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.

[MineralMan]

I know there are lots of folks who consider this a bad thing...US programmers working for $45K/year. Oh well. The guy advertised, and got lots of resumes. He hired folks who were quite willing to work for that amount, and two of them have now been promoted to higher pay rates.

Sounds like a solution to me. Nobody's coercing the programmers to apply.

[Old Professer]

And so, the other shoe has a soft-sole; the way this story reads, this is a done-deal.

[the gillman@blacklagoon.com]

Ready or not, here it comes!

[Eva]

I know some top rated computer guys who have been working for these wages for the past few years because any job is better than no job when you have a family to support.

[ColdSteelTalon]

This reads like a SPAM e-mail posted on Free Republic as news.

[Alouette]

US programmers working for $45K/year.

I made less than that this year.

Do you think US programmers should be working for $8,000 or less?

[William McKinley]

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.

How could America's standard of living possibly decline by taking out-of-work people and giving them jobs that would otherwise go out of America?

[MineralMan]

"I made less than that this year. "

As did I. I'm no longer in the programming business, but ran my own software company for several years, with a couple of fairly successful products. I was the sole programmer for my own company, and did a heckuva good job. In my best year, however, I netted less than $45K. Now my programs are all free (they were shareware), and they're still widely used.

The point is the same. If a company advertises a job for a certain amount, gets applications, then hires people, no harm is done at all. In this case 4 programmers were hired. Two are now making lots more money. Jobs were saved for US employees.

I fail to see the problem here, and hope other companies do the same. Lots of out-of-work programmers will apply, I have no doubt, and be glad to have work in their field.

I switched my business completely, got out of software, and now sell stuff retail from a web site. I'm making no more money than I was, actually, but it's a heckuva lot easier than maintaing and upgrading six products, each with a couple hundred thousand lines of VB code.

[stuartcr]

I guess all the other companies would reduce their salaries accordingly.

[looscnnn]

I think they mean us that do care about the jobs leaving the US.

[Alouette]

How could America's standard of living possibly decline by taking out-of-work people and giving them jobs that would otherwise go out of America?

Because these people are making less money and therefore have to adjust to a lower standard of living?

[null and void]

I would cheerfully take a 50% cut to be able to work in my field.

It sure beats the 100% cut I've had last year...

[William McKinley]

They are making less money than they are when they have no job?

[null and void]

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.

This is the same moronic executive of a blue chip company who won't let his workers telecommute because he can't keep an eye on them...

[null and void]

Next they are going to reintroduce debtor's prison and flogging.

Only until the morale improves...

[MineralMan]

"Do you think US programmers should be working for $8,000 or less?"

No, and they wouldn't take the jobs at that price. They will, however, take the jobs at $45K. That's the point. There is a market price for everything. If you advertise a job and get more applicants than you have positions for, you're working within the marketplace. If nobody applies, then your salary is too low. It's that simple.

No harm, no foul. Nobody is coerced into taking any job.

[looscnnn]

Wouldn't shipping the jobs overseas ultimately negatively impact the US standard of living? After all if the only jobs available are "Welcome to W***mart" or "Would you like to King Size that order", doesn't that negatively impact the US standard of living?

[MineralMan]

"I would cheerfully take a 50% cut to be able to work in my field.

It sure beats the 100% cut I've had last year...
"

Bingo! Only folks with a job think that no job is better than one at a lower pay scale than was once prevalent. Shoot, we've got so many out-of-work programmers since the collapse of the sofware market that you'd have no problem getting applicants at 40K a year.

[A. Pole]

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."

Interesting.

[A. Pole]

The average Indian programmer makes $8,000 a year. Are Americans ready for that?

With the socialised medicine, subsidized housing, food stamps and good public transportation yes.