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."

Comments

Cost of living

[geek]

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.

Have I been living in a cave?

[Zadaz]

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?

Re:Summary of the Corporate Attitudes

[maxume]

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.

Re:Summary of the Corporate Attitudes

[AKAImBatman]

From TFA:

[The study] asserts that the United States is risking losing its global edge by outsourcing critical R&D and India is falling behind by playing politics with education.

Duke's 2005 study reported serious problems with the quality of Indian and Chinese bachelor-level engineering graduates, and predicted both shortages in India and unemployment in China. The current report finds these predictions to be accurate, with China's National Reform Commission reporting that the majority of its 2006 graduates will not find work. There are also oft-heard whisperings of a engineering shortage in India, though private colleges and "finishing schools" are going far to make up for the Indian deficiencies, the report said.

"Respondents said the advantages of hiring U.S. engineers were strong communication skills, an understanding of U.S. industry, superior business acumen, strong education or training, strong technical skills, proximity to work centers, lack of cultural issues, and a sense of creativity and desire to challenge the status quo," wrote Wadhwa in the 2007 report.

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_ Enterprise.aspx

http://worsethanfailure.com/Articles/Of_Course_We_ Tested_It__0x2e__0x2e__0x2e_.aspx

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. :-/

Anecdotal evidence

[ObiWanStevobi]

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.

Re:Summary of the Corporate Attitudes

[Daishiman]

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.

Re:Summary of the Corporate Attitudes

[raehl]

Don't forget that Toyota cars are now more 'American' than Ford cars are.