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Outsourcing Evolving
Shree writes "An article at NYTimes suggests that the outsourcing mantra is shifting to reasons of hiring global talent, tapping new potential minds and amassing top global human resources. Its not just software companies trying to save a buck by outsourcing; now its about Berkely trying to hookup with Tsinghua University and institutes in India, and companies like IBM and Microsoft looking to setup R&D labs in Asia."
If nothing else, this should serve as a short, sharp shock to Western governments. Why are we having to outsource these kinds of technical jobs? Most people don't quite seem to appreciate the crisis that the UK is going through in maths, science and engineering. I'm guessing the situation is similar abroad?
...it's all about the money.
In Australia we have always been short of technical talent. The company I work for has been trying to recruit 200 engineers for the last couple of years, fortunately the recent collapse of engineering in Europe and to a lesser extent the USA means we'll be filling those jobs pretty quickly.
Personally I'm pretty annoyed that we can't recruit locally, but basically our graduate recruitment program cuts fairly deeply into the available pool of graduates (ie we recruit more thickies than I'd want to). The truth is, you have to be bright and motivated to do well in an engineering course, and when you leave, there are far more superficially attractive options than working for people like me.
Everyone tends to agree that Americans/Westerns have a hard time competing with outsourcing, due to the huge differences in labor costs between the first and third world. Fine.
But what I'm beginning to see is that the real problem is the cost of housing in the West.
Yes, everyone bitches about high gas prices, health costs, etc (which all seem tend to be trumpeted by politicians with alterior motives), but these won't bankrupt you. Housing can destroy you financially if you aren't careful.
If housing was cheaper, I would be okay making a lot less than I do now. However, I'd personally be screwed if I made much less than $100K (rent is over $2000/month in my very plain, old neighborhood in California). I don't really spend much on anything else.
I'm approaching middle-age, and this is the number-one factor that I face trying to safely raise a family. Frankly, health costs pale in comparison as to how much I have to pay even to rent a halfway safe home.
I think the financial industry has pulled a fast one on us, and are milking average folks dry. The environmentalists don't help either, with their 'smart growth' policies (i.e. 'no growth').
Your hybrid is not saving the environment. Its purpose is to make you feel good about buying something.
Look, big business interests are tired of waiting for politicians and public to slog through the debate morass about education reform, privatization, vouchers, "no child left behind", blahblahblah.
While Western politicians and activists babble about all that, big business is just going to cut to the chase and hire from whichever countries have actually managed to come up with educational systems that churn out needed skills, rather than waiting for this reform business to work itself out.
So dear politicians and activists, please by all means continue to wrangle in endless debate over the issues, because meanwhile your societies are the ones who may be left behind wholesale, while the fluid business interests bypass you altogether.
Outsourcing is about commoditising jobs which a business doesn't believe are more a cost than a value to them, they move existing local jobs out so people who are paid less can do them. US firms have had R&D centres throughout the world for decades, was that called outsourcing? Or is that a term only used when the guy with the job in the other country has a different colour skin - the answer is no, it's about salaries. The controversy about outsourcing comes when the two are mixed up. For example businesses cite that it easier to hire talented people remotely. You can easily argue, well of course it is! Whether there are talented people or not. if you delegate your hiring decisions to someone six thousand miles away, whose only job is to hire people, they'll hire them. If they're not that productive, very few people in big business will be honest enough to say they made a mistake investing millions into an off shore site. Businesses can distinguish between outsourcing and talent hunting with salaries. There is no substantive reason why in the market of an international firm someone in India can't be paid roughly equivalent salaries as those back at base - if they do the same job. If it is about talent, this shouldn't be a problem right? If your senior well respected engineer in India is paid the salary of a US grad, 1 year out of college you're outsourcing.
No they won't- more bodies does not cut the time in half. Read the Mythical Man Month.
Besides, if they just wanted 24 hour development, hire a night shift. You know, like US based hospitals, police, and factories do. I'd be willing to work nights for extra pay.
I still have more fans than freaks. WTF is wrong with you people?
Depends what industry you're in. Manufacturing - well of course. Where you need to communicate over the time zone e.g. s/w development - in my experience it's a myth, and highly dependent on the quality of the people communicating. I haven't seen any good documented evidence of any efficiency improvements. In fact I've heard that it actually can decrease the net efficiency of your local team 40%.
It's even worse for US -> India than it is for UK->India, at least our timezones cross over a bit. I've seen simple questions been ping ponged across time zones for days, which would have been resolved locally in 5 minutes.
"Result: Projects get finished in about half the time"
Yeah right.
The big picture is the real center here... Its not just about costs of labor, housing, or whatever. Since the advent of the information age and the Internet, the world has increasingly become a flat world, a smaller world, evolving toward a single community. This evolution toward flatness is stretching and pulling on national and international boundaries, laws, and business practices. Its cheaper to live in Texas then in California, and business incentives on top of that have made Texas the silicon valley of telecommunications companies. Cost of living is less than half of many places in Cal. or the New York area, so the jobs should be good... but still there is outsourcing. Government still has not given businesses the right incentives to hire from within the country, so they will save money wherever they can. If that means hiring people in a country around the world where health plan costs and retirement costs are cheaper, they will because the flat world means it is possible to do so. 30 years ago, it just would not have worked. Communication was not good enough, now it is.
The real problem is not quality or quantity of graduates in the science fields, it is the fact that governments have not caught up to the information age with their legal and business practices standards. Giving companies tax breaks for this or that but not taking into account hiring practices is one of the things that has upset the balance of wages and outsourcing. All this political rhetoric about colleges is just political posturing. The real changes need to be made at the business tax and law level of things. The government can give incentives to companies that don't outsource... but then that would be taking easy money out of their pockets... it is all about money, but not for business, its about money for government and political figures.
When businesses are given the right incentive by governments through taxation and regulation, they will pay for in-country talent, and those jobs will again carry prestige, thus garnering the admiration and adulation of students planning for their futures.
It was fine to enforce equal hiring practices by race, but for some reason its not okay to make companies biased toward hiring citizens of the country they are registered in and pay taxes in. The big picture is that politics is screwing the west for the short term gain.
The dotcom bubble and bust showed that there are times when a guy coding in his mom's basement is as good as a 120k/year engineer... businesses are still learning that the dotcom boom is over, and getting quality work and workers again costs money. It doesn't matter how many people you hire in India, there are costs associated with communicating with those workers, and instilling pride in those workers to do the kind of job that gives the company the reputation that they want.
Right now, there are tons of call centers in India (we all know and hate them) and in the interests of business, even Indian companies are outsourcing to China (of all places) to cut costs because that is the only incentive that business has... cut costs, make profit... Its time for government to step in and realign incentives for companies. Yes, labor is often cheaper, and regulations or lack thereof makes doing business overseas cheaper.. but for the same reason that, say, poisoning the environment is wrong in California, its also wrong in Yogoslovia and India, and governments should not support businesses that are involved in such practices with tax incentives etc. That would counter the effect of a flatened business world.
Well, that is the gist of it anyway.... "its the government's fault" more or less...
Okay, go ahead and show me where I'm wrong now
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Let the slashdot readers go back to blasting the Indians and the asians. How pathetic and incompetent they are, if it was not about the prize they would not get anything to do, we are so great they are so bad, blah blah blah
The real reason for outsourcing is macro economic efficiency. In true free trade its the last denominator that companies can do nothing about internally as its an external factor.
Like it or not its the reason why china should not float their currency and the reason why countries like Singapore have managed to survive in a very competitive technical sector. In countries Like the US,UK and Australia you may pay an engineer more but the engineers themselves don't benefit due to the high living cost. The high living cost is attributed to the high proportion of non-productive sectors in an economy compared to productive sectors. Productive sectors would include the likes of Engineering,manufacturing, mining,agriculture while non productive sectors are largely the finance sector and bureaucratic sectors. In essence productive sectors support the non productive sectors(eg you cant eat money if there are no farms).
I will give you an example of what has happened in Australia recently. In the last 10 years the cost of house ownership(and thus rent) has gone up hugely. Incomes have gone up to match, but once the cost of paying for a house is taken into consideration, what is left over in the income has not gone up, often down. Take two people bidding for a house. In order to get the desired house each bidder goes to the bank to secure the loan. Thus due to bidding competition each will try to obtain the highest possible loan possible but from the same bank. Thus the bank increases the price of housing by giving larger loans and increases its profits due to interest on the loans. In the end the productive sectors of the economy must provide high pay jobs to support the high value loan to provide the bank with a profit.
So why should a company pay for bank/financial sector profits when in a country with a lower cost of living they could pay the same amount and the engineer would benefit much more as they would actually retain the wealth. Otherwise if the company does pay the engineer less the engineer would still attain an equivalent living as one on a much higher income in a high living cost country.
Take a country like Singapore for example. Here the government heavily controls housing. Singapore doesn't have much choice if you look at the population density however they have benefited greatly due to maintaining a low living cost. Essentially the government here controls 90% of the housing as government housing. In order to get his housing you get a government loan which is not designed to make the government profit. They call it subsided housing, but its not really subsided. The prices of houses cover the construction cost, they just don't provide profits to the financial sector through high interest loans that artificially inflate house prices through competitive bidding.
The result is you can hire an engineer for a lot less in Singapore than you can in the US and the engineer still has an equivalent life.
The second example is China. As a developing country china has a very low cost of living. In much of the country no one expects to gain a high level of profit from housing. As a result in these areas you can set up a manufacturing company and by default be competitive due to low living costs. Should the Chinese government float their currency, from the point of view of foreign-non Chinese currency, the cost of living will rise dramatically. Through this rise, locals would suffer from an increase in relative living cost due to the lost competitiveness. They only institutions set to gain are the financial ones as they will make massive profits of the rise in the Chinese currency. That profit has to come from somewhere and thats the productive sectors of the world economy. i.e. engineering.
Thus when you see outsourcing, don't blame the engineering companies- they are in a loose loose scenario. If they don't, they loose due to foreign competition, if they do they will fail due to a faltering local economy.
Blame the non productive financial
India is a nice place for such companies because they can be coding while you are sleeping.
Wow! What a huge advantage! I mean, since ALL Americans HAVE to go to sleep between 6 PM to 6 AM this rules! Seriously, theres this thing called "shifts" that can do the same thing. And if you ever had to deal with India in software outsourcing you would know the horrors of working 12 hour days so you can reach one of the sleeping bastards by phone for a phone conference.
Result: Projects get finished in about half the time.
Not true. Anyone who has done software projects knows that they are usually given unrealistic schedules and changing requirements (scope creep). I once, to great humor, watched a local project with serious issues go overseas. The outsourcing company supposedly threw swarms of software engineers at it and were still unable to complete the project. No matter how many people you have its impossible to reach a goal if the goal is undefined.
Besides, there is also the financial benefits of cheap labour that outsourcing brings.
Trye. Cheap labor means company makes more profit and the stock goes up. Executives, who usually recieve stock in the company as "rewards", make more money. This means executive can buy fancier boats, cars, and houses. A win-win situation for them.
Some might say that outsourcing isn't nice to those working at home base
Everyone around is effected by outsourcing, not just software engineers. You see home based software engineers pay taxes, eat at restuarants, buy items from stores or the internet, etc. etc. That money goes in to the community which in turn pays for other peoples living and general area welfare (like fixing roads with tax money). Now to be honest, software engineers are not that numerious to make a serious dent. But India, and China for that matter, are moving to outsourcing other types of jobs. Indians generally target the higher paying jobs. Go to a hospital in a larger city and figure out how many doctors on call don't hail from the U.S. Theres not a shortage of doctors, its just that hospitals are businesses too and cheap labor makes the executives happy. The complaint that there is this "shortage of talented labor" by companies can be correctly translated as "shortage of cheap labor with sufficient degrees".
Actually they can, it would just be extremely expensive because they are in such limited supply. So I don't know where the "it would be cheaper to employ people to do it" is coming from in your comment.
The supply of mathematicians doesn't magically increase just because you decide to pay them more. If there are 10000 available mathematicians in the UK and 20000 are needed, then 10000 jobs must be outsourced, no matter how much the UK employer decides to pay.
And a population of 60 million people only produces a limited supply of highly-skilled mathematicians, no matter how much education you throw at them.
The scientists came because they were fleeing Europe, not because we had open arms.
Back up both of these arguments (the necessity of paying off the national debt and why we're on the brink of hyperinflation) with facts.
http://mwhodges.home.att.net/debt.htm
But it's not just government debt, it is total debt and obligations in the US economy, and the fact that were going thru a technology and offshore service induced deflation - which means that there won't be the pay base to prop it up. When push comes to shove, there will only be two options, massive cascading defaults on debts or massive hyperinflation to put so much money in the economy so as to try and devalue the debt. (which will actually make the debt problem worse, but they don't know that yet) They will almost certainly try to choose inflation over depression, but they will end up getting both.
This is silly when we can purchase their services from overseas without the burdens of naturalization. That's the whole point of outsourcing: you can purchase services from overseas in fields where you use to have to hire locally or literally import the talent through immigration.
burdens of naturalization? It might be a burden on the applicants to do the paperwork, but not on society. The more free they are, the more empowered they are to get results.
The American executives who are planning to send work abroad express concern about what they regard as an incipient erosion of scientific prowess in this country, pointing to the lagging math and science proficiency of American high school students and the reluctance of some college graduates to pursue careers in science and engineering.
I don't blame the students. Who wants to bust their ass to compete with $5/hr engineers in Cheapbuckistan? We need carrots, not sticks. If you have an academic knack, then being a lawyer, financier, or even a business manager is more lucrative in comparison. Compared to other options, sci/tech pays poorly in the US. People choose careers based on their comparative options. Sci/tech is a better option in Cheapbuckistan than being a lawyer or biz manager, for example.
Further, most of what is taught in school is not even used much in the real world. Many practicing engineers will tell you this.
Table-ized A.I.