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Long Term Effects of Outsourcing
simulate writes "There have been several postings about outsourcing and offshoring in the past
few weeks. Is outsourcing just a fad? In Outsourcing
Programmers is Bad Strategy for Software Companies
author Michael Bean compares offshoring to the enthusiasm for Internet startups
in the Nineties.
He claims
that
outsourcing programmers is bad for companies not because
of the programmer layoffs, but because technology companies lose their
capacity
to innovate.
Offshoring is a mistake
when technology companies confuse operational
effectiveness and strategy." I don't think the comparasion to Dot Bombs is entirely accurate - the trend to globalization overall has been going on for decades. Still interesting piece.
While I don't think it's what you're referring to precisely, there has been a considerable move to outsourcing customer service call-centres in recent years. I think that in some cases this has led to a much higher level of customer service from the companies concerned. That's outsourcing taken care of. Offshoring, or moving the business outside of the UK (in these cases) has been considered lately as well. This seems to be having the opposite effect, as the new centres in foreign parts are staffed with inexperience workers without the requisite communication skills. It's going to continue as a trend though. Because it makes money. Cost rules all these days. No one cares about the service level, just about the profit margin. Right?
If I seem a little hostile about this particular trend, it may be because the jobs of a few people I know are under threat as a result of it.
Sign the FSF's Anti-DMCA petit
Has this guy ever worked for Accenture or PWC Tech Consulting? Those guys essentially have a few people do the design, write some high level code documents, and then hand it off to some code monkeys for assembly (oftentimes recent college graduates who didn't know squat about programming until their corporate training kicked in). So his argument isn't good - companies can still keep the design close to home and then outsource the assembly to India or China.
:) .
FYI - I worked for Andersen Consulting (now Accenture) so I know how those guys do business. I left after two months
smd4985
The largest problem with outsourcing/off-shoring software development is SECURITY. Remember Y2K? Many major corporations outsourced their Y2K work to foreign countries because they didn't want to hire the extra programmers locally to do it. What several companies found when they got the code back was that trojan horses, backdoors, logic bombs, and other nasties in the code in addition to the Y2K fixes.
NOTE: I am *NOT* saying *ALL* people from other countries are dishonest. You can find dishonest people anywhere in the world.
What I am saying is that if you turn control of your software code over to someone else, you run the risk of them altering it to their advantage. This also applies to local hires as well, but it's MUCH easier to keep track of what your people are doing locally than half a world away.
Why do you think that the US Government/Military doesn't outsource? The same with most financial institutions: SECURITY. (Microsoft not included.)
If "disco" means "I learn" in Latin, does "discothèque" mean "I learn technology"?
The major problem I have with these foreign call centers is that my private information is being shuffled around the world to the lowest bidder.
What we've found during the six month trial of hiring outside programming help this is what we've found:
o While Indian programmers (we used 8 different ones for 6 different projects) may be perfectly competent to produce software to spec, they usually ALWAYS built it to spec and NEVER brought up any issues they might have found in the process. Either they didn't see a flaw in the design or just figured it would be job security if they changed or fixed the ap later.
o We had no luck with Russian programmers (We had went thru 4 of them and none could complete the project they say they could have)
o American (We used 10 of them for 8 projects) outsourced programmers communicated MUCH better with their project managers and usually offered suggestions to how we might want to change the app to make it better or more efficient. The applications developed stateside required less QA and went to market faster.
Is this a good enough sized sample to make judgements? Maybe not. But good enough for us.
After the six months, it just didn't make sense to outsource, howerver if we do again, it will be domestic. The shortterm costs may look good but a 33% savings per hour usually gets lost in the longer development cycle.
Karma means nothing to me, so suck it...
This article qualifies as "content"---stuff that at first glance seems informative but isn't. It fails to site even one reason why offshore workers are worse at innovating than domestic workers.
---Technology will liberate us if it doesn't enslave us first.
The sooner IT "professionals" realize it, the better. 10 years ago, it was a luxury. 5 years ago, it was still somewhat a luxury. Now? Sorry guys - it's a commodity. The supply of IT workers is much higher than the demand, and that leads to dropping prices and an empahsis on cost and output. If you want to look at the king of commodity production, look at what the auto companies of Japan have done. Standardization, minimization of cost, outsourcing of all possible components to low cost suppliers. If you think the Information Technology industry is somehow special, or that it requires some exceptional level of expertise, try again. Thirty years ago, engineering was a luxury as well. Not any more.
Here is also an interesting article about Wal-Mart and its influence on its suppliers... Globalization seems to be pushed forward by a few, for the benefits of a few....
The right to offend is far more important than the right not to be offended. (Rowan Atkinson)
If done right, it can be worth it, but as we've seen, many firms haven't been up to that challenge.
That is exactly right. Indian companies themselves have this figured out pat down with their experience in the ofshore-model as they call it. For this very reason they are now directly bidding for US contract, competing and winnig against companies like IBM, who are still trying to really figure out the model, and so have higher costs. In fact IBM lists Indian company Wipro as one of its most formidable compititer in its core service business in future.
So, either US companies need to figure out the ousource/offshore model in a hurry, or they will start loosing the IT contracts in US and especially internationally to Indian companies.
This is a very cognizant post - couldn't say it better myself. I work for a company that DOES outsourcing of high-end technical jobs. My assessment right now is that to send something in my particular space off to staff in India you have to give them a specification that has every detail spelled out, i.e. not that much innovation required or allowed.
In 4-5 years when these guys have been through three,four or five big projects and they have learned the ropes...LOOKOUT!
They now have the tools, the infrastructure, and the background to do just about anything in high-tech. They just lack the direct deep experience. That merely takes time.
With that said, if you really are at the top of your game, you'll be employed, but you won't be making what you were making in 1999.
My own data points suggest that contract labor IN the US is now charging around 1990 rates. So - guess what, the market system DOES work. We were apparently overpaid for what we do and a market correction has occured, i.e. some business moved over-seas and salaries went down.
And no - it didn't feel good, but it is also how capitalism works. See heavy production industries like steel for another example of what is going to happen.
Have you compiled your kernel today??
1. India does not require protectionism. If U notice the history.. well.. check if America was with India before last 3 years?
2. Indian s/w industry is not restricted to code monkeys. Wipro employs about 16K employees at this moment, with an R&D (around 10% +) involved in innovative products. Doing development, maintainance, testing etc in wide arena from Main frames to embedded systems, mobile devices. Has clientee from US to Japan. Note US DOES NOT FORM THE BULK OF WIPRO BUSSINESS.
3. Outsourcing in injurious to US health. Not a fact in long term. the economy is bound to stabilize- Darwin Effect - Look @ India. we had "thumbs up" which was great and held 90% of softdrink market. Coke and pepsi came along.. this brand ceased to exist. Numerous employees lost thier jobs.. guess why coke and pepsi did not get kicked out of india? coz they had a strategy to handle this. the people who got unemployed got employed else where.
Conclusion: lets shut the fuck up and get some work done! Adios Amigos.
I'm in a MBA program and my professors stress that out-sourcing strategic assets is a very bad idea. Because, you never know where your IP will end up - regardless of which country/company you out-source it to.
The trend we're seeing is people who are just looking at the their numbers, which were probably fsck'd up anyway, and not at the long-term ramifications to their IP.
I just finished a class last semester that drilled into our heads that projects can be calculated in ways that will show them to be profitable, or calculated another way, to be unprofitable. Unfortunately, there's a lot of people out there who think accounting is a science.
There is no spoon or sig.
Depends on the department, really. For bread-and-butter transaction processing, sure conservatism is the norm (and a good thing, if you ask me - many fad-of-the-moment Java/XML/OOP idiots don't realise how important ACID and transactionality are).
But Quantitave finance jocks in other departments do some seriously wacky stuff for technical analyses and Financial Instruments
MS does well in part because it's the brandname such stock market people see when they're using Microsoft OLAP and MDX (SQL RDBMS tables are two dimensional, MDX is n-dimensional, limited only by computing power. Needs LOTS of computing power.). OLAP and MDX are things that most computer geeks haven't even heard of. They don't realise that MS does in fact do some very interesting stuff.
The company I work for is in the process of outsourcing support and QA for older codelines, and those developers are being moved into new development. That way the company saves millions, and they have also protected the area of their core competency ... creating software.
All you touch and all you see is all your life will ever be
Indian IT exports(total) = 10 billion$. That's just a small percentage of the US IT industry. Even with all this doom and gloom, the majority of software is still written in the US. There isn't a finite amount of programming work to go around. If some work is done in India, it doesn't mean the amount of work being done in the US goes down.
I just bought a cheap house in an upper middle class area of Los Angeles for $428,000. I was very lucky; houses that inexpensive don't come around just every day, at least not in a civilized, livable part of LA.
This is an example of the horribly bloated costs associated with hiring American workers. Just because I bought, and can afford, a $428,000 house doesn't mean I'm a better high tech worker, or that I'll work better or harder for the company. It's just a matter of the crushing overhead of living here.
How does that make people more innovative?
Why can't Indians start their own software companies, write their own software and compete the heck out of us?
If I were starting a company that needed a lot of programmers, I think I'd leave the country to do it.
D
...for reduced ability in India that many westerners don't realize.
India is a caste-based society. In recent times, the lower castes have been throwing their weight around in their legislature.
Of particular concern is that they have implemented a "graduated" admissions policy in their universities. An upper caste member might not be able to get into a school with a 90% score on the entrance exams, but a lower caste member may be assured admission with a 70% score.
Because of this type of (reverse)discrimination, many upper caste individuals of means leave the country to obtain education and work elsewhere. While India is a big country, the trend is concerning, and western outsourcers should be aware of it.
I learned this point first hand decades ago when I had a summer job working for the head accountant of a manufacturing firm. Most of the job involved hand typing numbers from mainframe printouts into spreadsheets on a PC. (The kind of task Perl would eventually be invented to handle.)
However, part of the job was to adjust the magic "fudge factors" in the spreadsheets until the results matched their expectations. Each kind of product had quite a few fuzzy parameters like "overhead", "scrap percentage", and other strange acronyms I didn't understand. Historically, they got certain profit margins on different types of products. The parameters all needed to be tweaked until the profit margins looked right.
They had me, some college kid, making up numbers that affected millions of dollars of accounts and tax calculations. However, I don't think it was even possible to determine a single correct value for these numbers, so my choices were as good as any. After that I realized that most things in the real world are too complicated to accurately project onto the one-dimensional space represented by money.
because technology companies lose their capacity to innovate.
How des one measure this capacity to innovate ? If one goes by the number of patents - the above arguement may not be valid at all. See this article about patents from India
In fact the increased number of patents from some research labs located in India may be one of the reasons for the trend of several US/EU companies setting up research labs in India.
Tell me about it. My 16 years of experience made me a shoo-in to get hirted at my last job, but the moment I started working it was a liability.
They wanted an assembly-line grunt worker who did brute-force unintelligent development and didn't ask questions. Any time I stepped out of line (by suggesting more efficient ways of doing things, suggesting anticipating performance issues rather than ignoring them until it was too late, or generally attempting to use any software development idea invented in the last 20 years) I was shot down quickly and harshly. It was probably a mistake to suggest they could easily eliminate half the development staff on the project by working intelligently, because that means billing fewer hours.
When it comes to hourly contract work, efficiency is verboten.
You are in a maze of twisty little passages, all alike.
The cost to automate code generation must be more than hiring a bunch of indians at $.10/hr. Otherwise, someone would have developed an efficient symbol input system, or maybe the technology to develop such a thing has not yet appeared. In any event, technology should reduce the cost of capital, and the efficiency of designing and manufacturing, and reducing the theoretical min time-to-market (TTM) (time from idea to first deliverable). But, automation allows for greatly reduced flaws (since computers do exactly what they're told to do) and increased harmonization and flexibility. Also, having more people working on a project increases complexity and possibilities for confusion and errors by increasing the number of communication paths (N! paths if their are N people that can talk to each other).
The biggest trick the devil pulled was letting lawyers become politicians so they can write the laws.
I recently started working as tech support for a company (college dropout, needed money). Within three months, I started programming for them. Within 8 months, they were discussing having me doing *ALL* their programming.
/ex
The current programmer is a complete and utter idiot. All the passwords in the program? Plain text. Her idea of security? a simple character replacement string... "But she does it twice, so it's twice as secure".
I brought this up to the owners (very small company) and explained to them that the whole program, which they sell for $20,000 was currently being secured by secret decoder ring-type encryption.
And I got in trouble for breaking the "encrption"... Leaving alone the fact that it took a total of 35 minutes to do, and there weren't any technical support calls coming in, so I had a lot of time on my hands.
The programmer has made some other dumb decisions. She is a bad programmer that doesn't realize as much.
It seems part of the reason that this place is as it is, is the guy that has veto rights on anything that goes into the system no longer works in the company at all-- He's the original guy the program was written for, but th reason he had for using it has gone away, so he just kinda does a "No, because the program shouldn't work like that" whenever he doesn't like something... Meaning that just about all "innovation" gets shoved out.
Speaking of which, I gotta get to work.
Perhaps I'll be considered a troll, but one has to remember, quality doesn't matter, innovation doesn't matter, long term doesn't matter, all the phb's and mba's care about is cost for this fiscal year at best, quarter at worst. Pump up the stock so it can be sold and the big guys move on.
The whole theory behind globalization was so that companies could create their own self supporting companies around the world. So for example, if Sun wanted to sell systems in oh say Korea. They could set up a Korean factory operated by Koreans, their coders would be Korean, etc. That way a company doesnt need to expend so many resources operating an overseas branch because "in theory" that branch would be self sufficient. But of course the lobotimized MBA's in this country had to bastardize it and took it to mean "cheap, slave labor for everyone".
Exactly, one of my favorite stories comes out of the auto industry following WWII, Japanese auto makers were invited to visit Ford's Rouge River plant, which was at the time the most advanced auto factory in the world, coal, ore, silica, and rubber went in one side and cars came out the other, and they usually had a year's inventory on hand. The Japanese auto makers were very impressed, but admitted that they could not build anything like this yet, and went on to innovate most of JIT inventories, because they couldn't afford what was considered state of the art.
Degaussing scares the bad magnetism out of the monitor and fills it with good karma.
Friend or foe? Call me neutral.
Most of the readers and contributers see Offshore Outsourcing to much lower waged coutries a threat.
The Indian programmers in India are too busy working to read and write to this thread.
I am almost neutral as my job in Ireland relies on globalisation from the United States, but is at risk from the globalisation to India and China.
Be Free: Free Software Tuition
You don't have to leave the country. Our median house value is $67,000.
Yeah, but oddly enough, there are no jobs in little towns with better housing prices. It seems there is an employability gap: You either have to work in crouded expensive cities, or the 3rd world to find an IT job. The "middle" is strangely missing.
Table-ized A.I.
First let me say that yes I am biased, I am an american .
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I can be considered further biased because me and ALOT of
ppl I know have lost their jobs to it
So in the best objectivity I can muster here are some reasons
I think it is bad
1) Money sent outside the US for third world labor stays there,
thus money that used to pay ppl here, to pay taxes, to buy
food, to further employ americans in a trickle down effect is gone
2) If we were to pay US workers third world wages, and have
third world labor laws, we would be breaking US law
*** So are we gonna lower minimum wage to 50 cents/hour ???
3) If you did pay lower than minimum wage to workers, would
they all have to be sponsored by the government and go on welfare
and increase the already burgeoning working poor caste
4) The value of the dollar has been steadily falling, what are
the implications on real estate, US investments, trade ???
5) Huge layoffs create bankruptcies, repossesions, forfeitures,
and broken homes, and broken marriages . Money being one of
the top 3 reasons for divorce
6) Even with a increase recently in GDP not seen in 20 years,
little to no hiring is occuring
7) Companies that reveal their internal secrets overseas may
just find new foreign companies making their products for even
less, after the plans were just copied by former cheap labor
With no recourse thru US patent law, etc etc, they experience a
TOTAL loss of market share as the foreign government chooses to
support their own ppl
8) Unemployment figures do not count those that are no longer
eligible for checks , they are no longer considered unemployed
9) The US cannot compete equally on unequal ground, we have a
huge tax overhead, and cost of living here is too high to
compete with countries that have poor humanitarian labor laws
10) US companies are going overseas and thru negligence are
creating disasters like Bhopal in India . They act above the
law and thousands die from it
http://www.bhopal.org/
The so called race to the bottom has negative aspects that
I feel will create even more hate for the US, within and
without and there is already a sense of a Elitist class in
this country
The funny thing is they expect to be protected by some of the
poor they pay to serve in the military, but in recent polls
soldiers were ask if they would defend the rich against
an uprising of the poor, you can guess the answer
Peace,
Ex-MislTech
google "32 trillion offshore needs IRS attention"