Slashdot Mirror
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."
Allow me summarize: "It's too expensive to be competitive, and we don't have a vision for being competitive anyway. So we're going to make our shareholders happy and shoot ourselves in the foot. Twice. Just to be certain. But hey, think of all the money we'll be saving!"
Javascript + Nintendo DSi = DSiCade
Gee, American corporations put profit above every other consideration- call the evening news.
The sad part is it took an actual university study to reveal the lie.
SJW: a person who perceives an injustice, and while correcting it, commits a greater injustice.
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.
I find that it's outsourcing the reason I don't buy support contracts anymore...
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?
And as a result we're over worked, under paid and have a greater than 50% divorce rate while our kids are left with a TV screen as a babysitter and our family structure is collapsing in favor of a nation of single people too self absorbed to take time off to form some basic social connections.
I'm sorry but "work work work" isn't what I would call a great existence. If you want it fine, but don't call me lazy for actually wanting to live a life I only get once chance to live.
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...
I was hearing a report on the parent's topic yesterday on NPR. It turns out homes are not selling as much as before due to a couple factors. First is the number of people who were purchasing via insane ARMs are drying up. This is why we now see a number of lenders filing for bankruptcy. Secondly, there is still a large insane population of people who are selling their homes but will not lower the prices, hoping they will be able to sell at a price that would have worked a year ago.
Despite the comment about 9% qualifying for home ownership, a number of people have applied in the past few years for insane ARMs to buy a home and purchase that dream SUV. However, it's because they truly can't afford a home the number foreclosures are starting to drastically increase. It's only a matter of time before all those homes are sold at much lower prices.
On the way to work today, I was hearing another NPR report (yeah I listen to it a lot) stating that the apartment market is about to boom....
Cost is the direct driver for most businesses, because it always yields a short term benefit. Most companies do not have either the resources, interest, or patience to work for long term benefits.
That said, I would think R&D would be the LAST thing we would want to outsource, simply because if we do that the next generation of companies will develop not in the US but everywhere else. We cannot become a nation of businessmen/women and lawyers, because the world will quickly wake up to the fact that they already have all the smarts and physical resources to make whatever they need and can provide their own businessfolk and legal team. If the US makes too much trouble, we can be safely ignored because we won't be producing anything any more except hot air.
When it comes down to bare knuckles, US labor costs too much. Period. We don't have some "magical" quality that makes us better, we just happen to have a large number of well educated people in the US at the moment. The rest of the world can also be educated, and for cheaper than it costs to hire US labor. Businesses are finding that out - train the folks overseas, and guess what - they can do it too! Today, that lines the pocketbooks of those with control of the companies. What they aren't thinking about or don't care about is that tomorrow those folks will be making their own companies and coming right back at us, and we will no longer have the technological chops to keep up because the only money to be had in the US was by going into business or law.
Hopefully, we will retain our education and knowledge edge. We need to keep investing in education and keep ahead of the pack, however - the game is getting rougher and it will mean either a lower standard of living or harder work for us. There is no magic here, and in the end all competitive edges not based on natural resource advantage are short term.
"I object to doing things that computers can do." -- Olin Shivers, lispers.org
This has always been the lure of outsourcing. Costs are increased, which increases the size of the manager's empire, while being able to point to someone and show how much money is being saved.
For example, instead of paying one programmer $80k, they have:
2 programmers offshore - $20k each
system architect - $130k
technical writer - $60k
project manager - $70k
team manager - $100k
Instead of spending $80k/year, they are spending $400k/year. However, they claim a savings of $120k using management-math by multiplying the number of programmers they have times the salary of one programmer if hired locally, minus the actual cost of the offshore programmers. You can claim a 75% cost savings on the programmers, even though you're spending 500% of what you need to. It's a great way to fluff out budgets and org charts.
this is typpical supply side strategy, the problem is when you attack wages rather than other inputs as cost, it also attacks the biggest contributor to both profits and GDP, consumption!
2 basic economic equations are in play here:
gdp = C+I+G+NX = (income - savings)+I+G+NX
profits = costs - revenue = (wages + other costs) - (wages + other income such as capital gains)
when you kill wages/income, you kill your own profits as well as us gdp.
there is a time lag involved in this, but it comes back to bite you pretty quickly.
this is reflected whenever Reagan style policies (not exclusive to the republican party) are put into effect... there is always a recession a short time later, which is alleviated once the policies are countered/rolled back.
right now congress is STILL operating on the myth that there are short supplies of labor in "X" sector, which is bull, what there is is a shortage of cheap labor who dont care about long term benefits or retirement in sector "X"
plenty of on the ground info on this here
VLC FOR MAC IS DYING! IF YOU DEVELOP, PLEASE SAVE IT!!
Lower your salary enough and people will think you're incompetant, when asked why your willing to work for so little all you can really say is that you need the experience, because to get a job you really have to be twice as qualified as you should be. So, if you have an AAS and want a job you're qualified for, you need to have 2yrs experience too, because the guy (B.S.) that you're competing with just lost his job to some guy (B.S.) recently graduating in India.
Under the influence of Post-Cyberpunk Gonzo Journalism
In business, it's always about money. This study was debunking the fact that some businesses were claiming it was not about lower salaries, which is somewhat different. In truth, I've worked on a few projects that involved outsourcing both in the US and overseas and while it was always about money, relative salaries was a pretty small concern. We outsourced because we had trouble finding enough local talent and because we had short term needs that required expertise we did not have in house, but which would have cost a lot unnecessarily to do ourselves.
In contrast, I know of several cases where companies outsourced core parts of their business, resulting in a short term benefit on paper, but a long term loss. Once an outsourced company has expertise in what you do (on your dime) they will raise prices or they will stop working for you and start competing with you. Of course by then the executive who made the decision already took his big bonus home and moved on to another company to repeat the process.
http://dukenews.duke.edu/2006/10/outsourcing.html here's the study http://www.boozallen.com/media/file/Globalization_ White_Collar_Work_v3.pdf
This new information should be a wakeup call for policy-makers. The irony is that corporate profits no longer know national boundaries. Solutions are going to take political leadership, and real committment. If no solutions are forthcoming, we will continue to see significant employment displacement here, with all the social problems that that implies.
In other news: water runs downhill, the air is full of colorless gasses, and the sun is a big ball of fire.
The indians in cities like mumbai work for 13 hours a day on an average, also in the south indian cities like Chennai & Hyderabad the bosses like you are worshipped as God. So there are about 2000 small companies who give jobs but instead of paying salary they ask money from the candidate. The candidate doesn't mind because that will give him a head start into IT industry where every one wants to hire an experienced developer.
The next goal(dream) for every Indian developer is to get h1b visa into usa.
Bosses like you make them report status on a project at unearthly hours like 2:00 am(4:30 pm EST, yeah you just wanted to check the status before going home, don't you). Imagine doing that with Tim here.
If a job vacancy ad mentions the word "fresh" then there will be 6000 applications with at least Master's degree in Computer Application.(10+2+3+3 yrs education).
why go overseas? middle america has THOUSANDS of unemployed people that would gladly do the work and a wage that is far less that the coasts thanks to the cost of living.
Granted this has to do more with call centers and the like. But I would much rather talk to Bubba Anne than Apu
Thanks to file sharing, I purchase more CDs
Thanks to the RIAA, I buy them used...
...get a job that does nothing more than publish studies that point out the obvious? I really can't believe money was spent to determine this.
My mom always said, "Jim, you're 1 in a million." Given the current population, there are 7000 of me. God help us all!
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.
How bout we form a central committee to set wages and prices while we're at it?
The permanent structural unemployment and underemployment that is resulting from offshoring, will eventually bring the US economy to a halt.
The flaw in your logic is that you assume becaus previous industries left or evolved away into newer industries, that this will happen repeatedly. As in, from the horse and cart design to the SUV sales/repair, and from telephone switch operators to internet jobs.
That is not the case any more.
There are no new job booms beyond tech now, because of offshoring. Biotech is already going overseas. Nanotech will result in a major net loss of jobs. What's left to grow now is the service sector - the cashiers and what not - and even that is slowly being automated.
The new job types coming out now are small fry at best, and are going to be oversaturated or out dated in 5 years. That means whatever you're in college for right now, will be worth dramatically less in wages in 5 years, or few people will be hiring for someone with that degree. Say hello to just-in-time employment.
There is nothing big that will ever come up any more as far as jobs are concerned. We've reached the end game, and I openly invite you to show me what's coming up that open up the jobs spigot again in America.
Now, watch out for the fallout from this subprime boom. People have not been spending more because of rising wages, people have been spending more because of massive amounts of refinancing. The subprime correction is spreading into the rest of the market because of the number of homes increasing due to foreclosures. That means you who have a fixed rate re-fi will still inevitably see your house drop in value. You'll be upside-down on that bugger in 2 years. Mark my words on that.
What this means is, with the explosion in low paying service sector jobs, the collapse of refinancing-supported consumer activity will not be reversed by a boom in higher personal job-based incomes. Also, people will dig into their IRA's and investments to make ends meet as the water level rises; I work in the financial sector and I am watching the slow rise in that activity right now. And people working at Wal Mart don't get IRAs or stock options unless they're managers, but they'll be selling that, too, to make ends meet as Wal Mart slashes wages to go along with their always low prices pledge.
You have the triple threat of early divestments to make ends meet, downward wage pressures exerted by offshoring, and an imminent dead halt in refinance-based purchases, all about to descent upon this economy.
Offshoring fanatics, feel free to keep your head in the sand about this... just like all the housing investors did when they said the current housing boom would never end.
--- Grow a pair, liberals... stop letting the Republicans bully you!
Our company outsourced a bunch of work to India. In a private conversation, I asked the V.P. why he did it...he was to-the-point, and said "It costs us $7 per hour out the door." Finding employees in the US with the skills would have cost more in salary alone, then factor in unemployment, health benefits, setting up a workstation for them... it's a huge difference.
Now, our company is the single largest player in our market. We're the 800-pound gorilla. We drove several competitors completely out of business. There's money there, we're not hurting. But when the guys in charge think "We could hire Indians instead, and split an extra $200,000 this year between ourselves...", then you know what the decision is going to be.
Oh, you're not stuck, you're just unable to let go of the onion rings.
Deleted
I would still allow outsourcing, but just subject it to the following condition:
Before you can outsource any other job, you must first
1. Outsource the CEO.
2. Outsource the CFO.
3. Outsource the CTO.
4. Outsource the company president.
5. Outsource all vice presidents.
Because these tend to be the most overpaid people, this law would have the advantage of creating maximum value for share holders.
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.
And this surprised your company's management? After all, the Chinese aren't dumb. How much of a jump is it from seeing the American part out-source everything but upper management to China to the Chinese part deciding to in-source upper management and lose that huge drag on their profitability that resides on the eastern side of the Pacific?
#define WORK_WORK_WORK ( while ( 1 ) { work( ); } )
emt 377 emt 4
I used to work with a company that hired a lot of Indian H1Bs. I've worked with a number of Indian engineers; some were good, some were bad; a few were really good, a few were really bad.
The Indians I know like to say that you can't generalize about India, a country with a billion people and something like forty distinct cultures. There's a great deal of truth in this. But at the same time, you can't help but notice that they have a lot of things in common with each other. Just being engineers they have certain things in common with most engineers, such as a desire to be valued for their skills and knowledge.
Uniformly the Indian engineers I've worked with are hard working, ambitious, and eager to please. I sometimes think the eager to please part is something of a problem. Often unpleasing information is extremely valuable. Not wanting to bear bad news is by no means a trait that is unique to Indian culture, but I can't help but think growing up in an educational system with intense competition to tell the teacher what he wants to hear shapes people's work styles. I've found the best Indian engineers I've worked with have an intense, fiery streak in them that is sometimes hard to contain but is good to do creative work with. I've sometimes had cultural misunderstandings with Indians who work for me because I have assumed that, despite my place on the org chart above them, that we were equal in status, while they assumed that any time I had an opinion, no matter how casual, offhand, or just plain dumb, that that was Law. From my culturally biased perspective I saw this as frustrating passivity.
I'm the kind of manager who thinks that if some wet behind the ears intern thinks he has read something useful in a textbook somewhere, he should speak up and if its not relevant I'll thank him and tell him so. A lot of Indian guys working for me weren't comfortable with this at first, until they found out that I didn't try to pin blame for mistakes to them. A few never adjusted, and were always insecure and unhappy until I learned how to act like an old fashioned boss.
One thing that seems very common: the Indian engineers I've worked with try really really hard to put their best face forward. I don't think this is being a "yes man", its just a difference you have to factor in so you scale what you think you are seeing appropriately. Nowhere is this more evident than in the way Indian engineers seem to collect advanced degrees. Every guy I worked with had an masters, a few had PhDs. I have nothing against advanced degrees, but it seems to me that if you are going for an advanced degree, you ought to have some kind of specialized research interest, but it seems to be almost de rigeur. A lot of 'em went straight from BS to MS with no work experience. To tell you the truth I don't think they got a lot out of graduate education, other than to prove to the world they could.
This may be why the study found that there were quality problems with Indian BSCS grads. Anybody who's got anything on the ball gets a MSCS or PhD.
In any case, India is an incredibly dynamic place. It's got a billion people, and it has its fair percentage share of really, really smart people. It probably has more than its share of people with entrepreneurial hustle. But anybody playing the outsourcing game has to be prepared to lose a few rounds to the fact that things aren't always as they appear to the outsider's eye. I've never been to India, but I have no doubt it has not reached its full creative potential by any means; nor is this something it will be able to do overnight. So I don't think all of technology will simply slosh over there leaving the US a technology backwater in a few years. When India reaches its full potential, that will be a good thing. We'll be getting jobs here working with Indian technologies; it sounds to some like a nightmare, but I don't see it that way because technology is a plus-sum game. It's only a nightmare if we've given up on creating new technologies here.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.