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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.
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.
If corporations can outsource labor, why can't I outsource purchase?
Software developers put stipulations on resellers that they can't sell to certain countries.
Video games and DVDs are region coded to make foreign-purchases difficult to use
Buying medicine out of the country can get me sent to prison
They have their cake, and eat it too. Then kick us in the balls for good measure.
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 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
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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.
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You're missing something.
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The amount of wealth in the world is NOT like a tank of water which, when the valves are opened, empties out and distributes the water all around. It's more like a large set of fountains fed by a small set of pumps. And corporate America isn't opening valves to let the water (money?) flow all around. They're taking sledgehammers to the pumps because they stupidly believe that by doing so, they'll get more than their fair share of the water. For the first few hits, they get doused pretty well, and they think "look at all this water! Hit it again!" But then the pumps shut down and that's the end of that.
Wealth is actively created by some groups of people and consumed by others. The United States is so wealthy because for most of this century we were CREATING much more wealth than anyone else in the world. We were able to do this due to a number of cultural and structural factors that aren't replicated anywhere else. For example, among all the people in the world, we are easily the most independent minded, the least bound by dogma and tradition (at least when it comes to science and technology). Our inventors have a "what the hell, let's give it a shot" mindset you won't find in many other places.
And before you start screaming "No, your innovators call came from Europe" let me state the obvious: WE ALL CAME FROM EUROPE. Americans are Europeans who decided to live somewhere else. We didn't just magically appear here; we colonized this place. Europeans may not want to hear this considering the unfortunate current state of the U.S. government, but we and they are the SAME PEOPLE, with the SAME CULTURE and SAME INTELLIGENCE LEVEL. The only discernible difference between Americans and Europeans is that Europeans try to behave more calmly than we do. We're a bit nuttier than they are. EXCEPT at soccer matches, of course.
If you want a perfect analogy for what's going to happen when corporations finally kill off technological innovation in the first-world countries, or at least strip people of the desire to do technical work for them (I don't think you can really kill off our ability to innovate, you'll always have inventors) just read this article:
http://en.wikipedia.org/wiki/The_Goose_that_Laid_
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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.
"If the Chinese and Indians are smart enough to deliver the quality of R&D American companies are expecting, they're also probably smart enough to set up their own companies"
Indeed they are. A Duke University study released in (I think 2005) concluded that over the previous decade, about half of the startup companies in Silicon Valley were founded or co-founded by folks from China and/or India.
The story is right on about cost savings as the driving factor. The perception that people in China or India are "smarter" than people in the U.S. stems largely from the fact that we are typically being exposed to the very best people coming from a pool of billions. With that many people, the absolute number that are 2 std. deviations on the right side of the bell curve is still massive.
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.
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You're still missing it.
Go back BEFORE we had access to modern forms of energy. We managed to INVENT these forms of energy starting with NOTHING. Think about the steam engine. Where do you think that came from in the first place? Someone invented it. And steel has been in use since the Roman Empire, so don't use that as an example. All you need to make steel is iron ore, a form of carbon to work into it, a hammer to work the metal, and a forge to heat it in. It's VERY ancient technology that predates the use of coal or steam.
By focusing entirely on energy you've managed to miss ALL of the action. Where do these things COME from? How does a culture create them in the FIRST place? They don't just appear, poof, like Moses' stone tables. Aliens didn't drop them off on their way to Tau Ceti.
We CREATED them. Before we had the energy sources you're obsessed with. Your energy line of reasoning is overly simplistic and misses what's really going on. While the rest of the world wasn't changing their way of doing things, Europeans and later Americans went from a totally ordinary agrarian culture to a world-spanning industrial, high tech culture capable of spaceflight in a matter of centuries. You cannot explain that with your energy theorem.
Nor can you explain (for example) the Persian Gulf's failure to accomplish the same thing even though they're sitting on enormous energy reserves. You can't explain India's or China's failure to accomplish the same thing even though they have vastly more manpower and untapped energy resources of their own (and they even had a couple of thousand year head start, which makes it even MORE significant a failure).
Your theoretical framework fails to explain the situation and you must adopt a new one.
Now, back to my point.
The suits, having as they do a very poor understanding of where innovation comes from and how they may support the intellectual structures that made this country great, are doing their level best to ruin everything that gave them their wealth in the first place. And, clearly I believe that they're trying to "kill the goose that laid the golden eggs".
To expand on this point, let me add that not only are they ruining lives by outsourcing the American middle class, in their zealous desire to protect their "intellectual property" legally with patents and trademarks, they are making it impossible for independent people to invent and release new and interesting ideas to the world. This impoverishes the entire planet, not just the American middle class, because an idea, once lost, may not be reinvented for decades, if ever. And even if an idea IS invented, if some corporation sits on it, stowing it away in their patent arsenal because they don't believe it's profitable, it's not going to help anyone.
An interesting point, though, is that Americans will still continue to invent because it is in our nature to invent. And we will share our inventions with each other, only it'll be on a face to face basis, crazy hobbyists sharing ideas with other crazy hobbyists. Some of this might flow around the world if we encounter a like mind over in Japan, say, or the Netherlands. But it'll all be underground because nobody wants to get sued by some giant, lumbering corporation.
Think of the result of all this. Just think about what I'm saying. Consider how it's going to retard human progress. Or, if you're interested, consider how it's going to affect the American and European economy (we're in the same boat, after all). First, the middle class shrinks and people spend much less money, then the first world nations lose their lead in innovation because it's all being done at the grassroots level and none of that is finding its way up to the mainstream... Then nobody's buying all those gadgets being constructed en masse in China, and as a result there's no demand for IT systems built by Indian companies... The world economy could collapse like the house of cards it's always been.
Back to square one! Tra, la la. Maybe next t
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