U.S. Programmers at Overseas Salaries

Businessweek ^ | 12/03/03 | David E. Gumpert

[Pikamax]

BusinessWeek Online U.S. Programmers at Overseas Salaries Wednesday December 3, 8:27 am ET By David E. Gumpert

It's the great unanswered business-economic question of our day: How do we replace the hundreds of thousands of information-technology, call-center, paralegal, and other jobs rapidly exiting the U.S. for India, Russia, and other low-wage countries? The main answer that the so-called experts put forth, without a lot of conviction, is that we'll create new "high-value" jobs to replace those leaving the U.S. What are those jobs? No one seems to know. ADVERTISEMENT

In the meantime, the matter of overseas subcontracting appears to have become open-and-shut. If you're an executive with half a brain, you can come to only one conclusion when tallying the differences in costs between hiring computer programmers in the U.S., vs. India or Russia. These days, the jobs are going to Indians and Russians.

OFFSHORE BARGAINS. But what if there was another way to skin this particular cat. That's what Jon Carson wondered a few months back, when confronted with the need to complete a major programming project in a hurry, and at the lowest possible cost. Jon is a serial entrepreneur whose latest venture, cMarket, helps nonprofit organizations increase their revenues by putting fund-raising auctions online. I have known Jon for years, and -- full disclosure -- have invested in several of his ventures. I only learned about his computer-programming dilemma after the fact, though.

cMarket had been pursued, as many business owners are these days, by an intermediary who promised he could cut cMarket's programming costs significantly by outsourcing his needs to India. So last spring, when cMarket signed an agreement with the national Parent Teachers Assn. [PTA] to handle online auctions for its 20,000-plus local chapters and, simultaneously, began taking on charity auctions from Boston to Miami, Jon knew he had to rapidly expand cMarket's capabilities. He had his IT director call the intermediary and tell him that cMarket needed four programmers, pronto. Jon knew the numbers for experienced American programmers doing the specialty work he required: $80,000 a year, with benefits adding an additional $5,000 to $10,000 per programmer. The intermediary came back with the number for the services from India: $40,000 per programmer.

It seemed like a cut-and-dried decision, the kind U.S. executives are making every day without hesitating, but for some reason Jon hesitated. Much as he likes the idea of having projects completed at the lowest possible cost, and as responsible as he feels to investors, he didn't like the feeling of becoming someone who callously pushes jobs to other countries. "I'm in the entrepreneurial economy," where competition around both costs and revenues is very intense, he says. "But I was personally very uncomfortable. This situation brought me face-to-face with how easy global disintermediation is being made for folks, to the point where it is almost inevitable."

TOUGH CALL. As he thought more about his decision, Jon realized he had a valid business reason to hesitate: As the head of a startup that had been going for less than a year, he wasn't at all certain he should take the risk of having essential work done at a far-off location by people he didn't know, and with whom he could communicate only via e-mail and phone. Still, there was that matter of nearly $200,000 in annual savings. Each time he hesitated about making his decision, various confidantes reminded him about the big money at stake.

And then Jon had a brainstorm. What if he offered Americans the jobs at the same rate he would be paying for Indian programmers? It seemed like a long shot. But it also seemed worth the gamble. So Jon placed some ads in The Boston Globe, offering full-time contract programming work for $45,000 annually. [He had decided that it was worth adding a $5,000 premium to what he'd pay the Indian workers in exchange for having the programmers on site.]

The result? "We got flooded" with resumes, about 90 in total, many from highly qualified programmers having trouble finding work in the down economy, Jon says. His decision: "For $5,000 it was no contest." Jon went American. And the outcome? "I think I got the best of both worlds. I got local people who came in for 10% more [than Indians]. And I found really good ones."

HERE AND NOW. In the interim, Jon has promoted two of the programmers to full-time employees, at standard American programming salaries, rather than risk losing them to the marketplace. And he is convinced that having people working onsite gives him control over quality and timing that he wouldn't have enjoyed if he had subcontracted overseas.

While cMarket has solved its immediate challenge, the implications of Jon's approach are potentially mind-bending. What if other companies begin taking the same approach -- offering Indian-style wages to American workers? On the positive site, we could begin to solve our job-creation problems. But on the negative side, America's standard of living would inevitably decline. There's only one way to find out for sure how it all might shake out, and that is for other executives to replicate Jon's experiment. The results could be quite interesting.

[Jerr]

Talk about American ingenuity! It certainly beats flipping burgers. When life gives you lemons---you make lemonade.

[dixie sass]

I was thinking the same thing - sounds like something I've received in my email.

Wasn't a major US company just recently blackmailed by a programmer in India - something about money not being received therefore they wouldn't enter payroll information of American Workers. It seems that we are setting ourselves up for a major problem with all of the programers and other tech people living in India and etc.

[Cacophonous]

As long as it works for daddy's little boy and his trust fund...

I'm not sure what you are saying here...

[chainsaw]

Hmmm. Lets start offering CHINESE style wages to U.S. workers

No problem, but we also have to offer chinese style expenses too complete the picture. Which means that we are going backwards.

[raybbr]

We here in the U.S. have been fleeced by colleges over the past 10 years. Why has the cost of college gone up so much? The only reason I can think of is that people have been brainwashed into thinking that the only way to make money is to go to college. So, naturally, the colleges have created their own monopoly with the help of the "education" industry.

[A. Pole]

> There is not God given promise that USA is immune from the permanent decline.

I wish more people would understand this

This is embedded in human nature. When you are on top, you cannnot imagine that you can go down. Almost every time in history was like that. Only if a nation remains prudent and humble the fall can be prevented.

[E Rocc]

When I bought Madden 2003 it was clearly programmed by a team that had no clue about the NFL game (for example, defensive ends and linebackers could not be assigned 90s numbers if edited). They had to put out a major patch...whether the savings were worth it only they can say.

-Eric

[A. Pole]

And what then? Even the most backwards Third World peasant demands some compensation for his labor. A slave, on the other hand, represents the ultimate low labor cost: zero. A slave "works for free" (i.e. the cost of his/her labor equals the cost to his owner of keeping him alive and healthy enough to work, plus replacement costs).

Actually slave can be more expensive as the "free" hireling can be forced by the "free" market to work for less than he need to survive. Slave needs to be fed, housed, transported and taken care of if sick.

[A. Pole]

Despite the "everyday low prices" made possible by the global lowering of wages, a destitute man has no disposable income with which to buy. As global wages drop, therefore, so does global buying power, creating a Catch-22 situation: without wages in excess of subsistence level (i.e. disposable income), workers have no way to buy manufactured goods; without buyers for manufactured goods, employers have no profits, and thus no revenues from which to pay wages.

This is what in classic Marxism (before Leninism which took power in a backward country) was seen as the key contradiction of the last stage of globalised Capitalism - "excessive" overabundant production capacity in the midst of impoverished "redundant" populations. The proposed Marxist answer was to move to Socialism.

This concept was well known to the authors of the New Deal and the welfare state in the middle of XXc - to prolong life of capitalism in the West they decided to redestribute wealth to make mass consumption possible. But with the collapse of Soviet threat, the elites forgot the rationale for the state intervention and they dream about return to the XIX century Dickensian Golden Age.

"The dog is turned to his own vomit again; and the sow that was washed to her wallowing in the mire." 2 Peter 2:22 ( commented in The Pilgrim's Progress)

[A. Pole]

Remember the time when the RCA and General Electric made the best TV sets in the world? I just hope we will find something new and the sooner the better, meanwhile I'll gladly go for a 40K.

Now whatever you invent, will be moved abroad by the American company immediately.

[bvw]

Very good analysis. The Bible anticipated this boom-bust dyanmic, for it is humans with emotions and longings that are the fundaments of genuine economies, not the automata that populate economic models, including Marx's. Marx, like the Founding Fathers and their philosophic direct antecedents, did account for raw human lusts (such as for power). Marx said "despotic" rulers are the answer.

The Founding Fathers attempted inidividal Liberty and a balance of Powers in a goverment of strictly enumerated powers.

Marx (and other advocates of dictatorships) and the Founders both failed -- because they left off the "Reset Button". The Reset Button the Bible, the Torah, had anticpated as necessary. The Jubileee year, the Sabbatical years. While those are a law for Israel, something like them applies as well in the rest of the world. SO is my humble opinion.

Well, we shall have our reset anyway. It is impossible to avoid. The concepts of Jubilee and Sabbatical only act to manage it, to tame it.

[chimera]

Remember the time when the RCA and General Electric made the best TV sets in the world?

And there was a very good reason for this. It was because the innovators, the inventors who came up with the ideas and concepts for these things, were born and raised right in this country. E. H. Armstrong invented the regenerative receiver circuit and the superheterodyne, the basis for all later radios. He also came up with the first practical system for FM broadcasting. P. T. Farnsworth conceived the basic ideas for television transmission while still in his teenage years. The semiconductor industry was born of the work done at Bell Labs by Shockley and Bardeen and others. You need the intellectual capital first before you can develop the new technologies.

And this country is in the process of massively shedding its intellectual capital ans throwing away the very workers who could be the ones to lead us into the industries and technologies of the future. You've got Ph.D.-level physicists and engineers who are being forced to drive trucks and go to welding school in order to put food on the table. We have the best and brightest incoming students staying away from the hard sciences in droves, because they think there is no future in it. They see lawyers and CEOs pulling down multimillion dollar bonuses and incomes for winning lawsuits and downsizing companies and sending the work overseas. So they opt for business school or law school, and to hell with learning something technical.

What's worse, you've got people applauding this turn of events as something good, something to be celebrated and cheered. "It's the 'free market' at work!", they cry, and "If you can't adapt, tough luck. Go drive a truck, or starve, you lazy bum." You see some of them posting right here on FR.

The bad thing is, its an incredibly short-sighted and dangerous policy. Because if a country throws away its intellectual capital, it loses the ability to compete in developing new industries and technologies. When a country disavows and surrenders any ambitions to be a world leader in innovation and technological prowess, it loses something that is very hard to regain. We got a taste of this on a small scale in the 1950s, when the Soviets raced ahead of us in developing rocket technology and space exploration, and we had to bust our humps and work like hell to regain the edge. I'd rather not go down that path again.

[1rudeboy]

What's the problem with busting our humps and working like hell? That's what happens when people compete for something.

[chimera]

It's inefficient and just plain stupid to deliberately allow yourself to fall behind by making short-sighted and stupid business and public policy decisions. Going for the quick buck and quarterly pop on the bottom line by throwing away your R&D department, for example, and thereby trashing the technical and innovative expertise of your firm over the long run. Pandering for a few votes from special interest groups by closing down a fruitful and productive program at a national laboratory, for example. Better to maintain and nurture and grow in-house (domestic) capabilities, infrastructure, and intellectual capital, rather than throwing it away and then saying, uh-oh, we're screwed, and having to bust our humps just to get back what we threw away in the first place.

[A. Pole]

It's inefficient and just plain stupid to deliberately allow yourself to fall behind by making short-sighted and stupid business and public policy decisions. Going for the quick buck and quarterly pop on the bottom line by throwing away your R&D department, for example, and thereby trashing the technical and innovative expertise of your firm over the long run.

It might be quite clever. Imagine raising the short term profit, then selling the shares and then selling short expecting the collapse. If one person cannot do it (because of regulations) a close knit team including predatory CEO could become very wealthy. Free trade at its best.

[harpseal]

Since the barriers to competition are essentially nonexistant, Indian labor rates have forced down the prevailing world-wide labor rate for the same talent...

Unfortunately you have misstated the facts India has teh worlds second highest tariffs so we are not in a free market for the world.

[grania]

There are a lot of 50+ workers out there who have lost their high-paying jobs or taken an early retirement plan complete with benefits.

Hiring those workers at $45,000 would be terrific. No necessary benefits, don't have to worry about maternity leave, child care, education benefits, etc. And, news flash to Xer's...it's possible to live on that amount of money, or less. I think this is a great idea.

If the younger techies don't like it, well maybe it's time in the economic cycle for unions and protecting US jobs.

[grania]

That's probably pretty bad in Boston,($45,000)

There are a lot of areas with houses reasonably priced, and on the train and auto routes into Boston. I live in SE MA, and there is a lot of reasonably priced housing in perfectly liveable neighborhoods. The other option in the Boston area is to put jobs in some of the more reasonably priced towns.

It's very doable...it just won't support the ridiculous lifestyles that many workers think are an entitlement.

[ColdSteelTalon]

Wasn't a major US company just recently blackmailed by a programmer in India - something about money not being received therefore they wouldn't enter payroll information of American Workers.

Sounds like a believeable story. I know one thing. If my payroll information is being processed outside of the country. The company that is doing it will be held liable if my personal information is leaked out. They will get a letter from my lawyer.

[MineralMan]

"But what did you advertise for and what did you test for?

If you gave them a specification as a test, you were testing for engineers, specifically designers. And, I dare say, your ad was for programmers, which implies more ability than a coder. "

Very simple. I wanted programmers, because the job involved more than just writing code. The test was very simple, involving duplicating a user input screen from a screen capture of what I wanted, and coding to perform several functions based on the user input, amounting to just three fields of data. Functions required included a simple data sort on a single field, display of a list of that data, sorted. From that list, the user could select names and create printed documents incorporating the data, also in a format provided to the testee.

I worked exclusively in Visual Basic, so that was the language tested and the language I specified in the advertisement. I personally took the test, myself, and completed the app, fully tested, and error free, completing it in less than 2 hours.

This simple test involved just the basic functions of the language and allowed for some minor trickery which I expected the testees to catch onto immediately. None of the testees figured out how to perform the sort using VB's built-in sorting tools using an invisible list box. All opted to write their own sorting routine...something that was a complete waste of coding time, since the program offered a perfectly good sort with no code whatever required.

Was it a trick? You bet. It was a test of the testees real knowledge of efficient coding time usage and of VB. None passed. None were hired, and I simply decided to keep the projects in my own hands and not hire anyone.

The guy doing the hiring gets to set the standards. Whatever your opinion of Visual Basic (I know it is scorned by many), that was the language in use.

In the end, I kept the company a one-person company and didn't take my software to the commercial market, opting to remain a shareware company. These days, I'm out of the business altogether and doing just fine in my new business.