers in the states are worried that all their jobs will move over seas, they are lowering their prices. Chances are US based companies would rather do business with someone they can get of hold of, and I don't know how the legality of the system works, but you can sue people for breach of contract and such here, I do not know if you can do that with overseas contractors, is it more of a "buyer beware" methodology?

Now you can expect the overseas operation to start lowering their prices or adding more value to their service, and vice versa until it eventually balances out, and once that happens most US based companies would probably prefer to work with someone based locally.

Doctors may not have to worry about this problem of oversea contracting since you still need to see them in person to do the best type of work. Lawyers on the other hand may not have the same benefits :)

Re:It will all balance out

[michael_cain]

Why doesn't freetrade work for the consumer? After all my goverment wants to make it illegal/claims it is currently illegal for consumers to import drugs from canada.

In many cases it does. Relatively free trade is why you can buy a DVD player for $40. It's why you can buy a variety of relatively fresh produce from Chile at the grocery in January. It's why the Big Three US auto makers had to improve the quality of their products when people discovered that Japanese cars didn't start falling apart after three years. If the US government removed sugar supports and import restrictions, the consumer would be able to buy sugar at half the price they pay today.

Prescription drugs are an interesting situation. In many cases, the drugs sold in Canada are actually manufactured in the US, or in Canada by US companies using the same processes and quality control they use in the US. But in Canada, prices are capped by the government. Much like trade arguments over steel in the past, the drug companies are opposed to anyone, including the end user, being allowed to import a competing good from a country where it is priced below cost. I'm not an advocate of the drug companies, just pointing out that they have an argument of sorts.

Of course, the health care system in the US has far too many aspects that tend to drive up drug prices. Enough people are in the situation where (a) their health care is paid for by someone else (employer insurance, government, etc) and (b) they have the freedom to "shop around" for doctors. Enough people that it is profitable for the drug companies to advertise directly to the consumer: "Is Lipitor right for you? Ask your doctor!" And in too many cases the doctor will prescribe the drug because they know that if they don't, the patient will "take their business" somewhere else. Collectively, US drug companies now spend more on advertising than they do on research.

It is an interesting mental exercise in economics to think about what might happen to drug prices if consumers paid their own bills. If the answer to the question "Is Lipitor right for you?" was, except for the wealthy, answered with "No, it's too bloody expensive, I'll take this cheaper drug that has 80% of the same benefits," would prices go up or down? Keep in mind that in many cases elasticities are non-linear, and total profit can be maximized by selling less at a higher price. Major league baseball discovered this years ago -- total ticket revenue is maximized at prices that leave about 15% of the seats at the ballpark empty.

Re:Opposition to outsourcing rooted in racism

[AKAImBatman]

"Who cares if an Indian can do a job better: they are Indian"

Except that they can't. Here in the US, I can keep track of my team and teach them what they need to know. If the work gets outsourced, then all you end up with is a large number of junior level programmer with no direction. It's simply not effective. Then again, neither is hiring 200 programmers for a project.

The real problem is that buisnesses are looking for the sweet spot between quality, productivity and price. It seems counter-intuitive to companies that a smaller team of more experienced programmers will be more effective than a large team of juniors. They think that a senior developer simply costs more, and that they'll still need the same number of developers.

A free market is a global market.

[vkg]

Protectionism is stupid. American manufacturing workers have had to adapt to their jobs moving abroad since the end of World War Two, and it's caused enormous economic hardship here - but given hundreds of millions of people abroad new hope and new life. Sweatshops may suck, but they're better than making a living picking through garbage dumps, and that's often the alternative people face.

In the long run, this is one world, and one market: individuals should be free to trade ideas with anybody they want, and in most cases goods and services too.

Why shouldn't somebody in India, or Taiwan compete with me for my clients? No reason I can think of: it might suck for me, but it's going to be great for them, and probably for my clients too; the competition helps everybody except the losers.

America enjoys it's massive economic and social advantages for two reasons: the huge natural resources of it's land, and the incredible hard work and ingenuity of it's people. I think that asking the Government to step in and interfere with free trade in an otherwise free market (as software is now) simply to keep domestic prices high is exactly what landed us with a moribund and over-subsidized farming system, a largely uncompetitive and second-rate automotive industry and so on.

Repeat after me: government interference in markets, other than to address market failures or personal safety, is bad for the market, and bad for those who buy and sell in it in the long run. We have a history of lobbyists destroying the global competitiveness of their industry: don't become one of those people.

So what does that leave for the domestic programmer? Well, at one end of the spectrum, there's the stuff which is too small to outsource: the transaction costs in specification and organization are too large to make it more efficient to outsource.

And on the other end of the spectrum, there's the stuff which is too important to outsource: areas where people will pay a premium for domestic labor because it has to be done fast, and a risk of misunderstanding or second-rate work makes outsourcing unattractive.

But in the middle? Get used to the pressure, folks, as generations of your forebears have in other industries as the rest of the world began to catch on... First mover advantage only lasts for so long.

Re:A free market is a global market.

[cubicledrone]

Sweatshops may suck, but they're better than making a living picking through garbage dumps, and that's often the alternative people face.

And this is what we should aspire to: the object of an honest day's work is either a sweatshop or a garbage dump.

Now let's all sing the company song...

Re:A free market is a global market.

[Anonymous Coward]

I agree. I'm an American programmer who constantly worries about my job security as my company starts outsourcing more and more to India. So what do I do about it? I try to figure out what advantages there are to other labor markets and how to beat them. No use whining. If basic programming can be sent overseas then start studying topics that can differentiate you. SW archicture and requirements gathering. Take executive training courses. Study sales and marketing. You can keep coding, but you need to be good at the things that can't simply be shipped overseas. The point is, recognize your weaknesses, recongnize what overseas development offers, and make yourself un-outsourceable. And don't spend so much damn time reading Slashdot (oops).

Re:A free market is a global market.

[TRACK-YOUR-POSITION]

A few things you're forgetting: India and Europe both heavily subsidize health care and education--which are probably the two largest factors in the high cost of labor in the United States. These countries are actually practicing crypto-protectionism--government intervention to reduce to price of exported products with social programs for workers. To blame American workers when foreign governments give their workers unfair advantages is a disgusting lie.

With the massive American trade deficit (which will eventually annihilate our economy, which will make life suck for you whether or not your job goes to India before that happens), one would expect the value of the dollar to fall. But Asian banks have been proping up the value of the dollar by buying United States Treasury bonds, to encourage more exports to America. This is great for Americans who have lots of money and property and don't need to work for a living--it means fantastically cheap products at WalMart. It makes life suck for you if you have to work for a living. Once again, foreign government intervention screwing over American workers. Free trade has nothing to do with free markets!

Not too mention that Americans are expected to compete with workers who are restrained by American laws--no environmental standards in factories, no minimum wage laws, nothing. Why on Earth did we pass these laws if we aren't going to enforce them for all products that can be purchased on American shelves? So even American government policy encourages jobs to go overseas. (No, I'm not suggesting we eliminate the regulations--I just think we should enforce them for all products bought in America.)

So it isn't a free market at all. It's a market in which foreign fiscal and treasury policies are forcing American jobs overseas and American regulations produce an unfair disincentive to build factories here. Basically, every other government says "Screw America!" and the U.S. doesn't give a shit as long as a few key corporations get rich. Repeat after me: Globalism has nothing to do with free markets or capitalism.

The other insanity in your post is that you think workers (you say programmers, but all workers are just as screwed over by anti-market globalism as programers. Michigan is hurting a lot worse than Silicon Valley.) are going to just acquiesce to these changes just because you keep saying the magic words "free market". Repeat after me People need to eat, and will do whatever it takes to ensure they get food and shelter. If you tell people that there is no way for them to meet their needs within the free market, they have no choice but to destroy the free market! Why do you think those lobbyists always succeeded in argiculture and auto manufacture? Because no one cares about maintaining the global competitiveness of jobs that are going overseas anyway. Thank heavens that those lobbyists are always able to shut up fools like you--America would be vastly poorer than we are now if we purchased every last one of our cars and vegetables overseas.

History is clear on this. There is no example of a great empire that maintained growing trade deficits indefinitely. There are many Empires that have fallen because they gave away all of their gold for luxury and consumer goods for the middle class--see Spain and Britain. The Chinese sell us DVD players we throw away next year, and buy industrial capital to make themselves economically stronger indefinitely. If this continues, China will be stronger than the entire Western World--and then, because some American leaders upheld their narrow and simplistic view of Capitalism, we will lose something much more precious--Democracy.

Re:A free market is a global market.

[Malcontent]

I'd buy your theories if there was an actual thing as free markets or a level playing field.

Other posters have pointed out some flaws in your logic mainly about how the other countries don't have the same environmental standards and how they subsidize healthcare and education but there are other factors to consider too.

1) subsidized education. American workers have to charge more because they paid for their own education.

2) Different labor laws. In india people can be fired willy nilly and female workers can get abused with no recourse. In the US corporations can get sued if a female employee get abused or if people are terminated without cause.

2a) Overtime laws, familiy leave act, etc.

3) Although companies are free to move work overseas the workers themselves are not free to follow the jobs. I can't go to canada and take advantage of free health care or cheaper drugs but my boss can go there and outsource my job.

Since there is not a level playing field not only is protectionsism NOT stupid it's required.

BTW whose people who used to pick from the dump and now are working in a sweatshop will be back at the dump when the company leaves for even cheaper labor in cambodia or africa. Depending on outsourcing from the US leads to a boom/bust cycle and the corporations chase ever cheaper labor all over the world. Nike or Walmart are not going to tolerate demands for higher wages and as soon as some poor country someplace offers $.10 less and hour they will pull out and move.

Re:battle cry?

[sirinek]

Absolutely. They were ALL ABOUT "Buy American" for years and then when they got big enough, they used their size to crush competition by lowering prices by going to offshore companies.

There's a ton of websites out there chronicaling WalMart's abuses.

Re:The only battle cry companies heed is "returns!

[The Snowman]

Mind you, I'm as pro-capitalism as they come, so being driven by the battle cry of "returns!" is a good thing, IMHO.

I think capitalism is the best socioeconomic system mankind has come up with yet. But some people get into it a bit too much -- mainly the CEOs at the top who think making ten million per year isn't enough, so they do various things to hurt the people at the bottom of the ladder (cut wages/benefits, outsource, etc).

I like the "survival of the fittest" aspect of capitalism, but I would rather have the citizens survive than a business. Outsourcing is painful, but I think eventually, as the author of one of the articles says, equilibrium will be reached. Hopefully few of us Americans get hurt in the process.

I am not afraid.

[Apoptosis66]

I work for a major company which is now trying to outsource my J2EE programming position to Brazil.

Its almost too funny watching it go so wrong.

Our group has for years fought with the business group over software requirement specs. What we end up building almost always diverges from what they had in there minds. Yes we create software requirement specs with mock up and all that. Yet most of these are in business speak, and can be interpreted in many different ways.

Now they are attempting to outsource to a CMM level 3 development group. The thing is the Brazilians require the software requirement specs to be in precise use cases covering every function that can possibly take place. In fact they will not even start working on a project until this document has been created and signed off on by everyone and their mother.

What has instead happened is the business has no idea how to create software engineering specs. They can't effectively communicate this through the middle management hell that is spread out over 3 countries. The Brazilians effectively sat on their asses for 3 months, and documented the fact that they did. Once they finally wrote something it didn't integrate correctly with all the systems that we have in place in the USA, because there was nothing spelling out the fact in the specs. Now the project is late and everyone is pissed.

Somehow this is better than paying me extra to know the systems, to interpret what business really wants (and sometimes get it wrong), and get things out on time.

In short I am not afraid, in fact I am looking forward to the time the come back to me needing help and I ask for a big fat raise!

Silly Programmers

[Perdo]

We were all to "special" to form a union back when we had some power. Now we have no power because of the ease of offshoring, but we want to pick up the union battle cry "Buy American!"

All of you Overpaid twits that were worried that a Union would not help you because you made more money than the average joe, well some jerk in India has your job now, because you didn't want a Union.

Re:Silly Programmers

[Colonel Panic]

All of you Overpaid twits that were worried that a Union would not help you because you made more money than the average joe, well some jerk in India has your job now, because you didn't want a Union.

Can you explain how forming a union would have saved our jobs from going to India? Seems to me that as soon as companies got any inkling that a union might form, they would immediately send the work offshore at an even faster pace.

No, a union isn't the solution (at least not for American programmers). A better solution would be to unionize Indian programmers so that their wages rise faster to meet our (admittedly) falling pay rates.

In the meantime (and yes, this sucks) as the article suggests, our pay rates will have to fall in order to equalize with rates in India and other 3rd world places. I had a C++ contract back in the summer of 2002 that paid $10 to $15/hour less than it would have the year before and now I've got another C++ contract that pays $5/hr less than I was making in the summer of 2002. But since I was out of work for over a year, I'm happy to have it.

The problem is, as our pay rates fall so that we can compete, all the things we have to pay for are either fixed in price (like mortgages) or are going up (like electricity, gas, etc.).

Inhouse vs outsourcing revisited?

[SmallFurryCreature]

I think I read this article before. Exactly the same things can be said about having something inhouse vs outsourcing it.

Outsourcing always seems cheaper on paper but it often turns out that it is not as flexible as inhouse or that the costs for being as flexible are actually higher. Not that it matters by this time the manager who signed the contract has had its bonus and is busy on the next bone headed move.

Let me give an example. Local school wich also gave night classes had a cafeteria. It would do cheap cheerfull dinners so you could go straight from work, eat there and then go to class. Or if your class was early the other way around. GREAT. Then they outsourced the caferteria it promptly closed this great service.

I seen the same thing in other companies. They outsource the cafeteria lady and all of a sudden the office staff has to do things like arrange cake, late night food for when a department has to work overtime and so on. Worst case I seen had us using our own Microwave and cooker since we were not allowed to touch the equipment in the kitchen since it didn't belong to the company. Great fire hazard.

There was once a time when companies did everything themselves. They maintained their own cars, had their own doctors, had a few holiday places to send employees too. This was boomtime. Then companies started to focus on their core capabilities and outsource or sell anything that didn't belong. We been in a downward spiral ever since.

I WANT MY BLOODY DINNERLADY BACK! An old fat woman who knows everyones birthday and gives them a little cake at lunch and puts up a x-mas tree with cookies.

I'm replacing eleven Indian programmers

[TheOldBear]

I'm starting a new position this coming Monday. My new employer was dissatified with the output of an outsourcing / consulting firm.

They used a mixed model, with US based management and design, and Indian grunt coders - the major difficulty was that the software modules delived to date failed to meet specifications, event the specifications originated by the outsourcing vendor.

Hopefully, this will have a better outcome than than the last time I was taking over an outsourced project. This past summer, I never was able to obtain a full copy of the source code archive, documentation or specifications from the Ukrainian outsourcing company - I did obtain a sufficent subset to see that over half of their code would need to be rewritten, refactored or simply discarded before the project could be delivered to users.

The is likely only a short term trend...

[Osrin]

... and it's driven by the declining value of the dollar overseas. Our currency is not going far when you try and spend it beyond our shores at the moment.

We declinded 19% against the Euro during 2003, sadly it is a trend that looks like it will continue for a little while longer.

Once the dollar recovers we will start to see jobs and services outsourced again.

Re:You haven't seen racism until you've dealt with

[michael_cain]

I have an acquaintance who is blue-eyed, red-haired, is married to a Japanese woman and speaks fluent Japanese. He tells the following story about visiting in Japan.

He was standing in line to buy train tickets. When he got to the head of the line, he asked for two tickets to Tokyo, in Japanese. The woman behind the window replied, in broken English, "No speak English." He answered, still in Japanese, "I'm not speaking English, I'm speaking Japanese, two tickets to Tokyo, please." Again, "No speak English," and the woman left the window. My acquaintance was rather embarrased by all this, since it is considered quite rude to hold up the line. After a bit, an elderly man came to the window and asked, in English, if he could help. My acquaintance, still in Japanese, asked for the two tickets. The old man responded, in English, "Oh, you speak very good Japanese," but would not conduct the transaction in Japanese.

My acquaintance said that he encounters this situation, where people refuse to acknowledge that an obvious foreigner can speak the language, regularly in Japan.

Re:Accents

[vsprintf]

wrong about one thing. the average education level of workers in indian call centers is way above that of their american peers.

Well, apparently they weren't educated in customer service. The HP/Compaq offshored help is all but useless even after you stay on hold for 30 minutes. I'll never buy another HP product - I hope you're listening Carly, but I doubt it; you're too busy looting the company.

changing face is simple

[penguin7of9]

The changing face is simple: over the next few years, India will develop its own, stand-alone software industry. US firms won't be outsourcing to India, they will be competing with Indian companies.

Furthermore, multinationals will not be "outsourcing" to India anymore, meaning sending sporadic, low-level programming tasks there, they will be expanding their subsidiaries there and doing R&D in India, just like they are doing R&D in the US and Europe.

Will this mean downward pressure on the salaries of US programmers? You bet. But it's only fair: companies like IBM make more than half their revenue outside the US, therefore it stands to reason that they should employ more than half their employees outside the US. Right now, the percentage is still much lower.

They were being polite

[MillionthMonkey]

The Japanese have a very strange concept of politeness. The culture is completely dominated by it. Politeness even complicates the grammar of the language. It's a tool for scrupulously observing the details of social convention, and everyone is expected to play by the many rules. Foreigners in Japan are quickly immobilized by a net of condescending smiles and polite retorts that permit no escape.

I'm not Japanese, so what do I know? Here's my guess. Your friend was probably breaking a rule when he tried to speak Japanese to the people at the train station. He is a guest to the country and they are workers at a train station, which makes them servants. They are definitely at a lower point than he is in whatever social hierarchy determines these things, and so they were clearly expected to speak his native language, in deference. By placing them in a situation where he is speaking a non-native language for their benefit, he is forcing them to be impolite. They were trying to make everything polite and OK again by insisting on English. In fact he committed a grave social error when he forced the old man to admit they did understand his Japanese.

Just a few weeks ago at work a tantrum arrived via fax from a software distributor in Taiwan who had been recently fired by our sales employee in Japan for breach of contract of some sort. It was a copy of an email that the distributor had sent in response, and the guy was so livid he faxed a copy to us in California in an attempt to go over his head. In the first paragraph it says "You, being Japanese, should not have allowed this to happen." I thought that was a very strange remark.