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.

[SauronOfMordor]

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.

I recently took a job that is paying 1/3 as much as I made in 2001, and I'm glad to have it. The company where I am now laid off a bunch of people as deadwood, and has been replacing them by cherry-picking unemployed high-quality programmers

In the current environment, I see more companies doing this, as they realize that there is a lot of good talent out there, who are desperate for work at any price.

[Smogger]

Right on.

I akin it to lawyers. Anyone can pass the BAR if they study (and take it enough times), but there are plenty of crappy lawyers out there. Just having a law degree and and BAR card doesn't make you any good.

[Smogger]

CS became the law degree of the late 90's.

[MineralMan]

"I recently took a job that is paying 1/3 as much as I made in 2001, and I'm glad to have it. The company where I am now laid off a bunch of people as deadwood, and has been replacing them by cherry-picking unemployed high-quality programmers."

Yes. And by choosing just good programmers, they will improve whatever it is they are doing, make more money, and you'll get an increase in pay. That's how it should work. Problem was, during the boom, companies were hiring folks who couldn't write a bubble sort, much less solve a problem creatively.

You'll do well, I think. Sounds like you know what you're doing.

[SauronOfMordor]

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.

The trend will continue until the only people in business are the ones who will respond to a lawyer's threatened lawsuit by arranging to have the lawyer killed

[MineralMan]

"I akin it to lawyers. Anyone can pass the BAR if they study (and take it enough times), but there are plenty of crappy lawyers out there. Just having a law degree and and BAR card doesn't make you any good."

There you go. Back during the boom, anyone who had a piece of paper saying they could program got work. Trouble is, companies ended up spending all their money on defective code, then spending lots more to try to fix it. Some companies stupidly fired their best (highest-paid) programmers, leaving nobody behind who understood what was going on.

Good example are the folks who created WordStar, which once owned the wordprocessing market. As time went on, they dumped the folks who created the program, leaving a bunch of idiots who didn't even understand the code. So what happened is that they kept tacking stuff onto the program externally until it was totally unusable.

Similar things happened to WordPerfect and Ami Professional. Once the original designers got fired for making too much money, nobody understood the complexities of the programs and they got terrible.

And that's just application software companies. I can't imagine what happens at other companies when they fire their best programmers. Banks? Yeah, right, I'm going to send my programming to India...sure.

Let's see...how long would it take you to add a module to some banking program that would transfer a penny from each transaction to a bank account in your name in India? An hour? Less?

Fire the good programmers and keep the dross. That seems to be the MBA's creed. Thank goodness I only ever worked for myself as a programmer.

[Elric@Melnibone]

After narrowing down the applications, I had four of what seemed to be the best applicants come in for interviews and a test.

Twice in my career have I had potential employers ask me to take some kind of programming test, once in the early '80s and again in the mid 90's.

Being a relatively nice guy (you don't know me so I can lie to you about this), I more-or-less complied with the request.

Today, having been jerked around by FAR too many such people, I'd probably tell them to fold the test until it was all corners and stick it where the sun don't shine.

You want a coder, hire a coder, and pay them coder wages.

I'm an experienced software engineer; I solve problems. I don't get paid for my ability to write code in one particular language, I get paid for my ability to make a system work.

It's like the old joke about the plumber hitting the water heater with a hammer and then handing the homeowner a bill for $100; the homeowner demanded an itemized bill to justify the expenditure so the plumber rewrote the bill to read: hitting the water heater, $5; knowing where to hit the water heater, $95.

[MineralMan]

"You want a coder, hire a coder, and pay them coder wages.

I'm an experienced software engineer; I solve problems. I don't get paid for my ability to write code in one particular language, I get paid for my ability to make a system work. "

Well, at my company, I was the software engineer _and_ the coder. I needed good, efficient coders, not another software engineer. I needed folks who could think on their feet about a problem and solve it, based on my overall design.

That's why the test. It should have been an easy one, frankly, and it was. How do I tell who's a hot coder without trying them out?

This is/was a one-person company. I thought I might expand my business if I didn't spend all my time coding my applications. I decided against it, since none of the folks who showed up were particularly good. I wasn't looking for a "software engineer," since I already had one...me.

[lelio]

In the current environment, I see more companies doing this, as they realize that there is a lot of good talent out there, who are desperate for work at any price.

Sounds like you and I were traveling in the same (sinking) boat. This job's 1/2 of what I used to make, granted it was inflated a bit, but I couldn't be happier.

The only reason this job opened up was that that former employee left the state so they had to hire for it.

At the local Java User's Group meetings the employment picture has picked up: only about 1/3 - 1/2 the people are looking for work, as opposed to 1/2 - 2/3 a year ago. Granted the group might be made up of unemployed people that can make the meetings so it might be a bit skewed.

Its going to be interesting to see what will happen when the economy picks back up and those cherry-picked employees leave for greener pastures. Might be an opportunity there to handle support contracts for those companies.

[superloser]

The really good ones all still have jobs. Do you know why? Cause they make their employer's lots of $$$.

Amen to that. Those of us in Corporate IT (not doing programming, but infrastructure, network design/management etc) keep our jobs by saving the company more money than it costs to have us around.

[lelio]

Twice in my career have I had potential employers ask me to take some kind of programming test, once in the early '80s and again in the mid 90's.

My all time favorite hiring test was when I couldn't find an internship one college summer. So I went to a temp agency looking for anything, and they gave me a test that involved counting dots on a page and going through a maze that looked like it was ripped off a Happy Meal.

But the best part was the simple addition. Going from calculus and partial differential equations to adding up two fractions was difficult. I'm sure they thought I was a moron.

As for programming tests I've only had a few. I've heard some horror stories of "what's the -thingy switch do in this method?" to which the correct answer is "that's in the docs"

As for tests I would like to see it would be the unobtainable "Is this person okay to deal with socially" one. No matter how good a programmer / architect is, if they're a prima donna there's no way I would would with them.

[Elric@Melnibone]

at my company, I was the software engineer _and_ the coder. I needed good, efficient coders, not another software engineer.

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.

I also do both engineering and coding. But my primary input from my customer is a requirement document, that is, a specification. So my first order of business is to design. Only later do I get to sling code.

No, my typing isn't particularly good and, depending on what I'm working with, my command of syntax may be weak.

That's what lint is for.

But if my boss says "starting next week, all code will be developed in forth (or whatever)", my response will be "where can I get a book?" If he tells me we're going to develope something we've never done before, I'll ask him what it has to do.

That's why I get paid the mediocre bucks.

[SauronOfMordor]

IT jobs outsourced to India are already being outsourced from India to China. The Dilbert cartoon from a couple of months ago may come true.

There are a bunch of great programmers from India. There are lots of bad programmers from India too. When the best of their best came over to the US, it may have given American managers a misconception about the true depth of the Indian talent pool. That misconception is in the process of being fixed, but at the cost of thousands of US programmers being out of work in the meanwhile

[Capitalist Eric]

And the ability of the consumer to purchase inexpensive goods is a terrible basis for a trade policy.

Personal opinions are irrelevant. The ultimate winner of such wide-ranging competition is the consumer.

Whether it is "terrible" or not, is a judgement call based on emotions... And those emotions are driven by whether you're one of the people in competition, or the consumer, who ultimately receives a good product at a fair price...

Trade policy doesn't (and shouldn't) enter the picture...

[B-Chan]

I agree with your analysis. When treated as a commodity, the price of labor will eventually tend towards the lowest available value. In a global market , where most of the population has no means of support other than wages, competition will drive the price of labor ever downward; wages worldwide will drop to the lowest levels possible until the cost of labor approaches zero.

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).

A capitalist always buys commodities at the cheapest available price. Labor is no exception. In the end, those who obtain their labor at zero cost ( = use slave labor ) will profit more than those who pay wages to their workers.

Of course, a return to chattel slavery in the 18th/19th Century sense is not possible. The cost of feeding, housing, and caring for the health of a slave would place an unacceptable burden upon slaveowners. Those costs (plus increasingly-long human lifespans) will make outright chattel slavery economically nonviable: a slave too old to work will still have twenty to thirty years of life left to him/her, years which will cost his/her owner dearly in terms of food, housing, and health care. Unless laws were changed to allow the merciful destruction of slaves who were no longer economically viable, employers would soon find themselves up to their ears in "retired" slaves.

And, of course, slaves (as well as those earning just enough to live on) have no ability to buy the products and services that businesses provide. 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.

What is the final solution to the labor crisis?

The answer may well be the elimination of human labor entirely. The increasing sophistication of automated resource extraction, processing, manufacturing, and delivery systems may well render the worker obsolete within the mid-term future. A "Santa Machine" capable of extracting or recycling raw materials on its own and producing a variety of finished goods from those materials would make industry as we know it (and those engaged in industrial production) superfluous. In a world where Santa Machines exist, the term "job" would have no meaning; the only tasks requiring human labor in such a world would be those related to serving and repairing the Santa Machines, and/or designing products for them to fabricate. Those who owned such machines would find themselves living the dream of countless fairy-tales: they would become a new aristocracy, esthetes living a life of unlimited personal wealth provided by tireless, uncomplaining technological genii. In the world of the New Aristocracy, any item that could be mass-produced would be available in unlimited quantities from the Santa Machines — only handcrafted goods (such as artwork or gournet meals) and creative services (design, performance, medical and dental care, etc.) would have intrinsic value. Those persons not blessed with specialized abilities in these areas would find themselves (as do so many today!) made useless by technological progess — men reduced to human buggywhips, cogs in an obsolete machine, a world of idle men with no means of support.

And idle men are dangerous men.

As time passed, the armies of the unemployed would begin to pose a threat. For the New Arstocrats, the temptation to rid the world of its myriads of now-useless former workers would be strong. Perhaps the owners of the Santa Machines would be benevolent, content to merely sterilize the nonworking masses and allow them to live out their remaining lives amid the bounty produced by the Santa Machines. Or perhaps they would use their magic machines to construct space arks, or space elevators, or wormholes, and simply deport Earth's surplus population to some suitable planet elsewhere in the universe. Or perhaps they would simply kill the masses of useless eaters off with germs or by some other means.

(One solution these New Aristocrats would certainly not try would be to use the Santa Machines to create more Santa Machines; giving every human being in the world the ability to produce goods in unlimited quantities would result in chaos, economic and otherwise. In the hands of the average man, the magic machines would become engines of excess, swamping the streets in useless goods, creating a planet swarming with legions of uncontrollable nouveaux riches, each with the power of Aladdin's Lamp at his command.)

In any case, it's absolutely true that we now live in a free global labor market, and, as in any free market, as the supply of that commodity goes up, the price of that commodity will go down. In a world of six billion people with nothing to sell but their labor, that "down" could be very low indeed.

As a society, we need to seriously consider how we deem the worth of the individual human being. A system where a man has no value other than his ability to produce salable goods and/or services is no more moral than a system where a man has no value other than as a cell in the collective State apparatus. We cannot serve two masters: as a civilization we must decide once and for all if we believe in the intrinsic value of human life, or if we believe that the economic value of a man is his only real worth.

[Capitalist Eric]

As time passed, the armies of the unemployed would begin to pose a threat.

I would submit, that they already pose a threat...

Consider living in a country that has no use for you, where your knowledge is unremarkable, therefore there is no demand. And since your knowledge and skills not viable economic commodities, you are destined to remain unemployed.

A system where a man has no value other than his ability to produce salable goods and/or services is no more moral than a system where a man has no value...

The man decides that he will live according to whatever morals he is taught- and being unemployed, and having only a common education, extrapolates those morals to their most extreme...

And voila, you have the Islamic Terrorist.

We cannot serve two masters: as a civilization we must decide once and for all if we believe in the intrinsic value of human life, or if we believe that the economic value of a man is his only real worth.

Until this paragraph, I have agreed with all of your points. The other points, such as the "Santa Machine," are obviously to illustrate your point, and I see the bleak picture such a machine could paint...

Such a machine- thankfully- will never exist. The idea, of course, is on TV every day, in the Star Trek series and spin-offs, with their "replicator" technology. Peoples tastes change, there is constant tinkering with existing technology to invent new (and often improved) ways of doing things... New scientific breakthroughs which make some technologies obsolete (the buggy-whip, as you mentioned), and other new-found technologies suddenly in demand. The essence of humans is to tinker, to know new stuff... And to have that new stuff... Sometimes that's bad, but in the aggregate, it's usually good for society. And society- to capitalize on the new technologies, will constantly shift to take advantage of the them. Those that are sufficiently aware of what is happening, will tend to be at the leading edge of new technologies as they filter into the general market... They will compete, take risks, and be financially rewarded for the risks they take... Those that try to "ride the wave," like the me-too CS graduates, will always wonder why they're not getting the big money...

I also disagree that we "cannot serve two masters." Indeed, we already do. We play our role in the economic system, by obtaining and selling specialized knowledge, to the highest bidder. Whereas we once competed on a physical battlefield for supremacy, we now compete on economic one. Those with relatively common knowledge (i.e, possessing a CS degree), find themselves competing with all others possessing this same degree. However, it's not the degree, but what you do with it, that makes you competitive, or one of the also-ran people...

Our other master, which we must work much harder to remain loyal to, are our societal norms. I say it's harder, because unlike economic success, there is no established benchmark from which we can determine our progress (or lack thereof) in maintaining our societal values. And, since society of made of individuals, no member of that society can step outside the societal arena, to measure that progress... In the end, we must still individually determine right vs. wrong, good vs. bad, etc... And hope for the best.

I will paraphrase Orson Scott Card, who observed that

"in a society that expects chastity and fidelity, those members who are too weak to resist temptation or are too contempuous of society's norms, usually end up being either sheep or wolves: either mindless members of the herd, or predators who take what they can and give nothing in return. Inner strength and outward respect- these are the traits exhibited by the leaders of society. Unlike the sheep or wolves, they do not act out the script written by their inner fears and desires, but the script of decency, of self-sacrifice, of public honor. Of civilization. And in the pretense, it becomes reality.

Be well.

[chukcha]

Slaves have no incentive to invent.

Indians code for less not because they are slaves, but because the cost structure in their country is different. The standard of living for an experienced software engineer in India is probably higher than in the US.

[julian59]

Little men, South-american looking, probably from Mexico (Paraguay, Uruguay???)work in the most of the New York City's (and do probably in many other places throughout US) fruits and vegetable stores. They open them up at 6am, take out all the stuff on the street and put all back at about 8 or 9pm. Guess how much do they earn? Anybody? Interestingly enough, it isn't happening offshore, in India, Russia. It's right here. Have anybody seen any American complaining about it? And I didn't see any competition for this "positions" Let's be fair. If people can get the job done cheaper - pay them up and get off they back. I am a programmer out of work for more than two years. Do some occasional jobs here and there and pray for "economic recovery". And I applied for a 40K job not once. How's 15$ an hour for SQL, ASP, VB, VBA sound? Tried that too. Sure off-shoring bugs me, but have some of you forgot that the free market competition is what this country about. 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.

[old-ager]

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

I wish more people would understand this.

[Snuffington]

I don't get paid for my ability to write code in one particular language, I get paid for my ability to make a system work.

Having been on both the hiring and job-seeking ends lately, I'm totally with you.

If you need someone who knows the ins and outs of your special programming problem immediately, hire a freaking specialist consultant for a temporary gig. If you have a more permanent need, and any clue how to hire, you can train someone in an unfamiliar language in a few months.

In my previous job, we hired a Microsoft guy who had never looked at WebSphere as a Senior WebSphere admin. Within two months he knew more than anyone else in house about WebSphere. Most other companies I know would have considered him unqualified for the position. Those other companies are demonstrable morons. And those are the same companmies sending work offshore.