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Study Finds Cost Major Factor In Outsourcing Positions
theodp writes "Debunking claims to the contrary, a new study from Duke University asserts that it is purely cost savings, and not the education of Indian and Chinese workers, or a shortage of American engineers that has caused offshore outsourcing. 'The key advantage of hiring Chinese entry-level engineers was cost savings, whereas a few respondents cited strong education or training and a willingness to work long hours. Similarly, cost savings were cited as a major advantage of hiring Indian entry-level engineers, whereas other advantages were technical knowledge, English language skills, strong education or training, ability to learn quickly, and a strong work ethic.' The article goes on to point out that despite this, outsourcing will continue to be a problem for US workers in coming decades; new elements of traditional corporations like R&D may in fact be next on the outsourcing chopping block."
Until we reduce the cost of living in this country companies will continue to outsource. It's all about money. I can't possibly earn less than 4k a month due to bills, rent, etc. Less than that and I am in serious doo doo (I live in California where prices do nothing but sky rocket every year).
Maybe it's me being paranoid but how in the world are jobs leaving this country they way they are and yet the cost of living goes up every single year? Housing prices are seemingly out of reach to everyone yet they keep selling. A recent report on the news here in CA was that fewer than 9% of the CA population can afford to buy a house in CA.
Until we can make it affordable to live here we'll never be able to hold on to the jobs.
Um... The only reason I've ever heard given for outsourcing was money. When the hell did they invent this other bullshit, spread it and have people buy into it, and then do a study debunking it?
Was I too busy working?
What I find funny though is that all the Hindu/Muslin owned/operated gas stations and convenience stores in the US remain open every day of the year, including Christmas, Thanksgiving, and New Years Day.
Here it is. Sometimes you'll see some really cheap "car mods" on ebay that advertise they could give you an additional 20hp while only costing you $5.00. Let's be real here - we all know that's a load of crap, and that you get what you pay for 99.9% of the time.
Recently, we had one of our customers outsource the implementation of our SDK to another company (this happened to be outsourced to an Indian company, though we've seen this same type of thing happen with domestic companies as well, of course). Our customer contacted us complaining his software was behaving quite strangely. Of course, our reply was that we didn't do the implementation, and we had never heard of that kind of behavior before (and the software has been in the market for about 15 years now and we have thousands of customers). So we offered to look at his source code, and of course, we found some horribly atrocious code which was the root of the problem - not our SDK, of course. The point is; any time you outsource a project to anybody, you need to be extraordinarily careful that the job is done correctly, and that you have everything you need to pick up where the company you outsourced to left off (coughs Mack-Truck syndrome under breath). That's just my $0.02, and it seems like common sense to me...
The US has 5% of the worlds population and 20% of the worlds economic activity(by GDP). The decrease in US economic activity as a percentage of the global total is nothing other than normalization. Movement of money elsewhere is basically unsurprising when you consider the relative ease of technology transfer vs technology development.
Nerd rage is the funniest rage.
Thus the basic issue is that you're giving up your best and your brightest who are ALREADY familiar with your business and the local marketplace, and you're replacing them with cheap "yes-men" who have no concept of your business, cultural barriers, aren't even in the same time zone, run effectively unchecked by the corporation, and have little chance of being India or China's "best and brightest". (As you say, those people are making their money elsewhere.)
For a good feel for what's happening with outsourcing, check out these horror stories:
http://img.worsethanfailure.com/Comments/Discount
http://worsethanfailure.com/Articles/Of_Course_We
While not every company sees results this bad, I've heard very few positive reports. And more of those were before the outsourcing "craze", when it was easier to find the competent developers overseas.
Shades of the tech bubble? Yeah. I'm glad we learned so much from that debacle.
Javascript + Nintendo DSi = DSiCade
"There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible. " - Henry Ford.
However, blind greed is much more in style nowadays.
My anecdotal evidence suggests that offshoring adds alot of costs that don't really show up without further analysis. In other words, it looks like you are saving money, but you are not. Luckily, we haven't tried to offshore our R&D (which includes software development), but based on our experiences with offshoring production, I don't think we would try.
From what I have seen, offshoring does save alot of money that shows up directly on the bottom line. You are paying much less for employees and benefits, so your overhead costs look much lower. However, we have seen quality suffer. The costs from that don't get reported as labor costs, and often don't show up until some time later, so it is hard to see a real correlation between these costs and offshore labor. So upper management, who are often somewhat removed from what actually occurs within the company do not notice the problem.
One of the biggest problems with offshoring is communication. When all the people in charge speak english, and the people doing the work can only speak marginal engrish, problems occur. Specs are not relayed properly or take much more time to communicate than they normally would. The problem is that even seemingly trivial specs are important, and they can mean a costly product return. We have seen one product return that costs as much as the employee saving for an entire year.
There are also overhead costs involved in setting up the offshore operation. I'd imaginge even moreso with engineering or R&D. Files and data must be able to relayed quickly and securely. With an oufit overseas you have little control over, this is can be very difficult. And if something goes wrong and important information doesn't make it, or doesn't make it in time, that can also mean costly losses.
The whole point is that while offshoring saves on employee costs, those savings can be quickly erased by communications or quality errors. In my experience, the cost savings just aren't all they are cracked up to be, although you wouldn't notice by looking at the accounting reports.
Labor in the US is certainly one of the most expensive in the world. As a direct result of this it should be obvious that any technique that will move the work elsewhere where labor is cheaper is going to be done. Any technique.
Outsourcing will continue because it is at least on the surface cost effective. It will displace higher paid American labor in favor of lower paid labor elsewhere. It does not seem reasonable to assume that at some point all foreign labor will become as expensive as American labor is today. At least not for a long, long time.
Many people in the US are under some kind of illusion that we can be a country of "knowledge workers" where everyone is above average and college educated. We can simply export work or import labor for anything that is not covered by this. There is a false assumption here that everyone in the US is capable of being trained as a "knowledge worker". We are reforming the economy such that there are no jobs in the US which someone of more modest intelligence and capabilities can perform. This is a mistake on several levels.
Obviously, we can move work offshore to cheaper labor but we will then be dependent on a longer supply chain and whatever occurs in these foreign locations. This means that an earthquake in India can wipe out a company in the US. Does not sound like a good plan.
It also means that it is possible to seriously damage the US ability to compete in the world by attacking non-US facilities. If a majority of consumer electronics devices are made in Indonesia, burning down a factory there may prevent a US competitor from entering the market and preserve the market dominance of other countries.
Certainly when all our military equipment is made overseas, as will soon be the case, it will be nearly impossible to use the military against foreign enemies in league with producing countries. We can also expect complex military hardware to be dependent on foreign powers continued good will to keep it operating. Logic bombs in such equipment can be expected.
There is one thing that American companies can do that doesn't seem as common in other cultures - launch projects going in 1000 different directions at once with the hope that 9 of the projects will make enough money to pay for themselves and 1 will make enough to pay for the other 990 that were dismal failures. Do other cultures value the willingness to fail miserably time and time again in hopes that one plan will be fabulously successful? Large companies can get away with this approach because they don't risk going out of business with failure after failure.
Google is a good example of a company that is doing very well with search and ads, but it seems like everything else coming out of them is free/ad revenue supported. It may very well be a sustainable model, but putting a lot of smart, creative people together doesn't magically make profit.
Who told you they're shooting themselves in the foot? I'm a sysadmin working in South America for two American accounts that have been outsourced and customer satisfaction has actually increased because we have more formal processes and more motivated people. Mind you, this isn't entry-level tech support, so we're talking about much more experienced people with excellent English and know-how in the profession, but just because you spend most of the time hearing about the misfortunes of corporations that don't know how to outsource doesn't mean that it's all gloom and doom for everyone else.
Core Security, for example, has a significant amount of penetration testers and white hats working here and they're just as competitive as their first-world counterparts.
Perhaps if IT is such a difficult carreer path in the US you should simply stop beating the dead horse. I have yet to see any proof that our American counterparts are so much more (if at all) competent than us that they deserve their massive, $80000 dollar a year salary. I mean, these supposed "professionals" put in root filesystems of 50 megabytes on AIX boxes and installed oracle in the root volume group.
Yes, but it's also a great way for one guy to gain all the "Intellectual Property" of the company he worked for. This is an old argument, but it's worth considering. There are hidden costs associated with a Single Point of Failure. How long and how much when someone offers the one-man show a better deal? Can you salvage anything once your star programmer has left? How about security? Is $80k/yr. enough to prevent the one guy who has access to the code base from doing anything malicious, like leaving a back-door or selling the code to a competitor? Does your business stop running when he calls in sick?
Likewise, the population of people trained to be a one-man Project-Manager-Kickass-Developer-CSR-Tech-Writer all rolled into one is dwindling; it's a profession that emerged when business computing emerged. Now universities and technical colleges concentrate on a team approach. I've witnessed first-hand how this approach is better for business, even though it's easily the 500% more expensive than you mention.
The CHAOS Report, though rapidly falling out-of-date, shows the height of the star developer, and look at how many software projects failed. Many of the reasons are not directly related to the developer's effort or talent, but overall this method of developing software has a terrible tendency to avoid showing it's work (sort of like a math test where you don't show your work and get no partial credit because you just put down the wrong answer). What I've experienced with the team approach is that a software project is much more robust. A developer who wants to negotiate a higher salary by withholding his talent has much less leverage, since the technical writer and architect have been working in a parallel stream producing UML diagrams of use cases, packaging, flowcharts, etc. What this means is that you can wave goodbye to the opportunistic developer, because he is no longer the sole source of knowledge about how the software works. Another developer will read and understand the supporting documenation and will be trained on the new project in days instead of weeks or months.
This approach definitely pays off on the larger projects, where it is (or at least was) common for a company to go through 5 or more consultants to do the same project. Usually those consultants would duplicate his predecessor's work to no small extent due to the lack of any documentation or diagrams which would show the new developer what part of the old project was useful. Most importantly, at least to an executive, no one person on your team can turn around and deliver your corporate secrets in their entirety to another company.
Finally, the elitism that comes from being the guy is impossible to deal with. Business people have almost no recourse to an unethical developer who consistently holds a project hostage or bills for hours he didn't work. It is to the overall advantage to the business community to remove themselves from under that guy's thumb, as it will set an example that other businesses will follow. There's nothing wrong with working in a software team. If you were the guy (I was until I burned out), then you'll find your job is a lot easier once you figure out how to get along with everyone else. If you weren't, then the field of software development is now open to you as more roles appear that require more creative thinking and less ubertechie skills. You as the developer shouldn't worry about it; the business community is clearly willing to pay for the extra resources. In your example, there actually is a cost savings: about $40k/yr. by my reckoning (the difference between a 40k/yr and 20k/yr) provided the off-shore developers can earn their keep. And, I'd wager that there's a good 90% chance that the project will be completed in the first pass as opposed to numbers that resemble the CHAOS report.
"Please describe the scientific nature of the 'whammy'" - Agent Scully
About a year ago a group of friends (coders all) abandoned Northern California and went in together on a farm in Okalahoma and built a couple of extra houses on it. They've been able to drop their billable rate down to where it's still competitive without the whole third world lifestyle (but hey, it's still Okalahoma, dudes).
I'm kind of conflicted about this. Good on them for finding a way to be competitive but it's just more downward pressure on rates.
As a side note they're also ramping up to produce wind power and biodiesel (Canola - the thought of any of these four driving a tractor scares me). First stop self-sufficiency and then on to selling the surplus.
Cooperative living may be the only way to beat Corporate goons.
Don't forget that Toyota cars are now more 'American' than Ford cars are.
paintball
This is a key fact. If the American worker is SOOOOO overpaid, and American benefits are SOOOOOO expensive, and it's just IMPOSSIBLE to make profitable high-mileage cars, how is it that Toyota and Honda have profitable factories in America when Detroit is having a tough time making a profit shipping jobs overseas as fast as they can get away with? I'd consider a long look at boneheaded moves in the executive suite.
The living have better things to do than to continue hating the dead.