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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.
A large company will outsource eventually if they want a 24-hour workday. India is a nice place for such companies because they can be coding while you are sleeping. Result: Projects get finished in about half the time.
Besides, there is also the financial benefits of cheap labour that outsourcing brings. Some might say that outsourcing isn't nice to those working at home base, but that's beside the point to a company when deadlines and audits are looming.
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.
The outsourcing of economists' jobs. Suddenly we'll be hearing how it's a terrible thing and should be stopped.
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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There are plenty of qualified people to fill the jobs that these executives want to export. I have met many qualified applicants for many jobs that were simply overlooked because a different word was used on a resume, or there weren't enough letters in a specific title or some other stupid bullshit reason. I also know that there are many other places where one can aquire a quality education without having to spend time in a classroom. I know a lot of stuff, and most of this stuff was learned from nights spent reading books, doing the excercises and from doing experiments.
Yes, I went to college, and yes, I graduated. However, I have no formal education whatsover in the I.T. industry. The field in which I got my degree was made obsolete by all of the "Free Trade" Agreements. Even though I have no formal education in I.T., I do write code for a living and have taught college graduates in the I.T. field many things. I have also fixed the mistakes of many college graduates and yet, it is the college graduates in the field who get the credit as well as the money for the work I have done. I do not resent college graduates nor do I believe that their knowlege is necessarily any less than mine. I have worked with many smart people who have graduated college and was impressed with the knowlege and skills. However, I have worked with many just as smart people who have learned their profession on their own.
I am 38 years old, and I can definitely see why high school graduates may have second thoughts about attending college. If I had to depend on student loans in order to make it through college, I would not go. There are many people who are finding themselves to be outsourced before they have paid back even half of their student loans!!! In the Police States of Amerika, we have governments that work against small businesses as well as employees. We need to quit voting for Democrats and Republicans (in America). Both are EQUALLY GUILTY for the decline America is currently experiencing. People in other nations should also discard candidate in the top known political parties in their respectiver nations. The top parties in each nation usually have their campaigns financed in one way or another by the top money. Top money is what these lawmakers end up working for. It is time to change that, one way or ANOTHER!!!!
My message to Phillipeanos and Indians is that I do not doubt your capabilities or your smarts, or your willingnes to work. There are good, bad, ugly, pretty, smart, and stupid people in every country in every part of the world. From the media such as newspapers, TV news outlets and other places, you have most likely heard that most Americans are stupid, lazy, do not care about a thing, and live lives of luxury. This could be further from the truth! Most of my fellow Americans work two jobs just to make ends meet. Right now Indians and Phillipeanos may be experiencing an economic boom, but I guarantee that the outsourcing of your jobs is coming within the next few years. When the multinational cartels find other smart people that they can exploit for a cheaper price, then that is what they will do. You and your families be damned as far as they are concerned. The executives will then claim that they cannot find "qualified" people in India or the Phillipeans and are "foced" to look elsewhere. This is what happens when what is called "money" has it value arbitrarily set. When small time money printers print money, it is called "counterfeiting." When governments or Federal Reserve banks do it, it is called "Monitary Policy." The paper based currencies of most nations are backed by nothing, so the real value of this currency is almost nil. Talk about the blind faith of the religionists around the world. There is more blind faith being demonstrated on payday than any other day of the week.
Slashdot at its weekend best.
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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
IMHO, the economic fundamentals do not favor China and India making a smooth transition into the world economy. I think that both China and India will become a large part of the world economy someday, just not as soon as most people think.
First off, if you look at the infrsatructure of these countries, they are very small compaired to the size of infrastructure in the western world. Which I'm sure they will catch up, but infrastructure is expensive and the US has over 100 years up on them.
Second off, if you look at the political freedom rankings of these countries, many of them are in really bad shape. This is very important, because countries with political freedoms have outlets for the stress cuased by growth and change. China especially, could be explosive.
Third off, if you look at the economic freedom rankings of these countries. They are also in really bad shape. This is extremely important, because economic freedom allows peoples to exploit opportunities to create wealth and prosperity. I could really see a situation where all these cool technologies get developed all over the world, but they only get applied in productive ways in the free and western countries. In China, general tax rates are as high as 40%. (The US is pretty bad too, but already has a middle class(for now)) But there is no way that you can have high rates of sustained growth under those kind of taxes, because there is no way to build an economic middle class.
Fourth off, IMHO the economic shithole that the US is in is temporary. Currently the US has more debt than it can ever pay off, and is about ready to fall off a hyperinflationary debt cliff. However, once the financial system collapses, and they push the reset button, the path will be cleared for sustained growth. Half the government freebies will be dead, realestate will collapse and become reasonably priced, the debt will be offloaded, the currency will likely end up backed by something other than the good faith of the federal government, and taxes will be low. That combined with the higher level of economic and political freedoms will position the US very nicely. Hopefully, the US will also open the immigration flood gates, bringing intellignet people over here who will even create more jobs and oppertunity - getting more bang for the buck.
I work in the IT universe, so the first wave of outsourcing is nothing new to me. Often, it's simply to save money, and damn the quality. This is especially true for mundane, tedious stuff like maintenance of legacy code. However, I'm starting to realize more and more that the average "IT guy" in the US isn't the same an an overseas IT guy. The foriegn workers tend to be smarter and harder working than their US counterparts, and they usually have better academic credentials. I'm guessing it's because education is a higher priority everywhere else. I think parents would be well advised to push their kids to study more if they want to compete. Some of the outsourcing projects I've worked on have foriegn workers who are just space fillers, but the vast majority have workers who are absolute robots, cranking out 12-14 hour days all the time when an emergency happens.
Outsourcing scientific research is just the next step. Science and technical students here are freaked out about living a life of perpetual unemployment. I graduated in the late 90s, and even then having a science or engineering degree was considered at least a step in the right direction. We laughed at all the psychology and businsess majors who treated school as a 4 or 5 year party and said they'd never get jobs. Now it seems like they have the upper hand in management, which I think is probably the nnly "safe" job. I can understand why students entering college today wouldn't want to study math, science or engineering, simply because they know they won't be able to make a living in the future. Either that, or their business student peers will be making 4 or 5 times their salary in a management job. Now companies can't find talent here, so they outsource to somewhere that has a higher work ethic and much lower salary. Double bonus for them, big loss for those of us who are scientific and not destined for the ranks of management.
Unfortunately, I don't see anything short of a decree from the top that will stop this. Even then I have my doubts. Imagine if the president got on TV and told everyone that we're losing our competitive edge by becoming a nation of service workers and manageers. I don't know if anyone would listen.
We need a big-time project like the Apollo missions in the 60s to get everyone believing we can actually compete again, and then maybe the trend will reverse itself.
The same applies to international workers. The question to ask is "What is the buying power of the salary provided". If a senior level engineer in India is making the same salary as a junior level engineer in the US, you might think they're getting paid less. From a payroll perspective they are. But the buying power of that quantity of money in India is substantially greater - in fact, the overall quality of living for someone collecting 65k per year in India is going to be much higher than someone collecting twice that in the US.
Outsourcing shouldn't be defined based on salary. Whether or not a job is outsourced should be defined on this simple question - Is the job in the other country a new job, or was it a position that previously existed elsewhere that was relocated without the prior occupant? In other words, did someone in the US lose their jobs so that jobs in India could open? If not, then its simply global expansion. Take for instance Microsoft - Microsoft has been hiring like crazy in India, China and Ireland. No one in the US is losing their job for these positions though, so no job is being outsourced. An international company is simply growing in international locations. IBM on the other hand laid off a substantial number of engineers in the US, and hired a large number of Indian programmers to fill the positions priorly held by Americans. Those jobs were outsourced.
Don't our lawmakers understand that this communist style approach to government will only drive businesses away?
You're making the fundamentally wrong assumption that outsourcing at the level discussed in the article is driven by cost. IBM and Microsoft are going to India not because it's too expensive for them to hire Indians and move them to the US, but because it's becoming too difficult (in a way that no amount of money can fix).
Dismantling the US safety net even further is only going to accelerate outsourcing: the more brutal and socially irresponsible the US appears, the less attractive it is to many immigrants. In particular, highly-skilled immigrants coming to the US don't want to have to have a business degree in order to figure out health care or retirement.
In any case, you seem to think that not requiring health care benefits or retirement somehow saves money; it doesn't. Those services still need to be paid for, and if they aren't paid for by companies, they need to raise salaries so that employees can pay for them. Of course, at the low end, companies may use lack of such requirements as a means of cutting salaries, but they are simply cost-shifting: since we generally don't let people die in the streets, health care then ends up being paid through taxes, at a premium rate.
Granted, I think employer-supported health care is broken, but not for the reasons you likely would agree with; what we really need is tax-payer funded universal health care.
I outsourced my work during college but still got a degree. Now I'm outsourcing my own job. I get an assignment, I send it to some really good engineer in Asia, I tell him to make a few mistakes, and I give it to my boss. No one notices. I give the engineer enough of my paycheck that it's a really good salary for his country, but I still get to keep much of mine. I get to do very little work and get paid, the engineer who does the work gets paid, my employer doesn't notice the difference.
Stupidity is like nuclear power, it can be used for good or evil. And you don't want to get any on you.
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 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.