The Outsource of Confusion - When jobs go, we grow. [Pro-Outsourcing Article]

Outsourcing of information-technology services continues to be a hot topic — and a sore point for many IT professionals. As they stand in unemployment lines, they see their former jobs being shipped off to India, where they are now done by people making one-fifth as much. It has aroused much bitterness and led to legislative efforts to restrict outsourcing in the name of saving jobs for Americans.

I can't really offer any comfort to unemployed programmers, but the process of outsourcing is good for both the U.S. and world economies. Any jobs saved in the short-run by restrictions on outsourcing will come at the expense of better jobs in the future that will not be created.

The problem really arises because India, rather than, say, Canada or Germany, is the perceived threat. We don't generally worry about American jobs going to wealthy industrialized countries like Canada and Germany, because their workers are highly paid and cannot undercut us based on low labor costs. Because Indian workers are paid only a fraction of what a comparable American (or Canadian or German) makes, the competition is viewed as unfair.

But how did the U.S. and other wealthy countries get that way? It was by being the low-cost producer in some area. No doubt, the European farmers of the 18th century were bitter about being undercut by American farmers, whose cost of land was a fraction of that in Europe. They must have felt that this was as unfair as unemployed IT workers feel about India. But as time went by, costs equalized as capital and labor migrated to other countries and other industries. This is all part of the process of economic growth.

An article in the February issue of Wired makes this point well. It points out that Indians now doing jobs outsourced from America are seeing a rapid rise in their wages and standard of living. In the process, they are becoming more like Americans, which is translating into demand for American goods and lifestyles. The Indians also know that they can't compete only on price; the quality also has to be there, and they believe that they are delivering it.

Daniel Pink, the author of the article, goes on to make this important point: "Isn't the emergence of a vibrant middle class in an otherwise poor country a spectacular achievement, the very confirmation of the wonders of globalization — not to mention a new market for American goods and services? And if this transition pinches a little, aren't Americans being a tad hypocritical by whining about it? After all, where is it written that IT jobs somehow belong to Americans — and that any non-American who does such work is stealing a job from its rightful owner?"

Perhaps more starkly, Carly Fiorina, CEO of Hewlett Packard, recently said, "There is no job that is America's God-given right anymore."

It's worth noting that the U.S. is not the only country where outsourcing is happening. British and Australian companies are also outsourcing to India, while European companies are outsourcing to the Czech Republic and other formerly communist countries, where wages are low but education levels are high.

It's also important to know that when countries outsource work to India or China, they are only doing so for very low-end operations that require little skill or training. The high-end work and wages stay here — work that might not be retained if it could not be augmented by outsourced functions in low-cost countries like China and India.

A Jan. 30 report in the Wall Street Journal illustrates how this works, using the case of a computer mouse manufacturer called Logitech. It sells a wireless mouse called Wanda for about $40 that is assembled in China. Of the $40, China gets only $3. The rest goes to suppliers, many based in America, which make components for the mouse, and to domestic retailers. The biggest component of Logitech's cost is its marketing department based in Fremont, California, where the staff of 450 Americans makes far more than the 4,000 Chinese who actually manufacture the product.

Those 450 Americans, making good wages in California, might not have jobs at all if Logitech wasn't able to stay competitive by outsourcing some of its costs. Studies have also shown that workers displaced by outsourcing are often retrained for better jobs within the companies doing the outsourcing. Cisco, for example, is a leader in outsourcing, but has not reduced the number of its domestic employees because they have been redeployed into other areas, doing higher value-added work. These jobs often pay better than those that were outsourced.

I know that this is no solace to those who have lost jobs due to outsourcing. But the nation as a whole will be worse off if outsourcing is restricted.

Don't talk about Outsourcing without mentioning:
INSOURCING and Amnesty.
H1B visas are killing American Hitech jobs. And the legislation is supported by the Republican Party. In 2000 and 2001 there were supposed to be ONLY 400,000 H1B visas issued. But instead, there were more than 700,000 issued because of the exemptions in the law allowing education and non-profit jobs to not count against the 200,000 a year cap.
The exceptions continue so there is, in reality, no cap. This does not count the hundreds of thousands of L1 visas.

So you have Outsourcing and In-sourcing, what pray tell will the GOP call the kinda sorta amnesty for 12 million Illegal Invading aliens? The-rest-of-sourcing?

As soon as new jobs appear the GOP and Dems will In-source them as fast as possible.

Alexander Hamilton who wrote in his 1791 report as Treasury Secretary, "The wealth...independence and security of a Country, appear to be materially connected with the prosperity of manufactures. Every nation ought to endeavor to possess within itself all the essentials of national supply."

Henry Clay: "Poverty befalls any nation that neglects and abandons the care of its own industry, leaving it exposed to the action of foreign powers--there is a remedy and that consists in --adopting a Genuine American System accomplished by the establishment of a tariff--with the view of promoting American industry--the cause is the cause of the country, and it must and it will prevail."

"(1840s) To David Ricardo's argument that we should abandon the home industry and rely on imports if a foreign nation could manufacture more cheaply, Friedrich List's reply was withering: 'Who would be consoled for the loss of an arm by the knowing that he had nevertheless bought his shirts forty percent cheaper

Teddy Roosevelt who wrote, "I thank God I am not a free trader." No Borders NO Vote

I hate to tell you this but the quality levels of the big Indian shops are quite high. If the same people were over here they would get top dollar. In fact many of their senior staff, middle and upper management were over here and did get top dollar. There are more CMM level 5 shops in Indian than in the USA the last time I looked. We are kidding ourselves if we think that the level of work being done in India is not world class.

One may argue that these sort of methodologies do not lead toward "innovation." I would assert that the sort of work that they are doing - and that their American competitors were doing - was not all that innovative in the first place: Much of the IT industry is really not all that "creative" in the first place nor is this a common attribute in any work force. Nonetheless, the intellectual environment for a technology work force - problem solving, mastery of the tools and paradigms of the moment, a feel for the current issues and trend - and that actual technical work force itself are quite hard to build.

The point is that the software industry required an experienced, educated and motivated pool of workers, and that we stand to lose that pool. The next group of entrepreneurs that utilizes the pool of talent may well be Indians, one only has to look at the history of software in the 70s and 80s in Silicon Valley to see this. It was the (physical) proximity of urban centers, universities, venture capital, entrepreneurs and designers that lead to the development of that "revolution." One can say that there is a new paradigm around the corner that we allow us to keep our lead but that is an assertion at best and at worst is wishful thinking. It is by no means guaranteed. From a financial viewpoint it would be foolish for any young American to go into any engineering field where the work did not require some sort of local presence, and current enrollments in Computer Science curricula reflect this point quite baldly. It will be hard to raise the cane up when it is in the field.

In no sense has the software industry been "commodified," it has been moved off shore. The "creative destruction" argument is specious in this instance: These jobs are not being replace by a new industry built on the ashes of an older obsolete industry, it is merely a more efficient use of capital. This may in fact be a first modern economic history. It is suicidal to not see this as a real threat to American leadership. That being said, what the solution is is still up for grabs. Had we allowed manufacturing to radically automate in the 60s and the 70s it might not have moved offshore. Perhaps we should consider learning that lesson.

Two things are certain:

1) The American people will not stand by and watch a major part of technology jobs be sent overseas without resorting to political remedies, even if those remedies are in the long term harmful to the nation. The disaster of the demise of manufacturing as the backbone of our economy is too close in time and experience, still too etched on their fathers' faces for us to imagine otherwise.

2) The will not be swayed by a high blown macroeconomic argument coming from elites whose live or children's lives are little effected by outsourcing. They will indeed toss those people out of office or tax the devil out of them.

If conservatives do not come up with some sort of approach to the issue then Left will, and we all know what their solution will entail.

I hate to tell you this but the quality levels of the big Indian shops are quite high. If the same people were over here they would get top dollar. In fact many of their senior staff, middle and upper management were over here and did get top dollar. There are more CMM level 5 shops in Indian than in the USA the last time I looked. We are kidding ourselves if we think that the level of work being done in India is not world class.

I hate to tell you this, but I've been working with Indian IT workers onshore and offshore for the past 7 years. And people who think the quality is high from offshore, don't know how to measure quality. Those guys can certainly deliver exactly to the specs they've been given. Of course, the real trick is in writing the specs to fit what the client really wanted, because automated code generation tools can do the same thing.

It's not a question of whether the guys in India are sharp or capable. You could take excellent American workers, stick them halfway around the world and watch their productivity and quality take a nosedive also. And unlike Indian workers, they wouldn't have language and cultural barriers to ovecome.

Also, the reason you're so impressed by the Indian workers that come to America is because they send the best of the best over here. The average Indian IT worker is not as good as the average H1-B.

One may argue that these sort of methodologies do not lead toward "innovation." I would assert that the sort of work that they are doing - and that their American competitors were doing - was not all that innovative in the first place

I'd agree with you here. One of the things I have told execs intending to offshore is that if they want to persist doing low quality IT work, I suppose they might as well do it cheaply. But doesn't it make more sense to do high quality work instead? I just get blankly stared at. The level of understanding of how the work gets done is frighteningly low among most IT execs.

These jobs are not being replace by a new industry built on the ashes of an older obsolete industry, it is merely a more efficient use of capital. This may in fact be a first modern economic history.

Beware of any "first" in history. It usually means things are not as they seem. And I think that's true in this case. This is not a more efficient use of capital. It's an accounting gimmick. Those low hourly rates offshore are proving very slippery to tie directly to actual productivity.

India didn't become more productive than the U. S. overnight. That's their goal. But they have not arrived. This is the next "free lunch" in IT. It follows the dot-com boom, and shows remarkable similarities for its total neglect of market fundamentals. If you recall that was another "first" while it was booming. Not so unique in retrospect.

Total agreement here, regardless of all the rest of the above. For some reason Republican political leaders are neglecting the politics of this situation in favor of spouting general macro-economic theory. That's not going to fly. There is a real political problem here, and it needs real political attention.

This one is so obvious I am baffled why it seems almost universally ignored by Republican strategists.

Just out of curiosity, what is it that the Paleo-con-men actually want?

1) Phase out minimum wage.
2) Bring our troops home. Stop playing world policmen. If a company moves to Bangalore or Mexico, then it's up to India or Mexico to defend it.
3) Scrap income tax and go to national sales tax. At the same time end corporate tax (in conjunction with ending corporate "personhood")
4) Get control the borders. Give temporary worker status ONLY to those who ENTER through legal channels, rather than letting those already here illegally stay.
5) Shrink domestic spending, as opposed to creating Bush-style senior drug bureacracies, farm aid and nationalizing petty airport baggage tyrants.
6) Forbid federal workers from unionizing. Laws which restrict the fedgov are good. Fire 'em if they organize.
7) Phase out the more onerous OSHA, EPA, etc. requirements. Does the U.S. really need a handiramp glombed onto every podunk mom & pop shop? Safety rails atop 3 foot elevations?

Any the masters of the complex and arcance in any complex endeavour rely of having all the lower levels close by, as part of their own backgrounds, and as not only a lowe-level componenet supplier but an intrinsic and widely and subtly linked portion of the design and development process. All good engineering starts and ends on the factory or plant floor or job site. Distance from those means only rare innovations of value. Proximity means continuing innovations.

That we have given away -- literally thrown away -- the low level stuff, the mid level stuff, and every other level WILL SOON follow -- the "high level stuff" can NOT sustain far from the lower.

See this era of "out sourcing" for what it is -- not productivity improvments, not innovations -- but rather exploitation of the poor, of cheap labor rather than technology.

When the factories were parted out to China and the line workers released to the public dole of unemployment, the mantra was "They can ca re-train for new 'knowledge worker' jobs!" And many did.

Now the 'knowledge worker jobs' also are being tossed, and where is the claim of the next job? None is given, show us all, where in this article they are.

And not some general claim that something will come along, if you work for it. For what? Not tinkerbell stuff, please.

The early Americans had wood lot and fields, bogs and mines, fish-filled sea to built their wealth from. The middle generations had Freedom and Liberty -- an internal market for JOBS and GOODS.

We have less Liberty, and our internal market for JOBS is made deficient, and that for GOODS only running on fumes and bad promises.

This article claims "all will be better", but brings not fact or logic or history to bear to give any substance to that claim -- the claim is a perfect example of "magical thinking"!

Let's all clap and keep Tinkerbell alive!

That's your stance. Pro-clapping. Call us back when you can show more than that, or show us where in this article is any real claim to hope.

I keep reading this line but have yet to hear just how it is going to be good for us.

I keep reading and hearing the same thing too. I don't get it. I'd like to know or have it explained to me. I'm not daring anybody, I REALLY want to understand. Some of us (albeit, a few) here on FReep are not business gurus or experts on economics.

BTW, I've been a FReeper for some time (2nd handle) and I've never seen an issue discussed so divisively. From where I see it, no matter the high-minded reasons and explanations, this will cost us the election. Somebody else made the point that those Outsourced and/or unemployed--and those who make less and have lost health insurance--will not vote for Bush. No $200 million on Earth will make them vote for Bush. I agree with this.

But, in the meantime, I'd like to know how exporting our jobs is a good thing. I'd also like to know how, when illegals are made legal--and even the low-paying jobs are hard to find--this is, somehow, good for us as well.

While I agree with the balance of your reply I do take exception to your take on quality in the professional world I inhabit:

Let me preface this by saying that I have been in technology close to 30 years as an academic (Berkeley Stanford and NYU,) a bench engineer and scientist in EE and CS (Bell Labs and IBM R&D,) worked in the big six as a senior manager, in several major investment banks on Wall Street and in medium sized technology firms that either sell technology or technology services. During the last 14 years I have either been a SVP, an EVP, a CTO or a CEO, and I am currently a Managing Director. I put up both Sigma Six and Level 5 certified shops and have had monthly personnel budgets in excess of a million dollars. I have outsourced everything from production to QA to separate Research and Development in all the major markets, and have traveled to S. America, E. Europe, Russia and India to deal with these sort of organizations. And not just in software. I mention all this not to impress but to point out that I have a fair grasp of the development life-cycle,QM/MA issues and formal project/program management approaches.

If we could roughly divide the Indian market offerings into three tiers: 1) The "lower" tier (or tiers, really.) The "Tata" tier and the partially or wholly owned subsidiary tier. I believe it is that lower tier that you are finding issue with, and perhaps rightly so. In those other tiers you will find customers like Sony, Toshiba and Motorola receiving quite fine embedded real time work that sits on major consumer products, you will find customers like Citi group receiving quite nice customer facing n-tiered web apps, and you will find some of the major NYC money-center and investment banks outsourcing difficult mission critical apps. In the wholly or partly owned area you will find no less a technical exemplar as D. E. Shaw - perhaps the leader of sophisticated in house financial software - with a major software R & D infrastructure in Bangalore.

I can take you up and down wall street and show you major work going on that is at the highest level by any international standard. I cannot imagine want your standard would be, and I would assume that these people know quality when they see it as they can afford the very best and do indeed expect it. Many of the principals involved come from the highest levels of Computer science be it the academic, the practical engineering or the business sides. Some of them have run major divisions for the likes of IBM, SUN, Microsoft, Oracle and Intel. Some of them wrote the ISO standards. It may be that you are not looking at the entire picture.

If you were farther up stream and got the sort of quality that you are talking about someone took you for a real ride and I would suggest that you seek legal remedy.

Lastly I would point out that the projects I have seen have little to do with automatic code generators, though you do have the caliber of programmers that can go off in the corner and write compliers to generate code if need be. As to writing specs, I am some what unclear as to what you mean. There are clear formal, iterative approaches to Requirements Management and in all the cases I have mentioned there is a quite sophisticated technical and business management team on the client side. If they sign off on the specs how can the outsourcer be faulted for meeting the spec?

As time goes on more and more high end work will be done over there: I stand by my position.

I think you and I have very different perspectives, though we have some surprising areas of agreement. You have every reason to be proud of your resume and experience, and no need for the disclaimers. On the other hand, some of the areas you mentioned are ones I find fundamental industry-wide flaws in in current practice (both CMM and Sigma Six come to mind). But lets not derail the thread over that. Another time we can perhaps discuss those.

As for my perspective, the major area of my attention and experience is in object-oriented development for distributed systems. Most of my comments are related to that.

I have seen how this stuff is currently being handled in everyday practice at a number of companies, and through professional contacts have an even wider view. The fundamental flaws as I see in them are: separating business from development, and separating design from construction. These problems also exist in poorly run onshore development (thus my earlier comment about doing poor work more cheaply offshore). Elaborate methodologies have been built around accepting these errors, and overcoming the problems inherent in them. But that's confusing alleviating a symptom with curing an illness.

The reason most companies are getting away with this for the moment is best captured by the old joke about two men in the forest who suddenly come across a hungry bear. One of the men bends down, takes off his hiking boots and puts on his running shoes. His friend askes what he's doing. Doesn't he know he'll never outrun a bear? He replies that he doesn't have to outrun the bear. He just has to outrun his friend.

When all your competitors are making the same errors as you, you don't have to fix all the problems. You just have to suck a bit less than they do. In the short run, that may actually be a decent business strategy. It's usually cheaper in the shortrun in any case. But you'd better be prepared for the moment when a new competitor arrives on the scene who doesn't buy into the mutual error.

The fundamental problem with offshoring is one of communication. You cannot communicate as efficiently with someone halfway around the world as with one sitting next to you. You cannot communicate with someone from a foreign culture as well as with one from your own.

Additional problems include matters of security, international relations, and managing a cross-cultural/ multi-national environment.

I find it amusing that I have yet to see more than a handful of companies that are having anything other than "wild success" with their offshoring experience - at least as far as their official statements claim. But those of us closer to the action are seeing quality, timeline, and budget problems all over the place. At some point a little honest reporting will be forced out. And while it may not be a unqualified failure, I think you'll see a lot of your assumed success stories turn into anything but.

On the other hand, I also agree with you that the trends for this are going to continue upward, for two main reasons: First, because the supply of U. S. technical labor cannot keep up with the world-wide demand. Second, because Indian IT workers are ideal for serving Indian businesses, which are likely to continue to grow.

However a lot of the current mad rush to offshore IT work for American businesses is headed for a nasty bump in the road.

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