Outsourcing Growing Beyond India

PreacherTom writes "One of the most controversial aspects of the global economy has been the newfound enthusiasm of companies, freed from the constraints of physical location, to outsource jobs. No country had embraced tech outsourcing with more passion than India. Of late, problems are beginning to arise in Indian outsourcing: engineers will start a project, get a few months' experience, and then bolt for greener pastures. The level of attrition can cause the turnover of a project's entire staff within the course of a year. Combine this with salaries in Bangalore that are rising at 12% to 14% per year and it is no surprise that companies are looking beyond India to a slew of emerging hotspots for IT, such as Brazil, China, and Vietnam. Will Ho Chi Minh City be the new Bangalore?" From the article: "India remains an IT outsourcing powerhouse, with $17.7 billion in software and IT services exports in 2005, compared with $3.6 billion for China and $1 billion for Russia... India's outsourcing industry is still growing at a faster pace than that of... other wannabe Bangalores... By the third year of an outsourcing deal, after all the costs have been squeezed out, companies get antsy to find a new locale with an even lower overhead."

Comments

What did they expect?

[dctoastman]

When people find out what they are worth, they start demanding it. Pretty soon, the entire world's IT population will be high-salaried, no matter where you go.

Re:What did they expect?

[spun]

As long as money, products, and information are free to traverse national borders but people aren't, tehn as soon as one region wises up and starts demanding what they are worth, the megacorps will simply move on to the next desperate region. They will let the uppity region become poor again before moving back in.

Re:What did they expect?

[Afty0r]

As long as money, products, and information are free to traverse national borders but people aren't, tehn as soon as one region wises up and starts demanding what they are worth, the megacorps will simply move on to the next desperate region. They will let the uppity region become poor again before moving back in.

It's not a zero-sum game.
"Desperate" is a very relative measure, and as India, China and other countries in the Asian sub continent improve their wages, education and quality of life to make greater wage demands, where will the multinationals go? And do you think those that have gained skills and wealth will suddenly drop back into subsistence farming, or maintain at least some quality of life? You know, after SE Asia is raised above the poverty levels it currently has, there isn't a great deal of the worlds populace left to exploit for 10 cents a day... and most of it is in Africa.

Keep the work moving, keep employing new people in new countries, and we might, JUST MIGHT even out the worlds wealth distribution a little.

Re:What did they expect?

[karmachild]

For the past two years, I have been an independent contractor for Oracle Egypt, Xceed (the largest call center in the middle east) and some other firms.

Yes, these "professionals" *think* that they are worth what their contemporaries in the U.$ are getting, but the plain truth is that they are not.

They are not productive. By that I mean they lack consistency, attention to detail, and follow-through. This includes employees at all levels, from administration to management.

Process, an abused word in the American work-place is a "newer" term in many countries.

Many of us underestimate the cultural expectation of service and professionalism in the U.$. that we are assimilated into long before we begin professional work.

This attitude and perspective is MISSING in the "professional approach" among professional in developing markets. Most of them think that their technical skills/development merit their position and pay, which I have explained and demonstrated to them will not be enough to KEEP the job.

Sadly, 9 out of 10 professionals at Oracle Egypt want to be told what to do. They resent having to explain themselves, sell their solutions to customers (explain what they hell they propose and why the customer should implement their solution), and especially lack the communication skills to build customer rapport.

The unstructured and self-managed work environment is a challenge to them, and they wind-up in a corner asking each other what to do, and their managers form India offer/set no better examples and are usually in the corner with them.

I keep thinking, one day -a divorced, childless pre-menopausal white woman is gonna ride-down on y'alls asses.

European customers of Oracle are HAVING FITS about the level of service professionalism that they are receiving.

They complain about the "non-technical" work expectations, the (life-long) continuous learning expectations and especially having to do such on their own time.

Microsoft call centers are popping-up all over developing markets because it is a tool used by Microsoft to stem the use of non-Microsoft "solutions" in developing markets.

For example, here in Egypt Microsoft is the preferred vendor to the Egyptian government, Xceed (contact center) is owned by Telecom Egypt and the Egyptian Ministry of Information and Telecommunications. The work environment is what I can only imagine what a working in prison to be.

Egypt is a low-risk environment, and most of these professionals refuse to even learn about open source tools and technologies. For now, there is no threat of an Egyptian solution-provider in this market competing AGAINST Orace, M$, etc.

From what I have observed, all this 'outsourcing' is doing is helping to build a middle-class in developing markets so that there are customers with the income to consume western goods/services.

It's working, too. These markets have bodies, but not necessarily brains.

Oracle Egypt has pretty much aggregated all of the professionals in the region who are not working for their business partners and customers and is WAREHOUSING them to keep them form Microsoft -who incidentally was only doing product activation for Europe and is now recruiting for DB professionals -most of whom already work for Oracle.

Now, M$ is poaching and driving the cost of "labor" up. These "professionals" will jump ship for more undeserved money, IMNSHO.

BTW: Oracle-Egypt's pay scale as far as I can be nebby enough to find out ranges from $500 p/mo for "Customer Care" to $1000-$2,000 p/mo. for Oracle Analysts. Xceed pays from $150-200 p/mo. for "call center" employees. Administrative staff make from $300-500 p/mo.

Until they start using the magic word -"FIRRREEEE-DUH," no change is gonna come. They just don't have to.

Outsourcing is bad

[Marxist Hacker 42]

But turnover is the real project killer. But what did they expect? Worker Loyalty after they proved that they had no loyalty? The strange part though is how this infects EVERYTHING- I moved to government for stability, but my sub-sub-department of application developers has a 26% annual turnover rate; for the simple reason that in America we've destroyed the loyalty of the workforce! Now we're doing the same in India. If you treat people like widgets, expect them to act like widgets- and move to the most ecconomically efficient place for them to be.

We've had this discussion before.

[khasim]

So you see high staff turn-over in India. The "solution"? Move the project to a different country.

But why would that country's people be any different?

The fact is, once the outsourcing staff has the knowledge and experience that was previously YOUR expertise, there is no reason for them to keep working for you. Eventually, they start their own companies in your market and replace you.

Don't focus on short term profits at the expense of long term survivability.

Re:We've had this discussion before.

[theshowmecanuck]

This will keep happening until companies stop paying huge bonuses to senior executives for short term profits.

Re:We've had this discussion before.

[shawb]

To be precise, big businesses will keep doing this until the savings no longer justifies the inconvenience. One of the biggest barriers to outsourcing that most countries have is language. As a long time British colony, many Indians speak relatively fluent English. The problem will be finding another country with a significantly large English speaking population that is affluent and educated enough to learn the white collar jobs, yet not so affluent that they want/need to get paid a lot of money to continue working. True, there are probably going to be people who know English in every country, but not in the same numbers as India. Most of the other countries with English as a primary language have economies that are too strong to outsource white collar jobs to, or at the very least are like South Africa and have divided economies with a wealthy English speaking population alongside a population that is impoverished enough to make outsourcing profitable for both parties, but doesn't speak English fluently enough to converse with the standard U.S. (or other English speaking) office-worker or customer. I'm sure a similar problem exists to more or less extent in developed nations that natively speak a language other than English... Japan being the first to come to mind. If there are developing nations with a significant population that speaks the native language of a developed nation, it will simply not take very long for the developing nation to develop a strong enough middle class that outsourcing to that country becomes less and less cost effective.

In all reality, this is a significant part of what globalization was supposed to do... improve the economy of the nations that are the worst off economically. There was only a small window of time where the megacorps could make the insane profits off trade disparities. That window is closing as trade gaps begin to narrow between countries that have products or services to trade and the supply and demand begin to equalize.

Re:We've had this discussion before.

[partenon]

Not true. The real value for a software isn't the code itself. It's the business logic behind the code. And companies only outsources tech jobs, not their business knowledge. As a brazilian who speaks a bit of english, I work (and worked in past jobs) for american companies as outsourced programmer and I can tell you: we have *no* business knowledge nor people w/ this kind of knowledge here in outsourced jobs (but, of course, we have our own IT marked).

Why outsourcing is bad

[zappepcs]

While its true that it helps to 'flatten the world' into a large community, it harms our own communities when we outsource. Sure there is that short term bottom line issue of money, but you don't have to go much beyond 'short term' to see that the cost of wages is hardly the big cost in outsourcing. Before this story came out there were many others telling us how good outsourcing is and those that told how bad it is. The indicators have been there all along as to why it is bad.

Big indicators have been the outsourcing of work from India to China! The fact that customer service companies in India cannot communicate with the average person in western English speaking countries on a level that is equitable. The high turnover rates have always been there as a problem that was politely ignored in favor of lower initial labor costs.

Any project manager can tell you that trying to lead a project of software engineers that is not only geographically separate, but separated by as much as 12 hours from the part of the company that needs the software.

All of that is not news, or shouldn't be. What is news is that more and more companies are finally realizing this. There will be companies that continually hunt to find short term savings, like gold rush miners, but in the end, customer service and ease of development will drive down the desire to outsource work.

Yes, I know that Bill et al have proclaimed that there is a shortage of IT workers in the US, and apparently there is a glut of degreed IT workers in India. The trouble with such claims is that those Indian IT workers (no matter how many degrees they have) do not have any kind of realistic understanding of the western world's business environment, and often I swear that they really have no idea about software either, but I suppose that is borne from not understanding the business culture as well.

This story is really about how outsourcing work to foreign countries is coming back to bite the people that thought outsourcing was a good idea to start with.

Those who won't learn from history .... and all those nice cliche's

I.T. workforce from the stars!

[__aaclcg7560]

Will Ho Chi Minh City be the new Bangalore?

After those workers start demanding higher wages, an alien slave trader will set up a trading post to provide cheap labor and the Men in Black (MiB) will be put out of business after the industry lobbies the government not enforced the alien immigration laws.

Will this make Sea-Code more viable?

[isdale]

Sea-Code has a former cruise ship they plan to station off the coast of So. Cal (San Diego) and staff with programmers, etc. The idea is to make the staff closer to US based clients, who wont have to travel days for meetings. Having staff stuck on a ship might also keep them from 'jumping ship'?

We haven't figure out how to make India work...

[loony]

So, now that management has run out of ways to prove that their plans work they will find a new, even cheaper place... good luck with that.

So far I have not come across many Fortune 500s where outsourcing actually worked in the end - that means not just a lower rate but comparable quality. There are plenty of CxOs that announce how much money they saved and all, but if you talk to the techs they almost consistently have another story to tell. For each 100 hours of outsourced work I estimate the average will be about 40 hours of US time to review and fix the programs... And those 40 hours will eat up all the cost savings you had in the original 100 hours. Its sad - but in the end for a million line codebase that has a certain quality, it doesn't really matter where you do it - the cost will be the same... The only ones that have a big advantage there is the russians. No idea why but their quality is usually better than you find anywhere else and the prices are reasonable too.

Before outsourcing, look beyond the hourly rate and consider skills. Then analyze your savings after the project has been in production for a while - and check if your expectations actually came true.

Peter.

Add Canada to that list.

[Anonymous Coward]

I'll happily work for $3-4 US per hour, as I'm sure many other Canadians will.

As a university graduate with 15 years professional experience and zero current domestic employment prospects, no unemployment insurance or welfare, a few dollars an hour that the tax man does not know about is most welcome.

I can make enough to survive on for rates similar to impoverished Indians. Its all in your standard of living.

The benefit to my clients is mainly fluency in English (UK spelling) and ease of communication.
They get superior service at rates comparable to outsourcing to the east. And I get to eat, and buy the odd package of cigarettes.

That's a discussion we need to have.

[khasim]

How can you structure a CEO's (or other CxO's) salary/bonus plan so that their incentive is to keep the company productive and viable instead of "shedding" all the "unprofitable" sections (such as IT) and outsourcing them to raise short term revenues, cash in the bonus and leave for another company?

It is far more profitable for a CEO to wreck and sell the company than it is for him/her to actually spend time running the company.

Re:That's a discussion we need to have.

[theshowmecanuck]

Simple, do the same as they do for the IT staff already: Pay them what they are worth in a salary, and if they do a good job, they get to keep working there. Others have some good suggestions too on this. If you don't do something about this though don't expect stupid actions that generate short term profits but long term mediocrity to end.

To put it in slashdot parlance:

1) The senior executives come in, make their short term profit for the company and collect their bonuses,
2) Things go to shit (since their short term plans don't work for the long term... they don't care anyway, their eye is on the bonus) and they get fired,
3) Take a huge severance and... profit!! (well except for the shareholders)

Re:That's a discussion we need to have.

[mutterc]

A former manager of mine had an insightful take on this:

Back in The Good Old Days(tm), employees (including top execs) would work for a single company for many years, then retire, drawing a pension. Because of that, there was built-in incentive to make sure the company had long-term stability.

Nowadays, executives are disposable employees like you and me. Therefore, they have no reason to care whether the company is long-term profitable. They know they'll be elsewhere in a few years, so why not plunder the company in the meantime?

Mod me down for being unpopular

[Daishiman]

But I frankly don't see any reversal of the outsourcing trend

As foreign workers acquire more and more skills, the gap between them and the first-worlders being replaced diminshes. Already we are seeing this: instead of outsourcing to places like India or China, many companies are turning to not-so-poor but cheap places like Easter Europe, Brazil, or Argentina. Countries where technically skilled people exist but were in low demand, but most importantly where the culture is extremely compatible with their clients'.

(Brazilians or Argentines DO have a language barrier, but their culture is much more similar to that of the US than other people in the globe, which makes their skill acquisition faster).

The problem clients have with outsourcing isn't about foreigners or incompetence. It's about managing a herd of cats through virtual teams and bonding with people with the same accent and interests as yours. I know that personally I've had much more success with my customers due to my American accent than my less linguistically skilled co-workers.

sig: Cosas de un sysadmin argentino: http://aosinski.phpnet.us/

The following is a long diatribe....

[Bright Apollo]

...for which I offer no apology.

Outsourcing is neither good nor evil, but the motivation behind outsourcing tends to be overwhelmingly merciless and short-term. Taking a knowledge activity and attempting to turn it into a commodity or near-assembly line function is, I suppose, a managerial Holy Grail worth undertaking in different guises each decade.

Consider H1B visas. Is there a shortage of IT workers in the US, or a shortage of *cheap* IT workers in the US? Most major media publications are overwhelmingly guilty of dropping the telling adjective, and the quotes they gather all support a lack of IT talent, no qualifiers added.

We who work in this space, live in the space, can confirm some of this. It *is* hard to find a superior talent for an IT position above entry level. However, it's not impossible if you have a salary and excellent position to offer.

So, when I read about outsourcing arbitrage and the chase for ever-cheaper talent, I just wait it out. Eventually, all of the talent, cheap or not, will come to fore and then the real shoot-out over quality and reliability can begin. Does anyone truly believe there's a hidden cachet of Polish supercoders who haven't been discovered because they lack the Internet connectivity? Does anyone see the inherent flaw in that premise, and by extension, any argument like it?

I'm not overly impressed with a single outsourced individual or group in my eleven pro years of IT, and that includes old Anderson Consulting of 1995 up to Patel Consulting of 2006. The prestige of the firm should only get them an interview: talent and not cost is what you'll need to survive.

As a final note, what, if anything, will the US do if it successfully outsources all of its IT functions? Does anyone expect anyone to major in CS in this country, knowing that electricians make far more and took less formal schooling? I think not. You can't outsource a physical service.

-BA

Wow...irony

[Shoten]

I'm in China at the moment, actually, about to go to a second site here. My purpose? I'm looking at the security of two vendors who are competing for a financial BPO (Business Process Outsourcing) contract with a major corporation. This is my first look at outsourcing up close, and I can see why companies examine the option. Yesterday I looked at a BS 17799 and SAS 70-certified facility, with smart people who cost far less than their counterparts. Also, there was discussion about turnover in India.

Outsourcing is definitely here to stay, but from what I have seen, cost is not the only factor that gets considered these days. (At least, not by the client I'm working for.) They're looking at the whole package, but the biggest thing that has mattered so far are the tools and functionality that the outsourcing provider can bring to bear. At the end of the day, it'll be functionality that matters the most, especially as labor costs in markets like India and China grow. But don't make the mistake of thinking that in such countries lower cost is all they have to offer, because that's not necessarily the case; the provider I visited yesterday had a hell of a great system for handling the complex financial functions that are a main pain point for my client.

Outsourcing is good, loyalty is bad

[Colin Smith]

Loyalty is and always has been a fairy story told to you by people in power to get you to do things for them cheaply.

Oh yeah, that includes patriotism as well btw. Typically they want you to die for their benefit.

Re:Outsourcing is good, loyalty is bad

[mi]

Oh yeah, that includes patriotism as well btw. Typically they want you to die for their benefit.

Err, no, "they" don't: "Now I want you to remember that no bastard ever won a war by dying for his country. He won it by making the other poor dumb bastard die for his country." (General Patton)

I disagree

[2nd Post!]

I disagree that outsourcing is bad. Generically that is like saying hiring a babysitter or a neighbor or anyone other than yourself is bad. So what are the indicators that outsourcing is bad? Just saying there are indicators is not the same as showing that the indicators are bad.

1) If you hire your son to mow your lawn, there is nothing stopping him from hiring his friend in turn... ala Tom Sawyer. If the job is unacceptable, make the terms part of the contract.
2) Customer service is not a function of outsourcing, it is a function of cost. You can have equally horrible customer service inside the US itself.
3) High turnover is also not a function of outsourcing, it is a function of management. If an employee has no training and advancement path then it is up to the employee to figure out their own. This is true of any company in any country.

All these problems would exist if the companies in question practiced homesourcing, where a company like IBM hired a temp agency in Alabama to support their developers in San Jose.

Again, why give work to a neighbor or a friend when you can do it yourself?
Answer: Because division of labor and speciality encourages increased productivity when both parties can do separate things more effectively than both parties replicating work.

In this case the flaw with outsourcing is that there was not a good reason or a good implementation for the division of labor.

Calling Outsourcing "Bad"

[mpapet]

Is suspect 98% of the time.

1. Workers who lost really well-paying jobs to outsourcing:
I'm sorry no one informed you, but one of the economic reasons you were paid so well was that your job was coming to an end. It was always a temporary state. Consider the extra wages a "retraining allowance" paid in advance.

2. Shareholder Demands:
Clearly outsourcing is a cost-reducing effort. As long as those costs are measured in dollars and cents your job is on the chopping block on a quarterly basis. Unless every business owner/shareholder in every country in the world becomes simultaneously enlightened, this is the benchmark.

The new american worker rules are:
There is no such thing as job stability.
Get paid for today's work because there is no promise tomorrow. e.g. retirement and vesting options are mostly vaporware.
If you are lucky enough to be near the top of your wage curve, live at or about the middle of the wage range for your industry if at all possible. This gives you a nice F.U. fund if there's a sudden change in your employment circumstances.

The race to the bottom

[why-is-it]

By the third year of an outsourcing deal, after all the costs have been squeezed out, companies get antsy to find a new locale with an even lower overhead

This is the biggest problem I have with globalization: we have removed all constraints from capital and freed it from all other considerations. It is truly a race to the bottom - who has the lowest labour costs, who has the fewest environmental restrictions "wins" some starvation wage jobs until we can find someone else who can be exploited even more.

The fear used to be that jobs were being sent south to Mexico. But when Mexicans workers start demanding fair wages, we sent the work to Viet Nam, where people earn $2 per day. But even that looks pretty expensive when there are people in China willing to work for $.50 a day.

It's exploitation plain and simple, and we don't care because we are insulated from the uglier aspects of it. Of course, we are getting screwed too - those over-priced sneakers are now manufactured for a fraction of what they used to cost, but we still pay roughly the same price at retail. At least the shareholders are happy, but if they could find someone who would work for $.25 a day, they would be even happier.

Whenever someone argues in favour of a living wage, we are told it is too expensive. What a shame that poverty has become an official requirement of our economic system.

If we found ourselves working in the sweatshops for less than a buck a day, I wonder if we would be grateful...

Re:Get over it. NOW.

[NorbrookC]

Look, if you are GOOD AT WHAT YOU DO, YOU WILL NOT BE OUTSOURCED.

My, aren't you naive! No need to shout, because life will soon smack you upside the head. A little reality check - Competence does not equal immunity. You can be the among the best, even the best in the industry, or the world at what you do, and some bean counter will outsource you in a heartbeat if they think they can get it done cheaper elsewhere.

Consider that almost half (47%)of the IT outsourcing contracts are cancelled due to non-performance. The sad truth is that the people who make the decisions to outsource are several layers removed from the people who actually perform the work, or work with the customers. Which frequently means that cost trumps quality or competence. The person making the decision doesn't know (or even care) that the people that are being outsourced are good or the best. All that manager knows is that they cost too much.

Re:Supply....

[Duhavid]

They said that about COBOL as well.

You may be right, but the "higher levels of abstraction" will,
in my opinion, call for more knowledge, not less, requiring
more skilled persons, not less.

Until the point that we have true AI, that is. ( And it will
still be true, but handled by the AI. )

Re:Supply....

[transonic_shock]

There's about 3 Million people in the US

There are about 300 million people in the US

It's a negative sum game

[Travoltus]

At least for America's workers, whose wages will never recover from the downward pressure of globalism.

America's booming IT industry is a thing of the past, as the entry level jobs needed to train people for higher end jobs no longer exist in America. Our IT industry will continue to shrink until it's completely gone, and all that is left in America are people jobs. The low paying cashier and medical clinic crap, with a smattering of middle class nursing jobs and doctors being crushed by malpractice premiums in malpractice award-capped states.

For globalism to succeed, successful nations must be impoverished.

Now where, you ask, is all the growth coming from? Simple. America is drowning in utterly unmaintainable consumer and national debt. Eventually that all has to be repaid.

Pray ye diligently that ARMs stop rising and that home prices stop falling in the superhot markets of today, or you may find yourself eating the words you're thinking of responding to me with - because that's all you'll have to eat when the shakedown comes.

Ho Chi Minh City, Vietnam

[Tracy Reed]

I spent 9 months in HCMC as the director of software development for a US based company last year. It wasn't my idea. The Vietnamese-American owner of the company who employed me to go thought it was the thing to do. I can tell you that it is NOT the place to outsource any IT tasks such as programming or web design to. Not unless you have some serious government contacts to get you access to the smartest kids out of the state schools (who will still have only minimal programming knowledge and only on Windows).

I couldn't find anyone there who spoke decent english who knew anything about computers. The best I could find were straight out of two year trade school/junior college amature windows jockeys. Linux? Perl? Fat chance! It is still very much a third world country. Software is pirated wildly too. Don't expect employees to obey any sort of NDA. Also note that since people there do not have credit cards, car payments, mortgages, and are already heavily dependent on their families for most things they need they are usually free to leave your company at any time.

At least they have cable modem in HCMC even though it can be a bit unreliable. Exepect a power outage once a month too. Expect theft. I have had motorbikes stolen, cell phones stolen, etc.

And the corruption...oh my god. We paid off everyone and were solicited for payoffs by everyone. My coworker overstayed his visa by a day. They wouldn't let him out of the country! The soldier/immigrations officer/policeman (all the same there) took him into a side room and basically asked him how much money he had on him. $60 worth of the local currency (Vietnamese Dong) and he was free to go. We paid $400 in cash to the customs guy to get them to let our IP phones into the country when the official tax on them was supposed to have been much higher.

And on top of it all they are still very much communist and most are quite brainwashed. It is in a similar vein to North Korea only not as extreme. Americans are lazy people who cheat on their wives and fuck in the streets and cannot be trusted. They do not know about nuclear weapons, don't know the cold war, don't really know anything about the world context in which the Vietnam War happened. Everyone treated me very nicely of course. No anti-Americanism at all as long as someone stood to gain money from me and I was paying in cash. They are always very friendly to tourists and smiling and respectful. Just don't try to date anyone there or talk politics with anyone as you will surely offend. If you hear someone say something about history which you know is patently false just smile and nod.

Suffice it to say the project did not go well. Doomed from the start. At least I had the good sense to bail months before the shit really hit the fan and the whole operation collapsed.

Vietnam is a fun place to visit and I recommend it. I will be going back there again in a couple of weeks for Christmas. I just won't be doing business there again until the business culture changes dramatically.