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.

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

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.

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.

[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?

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)

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.

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.