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.

[1rudeboy]

You are always free to hold-out for that $80,000 programming job. But you should probably get out of the way of people who can get the job done for less, as anyone who has ever worked in sales or marketing can attest.

[looscnnn]

Um, if you are out of work your not making any money or you might be getting unemployment. Doubt it is more that $45k/year. Either way, that is not less money so there is no lower standard of living. Even if the ones that were hired had jobs, I'd be willing to bet that the $45k was a raise in income, so they probably raised their standard of living.

[A. Pole]

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

In short term yes. But in the long term no. Imagine if the physicians are paid 25K per year. This will be a tremendous "benefit" for "everyone else". But nobody will study medicine, most of good physicians will look for other jobs and the only new ones will be the Third World immigrants with fake diplomas. Cutting wages is not the best way to develop the country.

[1rudeboy]

In the longer term, no. If no one studies medicine, then salaries will rise until the demand for physicians is met.

[lelio]

But nobody will study medicine, most of good physicians will look for other jobs

And as an added bonus: everyone's going to law school these days. So while everyone's cheering that wages are going down, be prepared for a lot more class action lawsuits as people are trying to make a quick buck.

Odd how when you make an honest living unprofitable people start to go to shader ones.

[Arkinsaw]

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

You are correct, but the other side is using the same logic that says a slowing in the rate of spending growth is actually a budget cut.

[Jim Cane]

Cutting wages is not the best way to develop the country.

In other words, you get what you pay for. Pay burger flipper wages for programming, and you'll get fast food quality applications.

[MineralMan]

"You are always free to hold-out for that $80,000 programming job. But you should probably get out of the way of people who can get the job done for less, as anyone who has ever worked in sales or marketing can attest."

Yup! I toyed with the idea of hiring a couple of programmers for my shareware business and taking it into the commercial software arena. I advertised and got tons of applications, at the going rate at the time. After narrowing down the applications, I had four of what seemed to be the best applicants come in for interviews and a test.

The test was simple: I designed a very simple application specification (one that I completed myself in less than two hours) and had each of the four do the job as a test. The best time I got from any of them was 6 hours, and the app was full of bugs.

Bottom line was that the best four of the applicants I interviewed and tested were crappy programmers. None could type worth a darn and spent most of their time fixing typos in the code. None had any creativity in creating this simple test application. I examined the code each had produced and it was the sloppiest nonsense I had ever seen.

I abandoned my plans at that point and continued on doing all my own coding and kept the software as shareware.

I wouldn't have paid any of the four more than $20K a year, based on what I found. Worse, I would have had to spend almost as much time checking their output as I normally spent coding the apps myself. Feh!

[1rudeboy]

Actually, a few lawsuits and skilled physicians will be in greater demand . . . contradicting your hypothesis.

[StolarStorm]

But the problem isn't just salaries, it is attitude. Attitude on the part of business managers who are hostile to techies.

[RockyMtnMan]

Our engineering shop has only 12 or so engineers and we produce a product(s) that competes head on (and wins) with our competitors who have hundreds of engineers producing a similair solution. We only have one engineering manager and I suspect our competitors have 10 times that number at a minimum. It's the old saying "quality over quantity".

The problem isn't tech talent the problem is bad management. If there are any "managers" out there I would be happy to school you in productive product development, for a fee of course :-)

[Prodigal Son]

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

LOL, things that make you go "Hmmmm".
I agree, it beats being out of work.

[pyx]

fake diplomas

ROFLMBO !
OMG ! I wasted 10 years of my life at College and University !

[lelio]

Actually, a few lawsuits and skilled physicians will be in greater demand . . . contradicting your hypothesis.

I take it you mean that the few lawyers that win big in class action lawsuits will be able to afford expensive doctors, thus everything will even itself out?

The problem with that way of thinking is that:
a) a lot of lawyers are just hucksters that feed off the system and don't create wealth
b) you now have a lot more lawsuits flying around, inhibiting economic growth
c) one person only need so much medical care. If one attorney gets $10M he's still only going to need one doctor, whereas if 100 people had $100k each they'll need several

[1rudeboy]

Perhaps I wasn't clear. I used to rep a steel building product that was consistently the most expensive on the market, when compared to substitutes. I sold on quality (tolerances) and delivery (to the hour). My clients would whine about my prices every day. Whatever.

All you programmers out there; here's a hint. Sell at the market price, or differentiate your "product." Giddee-yup.

[A. Pole]

"Come, spend a small fortune in tuition and years of your life so you can earn what they pay people in countries like India!"

The school debt cannot be discharged through bankruptcy so not only you will be doomed to poverty but you will be harassed by the debt collectors to the end of your life.

[1rudeboy]

Are you being deliberately obtuse? What about the hospitals, HMO's, insurance co.'s, pharmaceutical co.'s, medical-device co.'s, etc? They get sued also. You don't think that creates an incentive to hire/retain quality physicians?

I take it you mean that the few lawyers that win big in class action lawsuits will be able to afford expensive doctors . . . .

[laughter]

[sixmil]

Clearly, American programmers just want to work, but idiot MBAs still insist on exporting our economy.

[optimistically_conservative]

This makes sense to me. CS majors, especially technical programmer types, enjoyed inflated salaries from the 90s "new economy" boom that went bust. There was little doubt there would be a correction. My concern was there would be an overcorrection as a result of "technician dumping" from temporary visa programs and "outsourcing."

[dano1]

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.

The cMarket web site says that Jon "has previously served on the boards of the National PTA", and elsewhere the cMarket web site contains an endorsement from Pam Grotz, Executive Director saying "We think the cMarket platform is a great step forward for the thousands of our local units who run auctions and are excited about its potential to spread best practices throughout the PTA network." These people give me the creeps.