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U.S. Programmers at Overseas Salaries
Businessweek ^ | 12/03/03 | David E. Gumpert

Posted on 12/03/2003 11:17:18 AM PST by 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.


TOPICS: Business/Economy; Culture/Society; Foreign Affairs; News/Current Events
KEYWORDS: outsourcing; trade
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1 posted on 12/03/2003 11:17:19 AM PST by Pikamax
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To: Pikamax
Would we use new, state-of-the-art sweat shops, or old ones?
2 posted on 12/03/2003 11:21:02 AM PST by stuartcr
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To: Pikamax
Hmmm. Lets start offering CHINESE style wages to U.S. workers.
3 posted on 12/03/2003 11:23:13 AM PST by Pikachu_Dad
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To: Pikamax
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.

Duh. Gee this guy is practically a rocket scientist. Anyone with a small to midsize business could tell you that. Only huge corporations can afford to absorb the potential losses associated with outsourcing to offshore companies. If you had only one or two major projects would you trust them to nameless, faceless programmers in a country a dozen time zones away for whom english is a second language? Only if your the moronic executive of a blue chip company.

4 posted on 12/03/2003 11:23:27 AM PST by Smogger
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To: Pikamax
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?

Who is "we?" The outsourcers aren't part of "we" and don't care.

5 posted on 12/03/2003 11:26:53 AM PST by Shermy
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To: Pikachu_Dad
The bread line forms on the right.... here is your little red book....
6 posted on 12/03/2003 11:27:44 AM PST by ARCADIA (Abuse of power comes as no surprise)
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To: Pikamax
Great way to entice kids to study math and science in high school then spend 4 years at college in a challenging field. "Come, spend a small fortune in tuition and years of your life so you can earn what they pay people in countries like India!" Anyone still wonder why law schools are cranking out so many lawyers?!
7 posted on 12/03/2003 11:28:34 AM PST by Orangedog
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To: stuartcr
Would we use new, state-of-the-art sweat shops, or old ones?

Next they are going to reintroduce debtor's prison and flogging.
8 posted on 12/03/2003 11:30:05 AM PST by ARCADIA (Abuse of power comes as no surprise)
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To: Pikamax
An excellent demonstration of macroeconomics in action. Since India or Russia (or whatever) are essentially "local," in terms of the exchange of labor for cash, and delivering a (relatively) instant result without real transportation costs, the deciding factor becomes the labor rate. Since the barriers to competition are essentially nonexistant, Indian labor rates have forced down the prevailing world-wide labor rate for the same talent...

The ultimate winner, just as the theory says, is the consumer (NPO, in this case).

Very cool.

9 posted on 12/03/2003 11:34:08 AM PST by Capitalist Eric (To be a liberal, one must be mentally deranged, or ignorant of reality.)
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To: Pikamax
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

That's probably pretty bad in Boston, but it would be pretty liveable where I work, if one could get reasonably priced health insurance.

10 posted on 12/03/2003 11:35:17 AM PST by RogueIsland
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To: Pikamax
This is simply finding the value of a position. Its also called - REALITY.
11 posted on 12/03/2003 11:36:48 AM PST by Khurkris (Ranger On...The Big Ranger in the Sky is there for You)
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To: Pikamax
Interesting although scary article. Although the programmer will only get 45K per year I rather keep jobs in the US and potentially negatively impact the US standard of living
than to ship the job over seas and improve the standard of living for Communist China.
12 posted on 12/03/2003 11:37:50 AM PST by Moleman
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To: ARCADIA
I hope we get sent to Australia.
13 posted on 12/03/2003 11:38:20 AM PST by stuartcr
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To: Capitalist Eric
Since the barriers to competition are essentially nonexistant, Indian labor rates have forced down the prevailing world-wide labor rate for the same talent...

Just curious. What's the prevailing salary for whatever it is that you do in the Ukraine?

14 posted on 12/03/2003 11:39:34 AM PST by RogueIsland
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To: Pikamax
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.

And if you're an executive with a rare case of having an whole brain, you'll notice that hourly billing rates aren't the best measure of productivity or value in IT work. You might even examine a few studies finding that most companies sending work overseas are exeperiencing little to no overall savings, while experiencing slowdowns and quality problems with their product development.

Hats off to Jon Carson for his innovative solution. But I suspect in the long run those salaries he pays will rise again. Why? Because they'll prove it's hard to replace truly productive onshore workers with less efficient offshore ones and save any money. He's running a business, not a quarterly spread sheet. Labor cost means nothing unless it is tied to what is being produced with it.

15 posted on 12/03/2003 11:41:50 AM PST by Snuffington
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To: Smogger
If you had only one or two major projects would you trust them to nameless, faceless programmers in a country a dozen time zones away for whom english is a second language? Only if your the moronic executive of a blue chip company.

Tut tut. I must disagree. This good just as easily be decided by a moronic procurement officer for a blue chip company.

16 posted on 12/03/2003 11:45:51 AM PST by Snuffington
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To: Pikamax
I have trouble believing that a programmer in India actually gets that $40K. There, it would be a fortune. I suspect many middlemen are involved.

Maybe a new business venture for a savvy out-of-work programmer would be to start an employment agency for Indian programmers, pay them $10K and keep the $30K.
17 posted on 12/03/2003 11:50:12 AM PST by PoisedWoman (Rat candidates: "What a sorry lot!" says Barbara Bush)
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To: Pikamax
$45,000 for an overseas programmer is very high end.
The average Indian programmer makes $8,000 a year. Are Americans ready for that?

18 posted on 12/03/2003 11:51:33 AM PST by Alouette (My son, the Learned Elder of Zion)
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To: Pikamax
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.

The negative is incorrect. Yes, lower salaries hurt developers (of which I am one), but they benefit everyone else.

19 posted on 12/03/2003 11:53:50 AM PST by ThinkDifferent
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To: Alouette
The average Indian programmer makes $8,000 a year.

Yeah, I thought $40k sounded high for India, but presumably that's including the substantial overhead costs of running an outsourcing program.

20 posted on 12/03/2003 11:55:15 AM PST by ThinkDifferent
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