Why Apple Backed out from India?

rmunaval writes "BusinessWeek reports an interesting article on why Apple might have backed out from India. The prime reason being, India has grown at a much more rapid rate than expected and is no longer the cheap destination for the companies. It grew at an astonishing rate of 9.3% last quarter."

Comments

Oh crap. . .

[Who235]

We have to pay them close to a living wage?

That wasn't part of the deal.

Forget it, we're out of here. . .

Re:Oh crap. . .

[MBCook]

They were paid a living wage (or something close to it). The only difference is that a living wage in Cupertino, CA is WAY higher than one in Calcutta or Bangledesh. Heck, the living wage in Cupertio is WAY higher than one in Kansas City, MO or De Moins, IO.

Re:Oh crap. . .

[aussie_a]

Actually I wouldn't be surprised if they were getting a living wage all along. Problem is that the living wage went up.

Re:Oh crap. . .

[stinerman]

Not until the Indian workers train their Nigerian replacements.

Re:Oh crap. . .

[gEvil (beta)]

Heck, the living wage in Cupertio is WAY higher than one in Kansas City, MO or De Moins, IO.

And it's probably higher than it is in Des Moines, IA, too... : p

Re:Oh crap. . .

[sconeu]

Once they do, they get $20 MILLION DOLLARS FROM THE WIDOW OF GEN. SESE MOBUTU!

[this put in to defeat the lameness filter]
[this put in to defeat the lameness filter]

Re:Oh crap. . .

[Anonymous Coward]

You wouldn't believe how much extra housing costs on Io once you figure in the extra rad shielding and periodic cleaning of the sulfur gutters. Volcano insurance isn't even obtainable at a reasonable price; everyone just does without.

And don't even get me started on the commute.

Re:Oh crap. . .

[Firethorn]

Not until the Indian workers train their Nigerian replacements.

The problem with this is that we're running out of areas that have decent education standards, easy access to raw supplies, and, perhaps most importantly, are stable yet have low wages/cost of living. India was fairly unusual in that they had decent universities/colleges(though not enough of them) churning out qualified graduates, a large labor pool, stability, and a cheap cost of living/wage range that encouraged importation of work.

Areas like Nigeria haven't solved these problems yet, thus raising the costs of locating there, even if their labor is dirt cheap. When you have to import the machines, supplies, and labor to build the factory and trainers to teach them how to operate the equipment, costs rise. It'll be a while before they have enough people skilled enough to replace indian programmers.

Not that I object to businesses building factories there, as providing jobs, income, and training are some of the best ways to improve the above. People with paying jobs generally don't have much free time available to go play rebel.

Re:Oh crap. . .

[arivanov]

The cost of living and the wage are only one factor of the cost of an ousourced worker.

You have to add the cost of duplicating power infrastructure because too many companies have moved in and the utility grid cannot cope. Current brownout+blackout rate is 20%+ during daytime and growing.

You have to add the exorbitant communication costs which will only grow up due to basic supply and demand laws. The fiber under the Gulf is still the same, there is no new coming up and demand has grown several times a year. The Eastern route is not looking any better because there India competes with the growing demand from China and other countries. 256Kbit there will buy you several E1s in the UK or the US (at the same contention ratio).

You have to add.. add.. add...

At the end of the adding all the numbers a worker in India will come up to less then US or EU costs in terms of salary and considerably more as far as infrastructure is concerned. From there on the overall numbers depend on how the work is organised, but I am not surprised at a company pulling out from India. There are plenty of other places around the world with comparable salary rates and considerably better infrastructure.

Re:Oh crap. . .

[blincoln]

The cost of living and the wage are only one factor of the cost of an ousourced worker.

This is a very important point.

We have a lot of people in India doing contract stuff for us where I work. The price for the contractors is relatively low, but there is a *huge* infrastructure cost required to let them do the work. There's the data connection costs that you mention, but also things like VPN gear, terminal servers, MS CALs (our enterprise agreement only covers employees, not contractors), plus all of the staff work here to ensure that everything can be done reasonably securely.

That's just the concrete costs. There are additional ones that are harder to measure. Things like the potential costs related to misuse of our data by people in a foreign country, or the costs of supporting applications that may have been written by a completely different team or outsourcing company.

I have seen some good work come from the contractors, but IMO they don't provide any savings worth the effort of sending the work to another country. It seems mostly like another big corporation Monopoly money game where they make it look like saving money by transferring the cost to another division.

Markets work yet again

[nelsonal]

Funny, back when there was so much lather over outsourcing everything but the CEO to India, a few folk mentioned that this might happen and were replied to that with 2 billion people it won't happen in our lifetimes. Hope you are all doing ok!

Re:Markets work yet again

[Firethorn]

While I can't claim to have predicted that this would happen so soon, I will say that I saw it coming.

Part of what happened that made this happen sooner is that the Indian quality of life, bolstered by all sorts of outside companies outsourcing there and pouring money and jobs into their economy, rose. This of course becomes a positive cycle, where the newly wealthy* start demanding more**.

This sucks up potential labor far faster than simply looking at the unemployment/agricultural worker numbers.

We're seeing the results now. India's currency is gaining strength, the dollar is loosing strength. Soon it'll no longer be as economical to outsource to asian countries(China will take longer). Soon it'll make more sense to outsource from expensive american cities to inexpensive smaller cities, larger towns, or downright rural locations within the United States. Arkansas costs half as much to live in than Hawaii.

*relativly of course. They might still be 'poor' by 1st world standards, but they're no longer 'dirt poor'
** Services like telephones, internet, more frequent hair cuts, eating out, things like bigger, better constructed homes, vehicles, etc...

Re:Markets work yet again

[tbone1]

Soon it'll make more sense to outsource from expensive american cities to inexpensive smaller cities, larger towns, or downright rural locations within the United States. Arkansas costs half as much to live in than Hawaii.

It's happening now. I live in Indianapolis, and there are already three companies here who are getting on that trend. One thing they point out is that prices for land and housing are 1/2 to 1/3 of what they are in, say, Chicago, and that while wages here aren't THAT much lower, they are lower. The labor laws are also pretty much the same as elsewhere in the US, plus there are nice little junkets like Colts games, the Indy 500, etc. Indy isn't the only place seeing this, either.

Of course, over time, as wages adjust, ... but hey, that's just how the world is.

Re:Markets work yet again

[Afrosheen]

What's interesting to note here is that the Indian government played a big role in the quality of life expansion.

  Take a look at Mexico in contrast. 2 years ago, illegal immigrants sent around 12 billion dollars back home. This was more than twice the highest foreign investment in Mexico. Last year, they sent back an estimated 17 billion. This was the second highest income for the entire country of Mexico; mexican oil brought in the highest income, but not much higher.* Yet Mexico remains dirt poor, despite the huge influx of cash they're receiving from El Norte and their illegal migrant workers. Ultimately, Mexico's government is to blame for the consistent failure to raise standards of living.

  It really makes you wonder just how much damage corruption does to a floundering Third World nation. It also makes the point that throwing money at a problem won't even begin to solve it most of the time.

  *Paraphrasing Dilip Ratha, World Bank senior economist

Re:Markets work yet again

[Anonymous Coward]

India was colonized by England. They brought English to India. Most Americans speak English. This helps India. India also has a good education system, for those that can afford it. Most can't, but there are one billion+ people in India. If 10% of the population of India gets a formal education they already have more educated people than the ENTIRE population of Mexico. So, 100 million English speaking college graduates gives them a bit of an advantage over Mexico. On top of this, Mexico suffers from corruption, no doubt, and the bigger problem of a culture that puts very little emphasis on education. Both corruption and the mentality that education is not important are cultural issues.. not gov't inflicted..

So ya, money won't solve the problem of poverty in Mexico. Gov't "shake ups" won't either. Things won't change until Mexicans stop paying bribes and realize that their kids need to be capable of doing something useful in order to make a decent salary. People get paid big bucks to do things that produce even bigger bucks. If your child drops out at age 16, can barely read or write and has no other skill set, how are they ever going to make it big?

India to start losing jobs.

[gasmonso]

Now India will feel the pain as jobs are outsourced to Asia and Eastern Europe where rates are cheaper! Pretty soon, people in Zimbabwe will be coding :)

http://psychicfreaks.com/

Re:India to start losing jobs.

[Red Flayer]

Pretty soon, people in Zimbabwe will be coding :)

You write that as if it's a joke. Sub-Saharan Africa is a big emerging supplier of tech labor, in the position that India was 20 years ago. We're already seeing major efforts in Nigeria, don't think for a minute that much of the rest of Africa won't follow.

What are the major requirements for locations to which you want to outsource tech jobs?

- A stable power grid (if it's not there, build a small one yourself)
- An oversupply of labor with high population growth (to keep that oversupply rolling)
- A sufficient percentage of English-speaking workers.

The rest is training and, for large companies, will pay off quickly. I'm sure I've left off a couple items, but African countries, Indonesia and other PacRim countries, and SE Asia are where tech labor outsourcing is heading next.

This is a positive for these countries (standard of living will increase) and, in the long run, a positive for the US and other western powers (greater influence in those areas, long-term economic benefits).

Re:India to start losing jobs.

[Billosaur]

You write that as if it's a joke. Sub-Saharan Africa is a big emerging supplier of tech labor, in the position that India was 20 years ago. We're already seeing major efforts in Nigeria, don't think for a minute that much of the rest of Africa won't follow.

It's already well underway; I get emails from nice people in Nigeria all the time offering to share their money with me. They must be working pretty hard coding all those emails!

Re:India to start losing jobs.

[line-bundle]

Pretty soon, people in Zimbabwe will be coding :)

You seem to have picked zimbabwe for no reason, but I do hope you realize that until fairly recently Zimbabwe was not third world (I lived there most of my live). When I was there there were linux clubs, mac clubs.

It has a lot of coders, but most have gone to South Africa and the UK as they are paid better wages. Heck, I am in the US (but not coding, thank goodness!).

Most likely reason

[roman_mir]

The most likely reason that comes into my mind is a power struggle of some sort between management of that company. I bet someone was sold on an idea that moving jobs to India would cut costs, but then someone else was in the opposite camp and we just saw the result of that battle. Was any manager fired from the company within the past month?

Reality Check for the Cult of Apple (tm)

[i_want_you_to_throw_]

Apple is a publicly traded company and as such here's what's important to them.....

Making money for their stockholders.

That means sweatshops for iPods and doing things like heading down the dangerous path of closing off the Darwin source for development so that OSS geeks can't find a way to make OS X work on commodity boxes.

Apple is going to do what is best in their corporate interest. Surprised? Don't be. It's business

Re:Reality Check for the Cult of Apple (tm)

[aussie_a]

Don't be. It's business

Doesn't have to be. Stand up and support companies that share and uphold your ideals and beliefs by giving them your money.

Or you can go for the cheapest company and help them screw over your fellow man.

Re:Reality Check for the Cult of Apple (tm)

[HardCase]

Yes, making money is obviously important, but it doesn't preclude doing the right thing.

As an example, the Fortune 500 electronics company that I work for does most of its R&D in the US, but there are also R&D centers in other countries, mostly from acquisitions. It does most of its manufacturing in the US as well, even though it could get away with doing the job much cheaper in emerging countries, particularly China, where environmental rules are pretty slack and labor costs are much lower.

We've got at least one fab in China, true, but it meets US safety and environmental standards. I'm sure that the pay is not what it is in the US, but if the pay there is like the pay here, it's above the national average for the job.

Here in the US, we regularly win awards for going well above and beyond governmental requirements for environmental safety. We've got a fairly green operation, as much as possible, considering what it takes to do what we do.

The company has established a well-funded charitable foundation that supports education and arts in the community and around the country - and even in the big tech downturn when we were losing billions of dollars a year, it was able to give away millions of dollars each year.

And the thing is, we're not particularly different from most other large companies. So the "make money at any cost" mantra is getting pretty tiring.

-h-

Not that this should be a shock or anything...

[GundamFan]

Am I the only one who sees this as utterly fascinating?

In a way US corporation going to India stimulated this growth. It is interesting to me that India has changed because of outside investment but the way they have changed has made them less appealing to those same investors.

Globalization is bitch, isn't it?

Re:Not that this should be a shock or anything...

[4D6963]

Am I the only one who sees this as utterly fascinating?

The fascinating part about this is how by exploiting these people (Indians and Chinese, but also Poles or even to take older examples the Irish) we make them rich and reduce the differences between them and us. Shockingly enough, all that bad, shameful economy (can you remember of some "concious" person telling you not to buy Nike shoes because they were made in Chinese sweatshops?) did great good to them, in the middle to long term.

In other words, let us exploit you, it's for your own good :-)

Re:Not that this should be a shock or anything...

[mclaincausey]

Capitalism by definition doesn't have to have a completely unregulated marketplace. "That's capitalism" is an ampty platitude. What "that" is is a particular way of practicing capitalism that is unfair.

In the past, Presidents like Teddy Roosevelt tried to place check on corporations in order to protect our economy. Nowadays, we are seeking to tear down all these successful restrictions.

There a difference between free trade and fair trade. Exploiting economic imbalance to screw your own country's laborers is free trade, but it is not fair trade. If someone wants to outsource to the Third World, fine--but that decision should come with a tariff that makes it at least competitive to hiring workers in your own country. Otherwise, you wind up outsourcing your wealth and standard of living.

Some might say that that's a great thing to do, but I think it is each country's duty to protect its own workers. That's what we pay taxes for.

Why? Bad customer service I bet

[Anonymous Coward]

Is it only me that gets frustrated when my calls are piped over to India? I'm all for globalisation and outsourcing but when basic customer service suffers it serves only to frustrate customers, or me at least.
I've lost count of the number of times I've literal just given up and hung up while trying to do simple tasks over the phone like notify change of address or query a bill.
The 3 companies I've had particular problems with are Amex, Dell and Apple.

I can vouch

[cimmer]

"The turnover is high, and the competition for good people is strong."

My company is currently using Indian developers to augment our in-house staff. Every time the offshore company presents someone to us that cuts the mustard, we end up having to rotate someone else on after that person bolts for another company in India three months later. We keep getting told that demand is so high for QUALITY Indian developers that no one can keep them. They keep bouncing from outfit to outfit, getting salary bumps with each move. It's second hand information obviously, but it certainly does synch with what we've experienced.

Re:or maybe apple sucks

[mpathetiq]

Not Apple Records, silly!

Time Magazine cover story

[GillBates0]

For those who haven't seen it yet, Time Magazine's cover story for this month's issue is titled: "http://www.time.com/time/magazine/article/0,9171, 1205374,00.html">India Inc. and carries quite an in-depth (IMHO) opinion of "The rise of India".

Not sure how the subscription model for time.com works, but I have been able to access all stories in the Cover article without a subscription:

Bombay's boom
Hooray for Bollywood
India Awakens
My lost world

Worth a read.

A little premature to call it the right move

[planetmn]

From the article:

Yet he is also a tough-minded executive who knows when to cut and run. That's why Apple Computer Inc. has shelved plans to build a sprawling technical support center in Bangalore, even as IBM (IBM ) and other tech powers are ramping up.

Doesn't the part of knowing when to cut and run imply that it was the right decision? The way I've always looked at outsourcing as an engineer is that you want to have people of varying backgrounds in any large organization. I think that India and China are part of this along with the US and others. Other countries will come into the fold as well, but I think that it'll be for the better of the company to have multiple groups with different backgrounds and experiences.

Now, it sounded like this venture was purely for help desk, which I think is being performed at a commodity level nowadays (in the sense that all service seems to suck, given that good service costs money). In that case, moving to wherever it is cheapest is probably a good move. Though maybe they'll just add to the number of workers woring 15-hour days in China.

-dave

D'OH!!! No wonder

[stratjakt]

Homer taught all the Indians about paid vacations and golden parachutes and casual fridays and health plans, just a couple of weeks ago.

Actually, that episode was good social commentary... It's basically what's happening. The Indian labour force is developing the sense of entitlement so near and dear to our hearts.

Gotta wonder if the submittor

[garylian]

I gotta wonder if the person who submitted this article worked as a translator for Zero Wing...

"All your base are belong to us."

"India has grown at a much rapid rate."

Yeah, seems like the same guy...

What we're seeing.

[Churla]

What we are at this point seeing are the first steps in a cycle of balance.

India has been in a horrible financial condition. It's got large amounts of debt and it's trying to work it's way out of them. This comes with financial assistance from the international community. You have many of these poorer nations not able to afford the subsidies anymore for farmers , which means more people migrating to the cities for the promises of these fantastic tech jobs.

Problem is the cities aren't ready to handle all these people, and the government isn't ready to handle all this displaced workforce. Result? SLUM TOWN!

Uh Oh, now the international community is on nations to provide a base level of support for their people. They don't want sweat shops and shanty towns of workers paid pennies on the dollar of what others get. India has to rely for a good deal on it's own people to solve this problem for themselves because they don't have the money to. If they want to they have to start taxing these companies more, which means.... costs go up. On an individual level? How to get out of the slum, you have to get paid more so you can afford to live there, you demand more pay.. they demand more for your contracting.. Costs rise...

Suddenly all those cost benefits from outsourcing start evaporating.

From my personal perspective.. yay. This is far more effective a way to "keep jobs here" than trying to legislate some mandate for companies to do so. In this case, the "free market economy" is actually doing it's job.

Next Outsourcing Destination: China

[darth_borehd]

India is going through a tech boom similar to the U.S. tech boom in the 90's. Qualified computer-related experts are demanding higher and higher salaries and jumping to whatever company is the current high bidder. As the wages go up, the rest of India's economy booms. India is beginning to take on many of the good and bad aspects of the U.S. economy. With most of its over 1 billion people in povberty, China can out compete India easily on wages. Training just 1% of that number with technial support produces a 10,000,000 strong workforce. The process of U.S. jobs migrating to India will happen to Indian jobs over the next 5-10 years as China becomes the outsourcing destination of choice.

Re:Next Outsourcing Destination: China

[bsartist]

Chinese speak Chinese. This is a big problem.

China is the largest country in the world right now, in terms of population. So is the lack of a common language their problem - or ours?

Re:where's the editor?

[Doctor Memory]

Obviously, Slashdot is outsourcing its editor jobs...

"Slashdot. News is for the nerds. Stuff that is the matter."

Bad fit for Apple

[wchin]

First, the BW article speculates... the author doesn't really know. So was it high wages? Was it something else? "We" don't know yet.

However, there are several issues with setting up in India that probably make it less attractive for Apple.

1) Worker loyalty: while all tech workers probably seem like mercenaries these days, it is even more so in India's white hot tech areas. The workers will leave for what we, in the U.S., would consider miniscule salary differences.
2) Worker training: Indian workers are often broad brush trained in "popular" technologies - finding software engineers trained in non-Windows, non-Oracle, non-SAP, or non-J2EE tech is probably much harder to find at a cost effective salary. Again, this is an issue in the U.S. too, but more pronounced in India and many other non-U.S. technology boom areas.
3) Best of the best: Apple is small (workforce numbers) and tends to follow the hire the best of the best (even if they don't give them the best of the best resources to work with). Those that are really good are probably already working in the U.S., or would not find it all that hard to make it into the U.S. The number left of the best of the best in India probably aren't much cheaper these days (one would often have to be 4:1 to 8:1 cheaper to outweigh the below).
4) Big costs (not just money): Apple doesn't have huge projects that require a thousand or thousands of engineers on a single project that might be able to amortize the costs/issues of temporal and geographical displacement. Apple has most of its software engineering done in Cupertino, and it would take a big shift to deal with significant outsourcing or remote development.
5) Core strength: software engineering is Apple's bread and butter, it is what differentiates the hardware, it is its own profit center. Messing with this too much is not a good idea. Apple can't treat this as a commodity item on a balance sheet.
6) Expansion deals went through in CA: Apple bought a large data center and has plans to build another campus in CA - and the review of those deals going through probably meant that this Indian effort doesn't make sense for Apple right now.

None of this particularly means anything with respect to India, India's tech boom, IBM in India, outsourcing to India, etc. This is merely Apple's evaluation on whether or not it makes sense for Apple. These issues have been there, will continue to be there. It is strange that Apple started and effort but then pulled out, but that is better that they are contantly critically re-evaluating rather than what we've seen from some other U.S. companies that have staked huge efforts on "hot trends" that some CIO/CFO/CEO reads in a trade mag, rather than doing true critical analysis. Going to India may make sense for lots of companies, but certainly not to the level we've seen it lately.

why our readers need to go back to college

[Nimey]

painstakenly

Painstakingly.

typo's

Typos.

I forgot about slashdot for about a year, came back just the other day.

Insert "and" just before "came".

I'm seeing hardly any intelligent comments

Indeed.

dissapearing up it's own asshole.

1) That's disappearing.

2) It-apostrophe-s is a contraction for "it is". "Its", on the other hand, is possessive. Counterintuitive, but that's English for you.

So to recap, you should have written "disappearing up its own asshole.". Have a nice day.

living wage?

[Kohath]

How much is a living wage? Is it different if I'm single and live with 3 roommates? How about if I have 12 children (6 with "special needs")?

Should I expect to have to provide my employer with more work (or more valuable work) for the higher "living wage" I need for my family situation?

Because I thought I was supposed to get a "working wage" -- based on the value of my work.

Re:And yet they're still stuck with the caste syst

[nick1000]

Just shows, how lack of proper details about a situation can manifest itself into prejudice. Caste system in India is a non-entity in the way it used to be. The reserved castes (earlier called lower castes) now get active affirmative with as much as 70% of some colleges purely earmarked for them. Publicly distinguishing people based on caste can get you to jail
The caste system does not violate human rights, and commenting on an issue without understanding it just makes people look asinine.