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The Almighty Buck Businesses IT

Study Finds Cost Major Factor In Outsourcing Positions 367

theodp writes "Debunking claims to the contrary, a new study from Duke University asserts that it is purely cost savings, and not the education of Indian and Chinese workers, or a shortage of American engineers that has caused offshore outsourcing. 'The key advantage of hiring Chinese entry-level engineers was cost savings, whereas a few respondents cited strong education or training and a willingness to work long hours. Similarly, cost savings were cited as a major advantage of hiring Indian entry-level engineers, whereas other advantages were technical knowledge, English language skills, strong education or training, ability to learn quickly, and a strong work ethic.' The article goes on to point out that despite this, outsourcing will continue to be a problem for US workers in coming decades; new elements of traditional corporations like R&D may in fact be next on the outsourcing chopping block."
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Study Finds Cost Major Factor In Outsourcing Positions

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  • new elements of traditional corporations like R&D may in fact be next on the outsourcing chopping block.

    Allow me summarize: "It's too expensive to be competitive, and we don't have a vision for being competitive anyway. So we're going to make our shareholders happy and shoot ourselves in the foot. Twice. Just to be certain. But hey, think of all the money we'll be saving!"
    • Re: (Score:3, Insightful)

      by yams69 ( 986130 )
      If the Chinese and Indians are smart enough to deliver the quality of R&D American companies are expecting, they're also probably smart enough to set up their own companies and keep the profits for themselves. This could be a good thing, though, since it would lead to the extinction of the American executive dinosaurs who plan to outsource every job but their own.
      • From TFA:

        [The study] asserts that the United States is risking losing its global edge by outsourcing critical R&D and India is falling behind by playing politics with education.

        Duke's 2005 study reported serious problems with the quality of Indian and Chinese bachelor-level engineering graduates, and predicted both shortages in India and unemployment in China. The current report finds these predictions to be accurate, with China's National Reform Commission reporting that the majority of its 2006 graduates will not find work. There are also oft-heard whisperings of a engineering shortage in India, though private colleges and "finishing schools" are going far to make up for the Indian deficiencies, the report said.

        "Respondents said the advantages of hiring U.S. engineers were strong communication skills, an understanding of U.S. industry, superior business acumen, strong education or training, strong technical skills, proximity to work centers, lack of cultural issues, and a sense of creativity and desire to challenge the status quo," wrote Wadhwa in the 2007 report.

        Thus the basic issue is that you're giving up your best and your brightest who are ALREADY familiar with your business and the local marketplace, and you're replacing them with cheap "yes-men" who have no concept of your business, cultural barriers, aren't even in the same time zone, run effectively unchecked by the corporation, and have little chance of being India or China's "best and brightest". (As you say, those people are making their money elsewhere.)

        For a good feel for what's happening with outsourcing, check out these horror stories:

        http://img.worsethanfailure.com/Comments/Discount_ Enterprise.aspx [worsethanfailure.com]

        http://worsethanfailure.com/Articles/Of_Course_We_ Tested_It__0x2e__0x2e__0x2e_.aspx [worsethanfailure.com]

        While not every company sees results this bad, I've heard very few positive reports. And more of those were before the outsourcing "craze", when it was easier to find the competent developers overseas.

        Shades of the tech bubble? Yeah. I'm glad we learned so much from that debacle. :-/
        • Re: (Score:3, Insightful)

          by rolfwind ( 528248 )
          The other problem is that by outsourcing your R&D, you are effectively building up your own competition, who, once they break away from you (in terms of employment) will leave you depleted of that knowledge (since it was outsourced) while competing with you with the latest know-how and for less.

          It is one thing to outsourced certain operations like elementary customer help phonecenter overseas that probably will save the money in the long haul even with some lost customers, it is quite another to send yo
        • by hey! ( 33014 ) on Thursday April 05, 2007 @07:33PM (#18628863) Homepage Journal
          I used to work with a company that hired a lot of Indian H1Bs. I've worked with a number of Indian engineers; some were good, some were bad; a few were really good, a few were really bad.

          The Indians I know like to say that you can't generalize about India, a country with a billion people and something like forty distinct cultures. There's a great deal of truth in this. But at the same time, you can't help but notice that they have a lot of things in common with each other. Just being engineers they have certain things in common with most engineers, such as a desire to be valued for their skills and knowledge.

          Uniformly the Indian engineers I've worked with are hard working, ambitious, and eager to please. I sometimes think the eager to please part is something of a problem. Often unpleasing information is extremely valuable. Not wanting to bear bad news is by no means a trait that is unique to Indian culture, but I can't help but think growing up in an educational system with intense competition to tell the teacher what he wants to hear shapes people's work styles. I've found the best Indian engineers I've worked with have an intense, fiery streak in them that is sometimes hard to contain but is good to do creative work with. I've sometimes had cultural misunderstandings with Indians who work for me because I have assumed that, despite my place on the org chart above them, that we were equal in status, while they assumed that any time I had an opinion, no matter how casual, offhand, or just plain dumb, that that was Law. From my culturally biased perspective I saw this as frustrating passivity.

          I'm the kind of manager who thinks that if some wet behind the ears intern thinks he has read something useful in a textbook somewhere, he should speak up and if its not relevant I'll thank him and tell him so. A lot of Indian guys working for me weren't comfortable with this at first, until they found out that I didn't try to pin blame for mistakes to them. A few never adjusted, and were always insecure and unhappy until I learned how to act like an old fashioned boss.

          One thing that seems very common: the Indian engineers I've worked with try really really hard to put their best face forward. I don't think this is being a "yes man", its just a difference you have to factor in so you scale what you think you are seeing appropriately. Nowhere is this more evident than in the way Indian engineers seem to collect advanced degrees. Every guy I worked with had an masters, a few had PhDs. I have nothing against advanced degrees, but it seems to me that if you are going for an advanced degree, you ought to have some kind of specialized research interest, but it seems to be almost de rigeur. A lot of 'em went straight from BS to MS with no work experience. To tell you the truth I don't think they got a lot out of graduate education, other than to prove to the world they could.

          This may be why the study found that there were quality problems with Indian BSCS grads. Anybody who's got anything on the ball gets a MSCS or PhD.

          In any case, India is an incredibly dynamic place. It's got a billion people, and it has its fair percentage share of really, really smart people. It probably has more than its share of people with entrepreneurial hustle. But anybody playing the outsourcing game has to be prepared to lose a few rounds to the fact that things aren't always as they appear to the outsider's eye. I've never been to India, but I have no doubt it has not reached its full creative potential by any means; nor is this something it will be able to do overnight. So I don't think all of technology will simply slosh over there leaving the US a technology backwater in a few years. When India reaches its full potential, that will be a good thing. We'll be getting jobs here working with Indian technologies; it sounds to some like a nightmare, but I don't see it that way because technology is a plus-sum game. It's only a nightmare if we've given up on creating new technologies here.
          • by antonyb ( 913324 ) on Thursday April 05, 2007 @09:59PM (#18630131)
            An intelligent comment in a Slashdot discussion on outsourcing? Now I've seen everything :)

            I'm a westerner living in India, and my opinion of the place & the people pretty much exactly matches what you've written. I've had to spend a lot of time building a really good team, but now that team is at least as good as any team I've worked with at home, twice as hard-working, and, yes, hugely cheaper.

            And no, India hasn't reached its full potential yet. The two main issues that are likely to prevent it are the politicization of the education system as commented on in TFA (Karnataka, the state Bangalore is in has moved to prevent English being the primary language taught in schools in order to win votes with the the rural majority who have been opposed to the enormous growth in the cities as it has stretched even further the gap between rich & poor), and the hyperinflation of salaries. There's a good chance that India will become too expensive to operate in before it reaches that potential.


      • Re: (Score:3, Interesting)

        by qwijibo ( 101731 )
        There is one thing that American companies can do that doesn't seem as common in other cultures - launch projects going in 1000 different directions at once with the hope that 9 of the projects will make enough money to pay for themselves and 1 will make enough to pay for the other 990 that were dismal failures. Do other cultures value the willingness to fail miserably time and time again in hopes that one plan will be fabulously successful? Large companies can get away with this approach because they don
      • by moeinvt ( 851793 ) on Thursday April 05, 2007 @05:36PM (#18627447)
        "If the Chinese and Indians are smart enough to deliver the quality of R&D American companies are expecting, they're also probably smart enough to set up their own companies"

        Indeed they are. A Duke University study released in (I think 2005) concluded that over the previous decade, about half of the startup companies in Silicon Valley were founded or co-founded by folks from China and/or India.

        The story is right on about cost savings as the driving factor. The perception that people in China or India are "smarter" than people in the U.S. stems largely from the fact that we are typically being exposed to the very best people coming from a pool of billions. With that many people, the absolute number that are 2 std. deviations on the right side of the bell curve is still massive.

    • Re: (Score:2, Insightful)

      You are correct! We are also going to shoot our country in the foot and one day wake up to the realization that a country of mere consumers can not survive without decent jobs. Our government is corporately owned and operated so the options for change are most likely 1) revolution or 2) foreign invasion (Mexico, China). It's all too sad to think about.
      • Re: (Score:3, Interesting)

        by maxume ( 22995 )
        The US has 5% of the worlds population and 20% of the worlds economic activity(by GDP). The decrease in US economic activity as a percentage of the global total is nothing other than normalization. Movement of money elsewhere is basically unsurprising when you consider the relative ease of technology transfer vs technology development.
        • by SadGeekHermit ( 1077125 ) on Thursday April 05, 2007 @04:36PM (#18626355)
          You're missing something.

          The amount of wealth in the world is NOT like a tank of water which, when the valves are opened, empties out and distributes the water all around. It's more like a large set of fountains fed by a small set of pumps. And corporate America isn't opening valves to let the water (money?) flow all around. They're taking sledgehammers to the pumps because they stupidly believe that by doing so, they'll get more than their fair share of the water. For the first few hits, they get doused pretty well, and they think "look at all this water! Hit it again!" But then the pumps shut down and that's the end of that.

          Wealth is actively created by some groups of people and consumed by others. The United States is so wealthy because for most of this century we were CREATING much more wealth than anyone else in the world. We were able to do this due to a number of cultural and structural factors that aren't replicated anywhere else. For example, among all the people in the world, we are easily the most independent minded, the least bound by dogma and tradition (at least when it comes to science and technology). Our inventors have a "what the hell, let's give it a shot" mindset you won't find in many other places.

          And before you start screaming "No, your innovators call came from Europe" let me state the obvious: WE ALL CAME FROM EUROPE. Americans are Europeans who decided to live somewhere else. We didn't just magically appear here; we colonized this place. Europeans may not want to hear this considering the unfortunate current state of the U.S. government, but we and they are the SAME PEOPLE, with the SAME CULTURE and SAME INTELLIGENCE LEVEL. The only discernible difference between Americans and Europeans is that Europeans try to behave more calmly than we do. We're a bit nuttier than they are. EXCEPT at soccer matches, of course.

          If you want a perfect analogy for what's going to happen when corporations finally kill off technological innovation in the first-world countries, or at least strip people of the desire to do technical work for them (I don't think you can really kill off our ability to innovate, you'll always have inventors) just read this article:

          http://en.wikipedia.org/wiki/The_Goose_that_Laid_t he_Golden_Eggs [wikipedia.org]

          • Re: (Score:3, Informative)

            by mike27112 ( 766082 )

            And before you start screaming "No, your innovators call came from Europe" let me state the obvious: WE ALL CAME FROM EUROPE. Americans are Europeans who decided to live somewhere else. We didn't just magically appear here; we colonized this place. Europeans may not want to hear this considering the unfortunate current state of the U.S. government, but we and they are the SAME PEOPLE, with the SAME CULTURE and SAME INTELLIGENCE LEVEL.

            Ummm... I'm sorry, my memory's a bit foggy. Can you remind me which European country Subrahmanyan Chandrasekhar, recipient of the 1983 Nobel Prize in Physics, is from? What about Dr. David Ho, the first person to report the "healthy carrier state" of HIV infection? What about Steven Chu, 1997 Nobel laureate in Physics for his research in cooling and trapping atoms using laser light? And Daniel Tsui, 1998 Nobel laureate in Physics for his research on the fractional Quantum Hall effect? Chien-Shiung Wu?

            • Re: (Score:3, Insightful)

              All of your examples are extremely recent, long after American and European colleges began admitting students from these other countries. We taught THEM physics, and now they're contributing. Reminding the world that we invented the stuff doesn't diminish the value of their current contributions. But do realize that if it weren't for Western culture, none of this would even EXIST.

              Furthermore, you have to accept the fact that there is something special about Western culture that results naturally in innovati
    • Many products in the US must be marked "made in china" or where ever and some even have to give percentage breakdown of the parts by country of origin. If this is valuable for components and assembly perhaps it should also be valuable to other costs of producing a product. E.g. total up the pro-rated cost of back-office, R&D, and tech support, that is outsourced and report that too.

      Next consider policy based taxes. If country X is competing on wages well perhaps that's okay as long as he playing fiel
    • In other news: water runs downhill, the air is full of colorless gasses, and the sun is a big ball of fire.
    • by Daishiman ( 698845 ) on Thursday April 05, 2007 @04:31PM (#18626275)

      Who told you they're shooting themselves in the foot? I'm a sysadmin working in South America for two American accounts that have been outsourced and customer satisfaction has actually increased because we have more formal processes and more motivated people. Mind you, this isn't entry-level tech support, so we're talking about much more experienced people with excellent English and know-how in the profession, but just because you spend most of the time hearing about the misfortunes of corporations that don't know how to outsource doesn't mean that it's all gloom and doom for everyone else.

      Core Security, for example, has a significant amount of penetration testers and white hats working here and they're just as competitive as their first-world counterparts.

      Perhaps if IT is such a difficult carreer path in the US you should simply stop beating the dead horse. I have yet to see any proof that our American counterparts are so much more (if at all) competent than us that they deserve their massive, $80000 dollar a year salary. I mean, these supposed "professionals" put in root filesystems of 50 megabytes on AIX boxes and installed oracle in the root volume group.

    • Re: (Score:3, Insightful)

      by OakLEE ( 91103 )

      Allow me summarize: "It's too expensive to be competitive, and we don't have a vision for being competitive anyway. So we're going to make our shareholders happy and shoot ourselves in the foot. Twice. Just to be certain. But hey, think of all the money we'll be saving!"

      Actually, what they are saying that it is too expensive for them to remain competitive the US. They in fact do have a vision for remaining competitive, and that involves moving R&D to China, where the costs are lower.

      Whether you like it or not, the outsourcing of R&D occurring now is no different from the outsourcing of manufacturing that occurred the 1970s and 80s. The internet has made communication across vast distances cheap and affordable, much like advances in technology in the 1970s made

      • Re: (Score:3, Insightful)

        by AKAImBatman ( 238306 ) *

        Actually, what they are saying that it is too expensive for them to remain competitive the US.


        They in fact do have a vision for remaining competitive

        More bullshit.

        I've been in this industry for well over a decade now, and I've seen some pretty interesting attempts at outsourcing. You know what? Nearly all of them fail. It doesn't matter if we're talking about local outsourcing inside the U.S. or foreign outsourcing of cheaper "talent". 95% of the time, outsourcing companies are leaches that slurp u

      • by Travoltus ( 110240 ) on Thursday April 05, 2007 @05:07PM (#18627007) Journal
        The permanent structural unemployment and underemployment that is resulting from offshoring, will eventually bring the US economy to a halt.

        The flaw in your logic is that you assume becaus previous industries left or evolved away into newer industries, that this will happen repeatedly. As in, from the horse and cart design to the SUV sales/repair, and from telephone switch operators to internet jobs.

        That is not the case any more.

        There are no new job booms beyond tech now, because of offshoring. Biotech is already going overseas. Nanotech will result in a major net loss of jobs. What's left to grow now is the service sector - the cashiers and what not - and even that is slowly being automated.

        The new job types coming out now are small fry at best, and are going to be oversaturated or out dated in 5 years. That means whatever you're in college for right now, will be worth dramatically less in wages in 5 years, or few people will be hiring for someone with that degree. Say hello to just-in-time employment.

        There is nothing big that will ever come up any more as far as jobs are concerned. We've reached the end game, and I openly invite you to show me what's coming up that open up the jobs spigot again in America.

        Now, watch out for the fallout from this subprime boom. People have not been spending more because of rising wages, people have been spending more because of massive amounts of refinancing. The subprime correction is spreading into the rest of the market because of the number of homes increasing due to foreclosures. That means you who have a fixed rate re-fi will still inevitably see your house drop in value. You'll be upside-down on that bugger in 2 years. Mark my words on that.

        What this means is, with the explosion in low paying service sector jobs, the collapse of refinancing-supported consumer activity will not be reversed by a boom in higher personal job-based incomes. Also, people will dig into their IRA's and investments to make ends meet as the water level rises; I work in the financial sector and I am watching the slow rise in that activity right now. And people working at Wal Mart don't get IRAs or stock options unless they're managers, but they'll be selling that, too, to make ends meet as Wal Mart slashes wages to go along with their always low prices pledge.

        You have the triple threat of early divestments to make ends meet, downward wage pressures exerted by offshoring, and an imminent dead halt in refinance-based purchases, all about to descent upon this economy.

        Offshoring fanatics, feel free to keep your head in the sand about this... just like all the housing investors did when they said the current housing boom would never end.
  • Well it's official I'm smart enough for a job, but it's not going to happen.
    • Look, assuming that you are in the USA, we have it about the easiest to start companies. But even in the EU, it is fairly easy. So, start one and hire others. In addition, you will make MORE than if you are working for a company who will lay you off sometime down the road.
  • by Marxist Hacker 42 ( 638312 ) * <seebert42@gmail.com> on Thursday April 05, 2007 @03:22PM (#18625039) Homepage Journal
    Gee, American corporations put profit above every other consideration- call the evening news.

    The sad part is it took an actual university study to reveal the lie.
    • Re: (Score:2, Insightful)

      by Seumas ( 6865 )
      For the longest time, we were all force fed the myth that money had nothing to do with outsourcing and that it was simply due to some non-existent lack of skilled American employees.

      And really, even if that were the case, doesn't capitalism demand that you pay those employees what the demand is worth rather than stabbing them in the back and going elsewhere or importing tens of thousands?
      • Yep- it was so obvious that this was a myth and a lie to begin with. It's very sad that resarch dollars had to be wasted on this.
      • Re: (Score:3, Insightful)

        by qwijibo ( 101731 )
        Capitalism demands that the employer try to screw the employee by giving them as little as possible. What an employee is worth is set as an agreement between the employer and employee. If an employer isn't willing to pay what an employee wants, one side has to give in. Finding an employee somewhere with dirt floors who will take less is pretty easy in a global economy.
        • Re: (Score:3, Interesting)

          by Ihlosi ( 895663 )
          Capitalism demands that the employer try to screw the employee by giving them as little as possible.

          "There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible. " - Henry Ford.

          However, blind greed is much more in style nowadays.

          • by qwijibo ( 101731 ) on Thursday April 05, 2007 @04:08PM (#18625865)
            Sure, that's a business model that might work if you want to have long term, loyal customers and employees who work for you until they retire, keeping the cost of training new people down. However, Henry would not make it past middle management in any decent sized company these days without being about to demonstrate how his plans will save money this quarter, while increasing productivity and cutting costs next quarter. The current theme is infinite production at zero cost, and if you don't have a story that leads to that goal, you're going nowhere. Us technical people have it the worst, blathering some nonsense (from an MBA's perspective) of that being impossible.
          • Re: (Score:3, Insightful)

            Henry Ford was considered an evil communist by his fellow indusrialists- after all, he paid $5 a day (5x the going wage!) for his factory workers in 1921.
    • to reveal the lie.

      It's the lie that's right up there with "I'm resigning to spend more time with my family" not "...because I got caught with my pecker in the snack machine."

  • Cost of living (Score:5, Interesting)

    by geek ( 5680 ) on Thursday April 05, 2007 @03:24PM (#18625065) Homepage
    Until we reduce the cost of living in this country companies will continue to outsource. It's all about money. I can't possibly earn less than 4k a month due to bills, rent, etc. Less than that and I am in serious doo doo (I live in California where prices do nothing but sky rocket every year).

    Maybe it's me being paranoid but how in the world are jobs leaving this country they way they are and yet the cost of living goes up every single year? Housing prices are seemingly out of reach to everyone yet they keep selling. A recent report on the news here in CA was that fewer than 9% of the CA population can afford to buy a house in CA.

    Until we can make it affordable to live here we'll never be able to hold on to the jobs.
    • I was hearing a report on the parent's topic yesterday on NPR. It turns out homes are not selling as much as before due to a couple factors. First is the number of people who were purchasing via insane ARMs are drying up. This is why we now see a number of lenders filing for bankruptcy. Secondly, there is still a large insane population of people who are selling their homes but will not lower the prices, hoping they will be able to sell at a price that would have worked a year ago.

      Despite the comment ab
    • Re:Cost of living (Score:4, Insightful)

      by 99BottlesOfBeerInMyF ( 813746 ) on Thursday April 05, 2007 @03:39PM (#18625329)

      Until we reduce the cost of living in this country companies will continue to outsource. It's all about money.

      Actually more and more companies are looking not to outsourced Indian developers and support staff, but to outsourced and even satellite office US developers and supports staff. The problem is not that housing and cost of living is too high in the US. The problem is the housing and cost of living is too high in expensive areas of California and that is what most Slashdot readers pay attention to.

      This is interesting because I was in a meeting this morning with our director of engineering where this exact issue was discussed. Some places in San Francisco a medium sized house costs you 5 million and 60K in taxes a year. My medium sized house in a normal part of the US cost about 120K and I pay a few grand in taxes on it a year. There are places in the midwest where amidst the corn fields you'll come upon an island formed by a university, a small town, and support facilities for a dozen major international corporations.

      My advice to you, if you live in CA, move somewhere affordable. If you are looking to hire talent, look to a satellite office somewhere that is not crazily expensive. If you're looking to outsource development or support, there are cost competitive American companies with a lot smaller risk and cheaper travel expenses that Indian companies.

      • A lot of companies are also looking north to Canada, virtually the same country but with slightly better educated colledge grads and slightly lower cost.
      • Re: (Score:3, Interesting)

        Real estate is indeed cheaper in many places, but the problem is that the places real estate is cheap are also places that are less interesting to live in. Manhattan, San Francisco, Seattle, etc have culture, like theaters, bookstores, good and varied restaurants, libraries, symphonies, and so on. Small town USA has church and Wal-Mart. Well, there's the corn festival, but you get the idea. I grew up in a small TX town where you can still buy a livable house for $25K or not much more. Considerably less
    • Maybe it's me being paranoid but how in the world are jobs leaving this country they way they are and yet the cost of living goes up every single year?
      You mean, how is it that we're spending more every year while wages are going up? Excess liquidity and a credit bubble and a negative savings rate...
    • Partially subprime loans.

      If people with no credit are given 700,000 to buy a house- then that house goes to 700,000 even if it realistically should be 400,000.

      That's a hard correction that's coming.

      Next- what you allude to. Prevailing wages. As our wages drop, prices should drop.

      Finally scarcity. Sorry but california is very pretty/popular so the people who do have money are going to bid the place up.
  • I find that.. (Score:3, Informative)

    by C_Kode ( 102755 ) on Thursday April 05, 2007 @03:24PM (#18625079) Journal
    I find that it's outsourcing the reason I don't buy support contracts anymore...
  • Bill Gates was lying?
    http://politics.slashdot.org/article.pl?sid=05/04/ 27/2232244 [slashdot.org]

    Couldn't be?

    • No, it couldn't be. Gates was talking about bringing talented people into the country, not outsourcing.
  • Rob T Firefly wants me to tell you, as I type on his behalf from my firm's office in a dark corner of a cramped and humid barn on the outskirts of the Duchy of Grand Fenwick for pennies a week, that he is shocked and saddened by this news.
  • by Zadaz ( 950521 ) on Thursday April 05, 2007 @03:32PM (#18625197)
    Um... The only reason I've ever heard given for outsourcing was money. When the hell did they invent this other bullshit, spread it and have people buy into it, and then do a study debunking it?

    Was I too busy working?
    • by 99BottlesOfBeerInMyF ( 813746 ) on Thursday April 05, 2007 @03:47PM (#18625455)

      Um... The only reason I've ever heard given for outsourcing was money. When the hell did they invent this other bullshit, spread it and have people buy into it, and then do a study debunking it?

      In business, it's always about money. This study was debunking the fact that some businesses were claiming it was not about lower salaries, which is somewhat different. In truth, I've worked on a few projects that involved outsourcing both in the US and overseas and while it was always about money, relative salaries was a pretty small concern. We outsourced because we had trouble finding enough local talent and because we had short term needs that required expertise we did not have in house, but which would have cost a lot unnecessarily to do ourselves.

      In contrast, I know of several cases where companies outsourced core parts of their business, resulting in a short term benefit on paper, but a long term loss. Once an outsourced company has expertise in what you do (on your dime) they will raise prices or they will stop working for you and start competing with you. Of course by then the executive who made the decision already took his big bonus home and moved on to another company to repeat the process.

    • Was I too busy working?

      Yes, apparently you were. You missed various people trying to make various arguments about what "outsourcing" was really about. Often, the arguments were from someone with an agenda, and sometimes arguing, essentially, that there just weren't enough Americans who needed jobs.

  • Here it is. Sometimes you'll see some really cheap "car mods" on ebay that advertise they could give you an additional 20hp while only costing you $5.00. Let's be real here - we all know that's a load of crap, and that you get what you pay for 99.9% of the time.

    Recently, we had one of our customers outsource the implementation of our SDK to another company (this happened to be outsourced to an Indian company, though we've seen this same type of thing happen with domestic companies as well, of course).

  • by starseeker ( 141897 ) on Thursday April 05, 2007 @03:35PM (#18625253) Homepage
    Cost is the direct driver for most businesses, because it always yields a short term benefit. Most companies do not have either the resources, interest, or patience to work for long term benefits.

    That said, I would think R&D would be the LAST thing we would want to outsource, simply because if we do that the next generation of companies will develop not in the US but everywhere else. We cannot become a nation of businessmen/women and lawyers, because the world will quickly wake up to the fact that they already have all the smarts and physical resources to make whatever they need and can provide their own businessfolk and legal team. If the US makes too much trouble, we can be safely ignored because we won't be producing anything any more except hot air.

    When it comes down to bare knuckles, US labor costs too much. Period. We don't have some "magical" quality that makes us better, we just happen to have a large number of well educated people in the US at the moment. The rest of the world can also be educated, and for cheaper than it costs to hire US labor. Businesses are finding that out - train the folks overseas, and guess what - they can do it too! Today, that lines the pocketbooks of those with control of the companies. What they aren't thinking about or don't care about is that tomorrow those folks will be making their own companies and coming right back at us, and we will no longer have the technological chops to keep up because the only money to be had in the US was by going into business or law.

    Hopefully, we will retain our education and knowledge edge. We need to keep investing in education and keep ahead of the pack, however - the game is getting rougher and it will mean either a lower standard of living or harder work for us. There is no magic here, and in the end all competitive edges not based on natural resource advantage are short term.
  • by qwijibo ( 101731 ) on Thursday April 05, 2007 @03:36PM (#18625271)
    This has always been the lure of outsourcing. Costs are increased, which increases the size of the manager's empire, while being able to point to someone and show how much money is being saved.

    For example, instead of paying one programmer $80k, they have:
    2 programmers offshore - $20k each
    system architect - $130k
    technical writer - $60k
    project manager - $70k
    team manager - $100k

    Instead of spending $80k/year, they are spending $400k/year. However, they claim a savings of $120k using management-math by multiplying the number of programmers they have times the salary of one programmer if hired locally, minus the actual cost of the offshore programmers. You can claim a 75% cost savings on the programmers, even though you're spending 500% of what you need to. It's a great way to fluff out budgets and org charts.
    • Re: (Score:3, Interesting)

      by mandelbr0t ( 1015855 )
      Yes, but it's also a great way for one guy to gain all the "Intellectual Property" of the company he worked for. This is an old argument, but it's worth considering. There are hidden costs associated with a Single Point of Failure. How long and how much when someone offers the one-man show a better deal? Can you salvage anything once your star programmer has left? How about security? Is $80k/yr. enough to prevent the one guy who has access to the code base from doing anything malicious, like leaving a back-
  • by plasmacutter ( 901737 ) on Thursday April 05, 2007 @03:40PM (#18625351)
    this is typpical supply side strategy, the problem is when you attack wages rather than other inputs as cost, it also attacks the biggest contributor to both profits and GDP, consumption!

    2 basic economic equations are in play here:

    gdp = C+I+G+NX = (income - savings)+I+G+NX

    profits = costs - revenue = (wages + other costs) - (wages + other income such as capital gains)

    when you kill wages/income, you kill your own profits as well as us gdp.
    there is a time lag involved in this, but it comes back to bite you pretty quickly.
    this is reflected whenever Reagan style policies (not exclusive to the republican party) are put into effect... there is always a recession a short time later, which is alleviated once the policies are countered/rolled back.

    right now congress is STILL operating on the myth that there are short supplies of labor in "X" sector, which is bull, what there is is a shortage of cheap labor who dont care about long term benefits or retirement in sector "X"

    plenty of on the ground info on this here [dice.com]
    • oops!

      it's profit = revenue - costs!

    • That's wrong. (Score:2, Insightful)

      by raehl ( 609729 )
      Your first problem is your focusing on the number of dollars spent. The number of dollars spent is only partially relevant. The other part is HOW MUCH CAN YOU BUY WITH A DOLLAR.

      If a company reduces the amount of money paid in wages, one of three things (or a combination) happens:

      1) The make a larger profit, and the people who earn that profit spend it on other things.
      2) They invest that saved money in more production or more production efficiency (buy technology, spend on research, build another factory)
      • If a company reduces the amount of money paid in wages, one of three things (or a combination) happens:

        1) The make a larger profit, and the people who earn that profit spend it on other things.
        2) They invest that saved money in more production or more production efficiency (buy technology, spend on research, build another factory)
        3) They lower the price of the product, so the consumer then spends their money on something else

        you ignore the concept of moral hazard, which gives rise to option 4.

        4) greedy ceo'

      • by Rakishi ( 759894 )
        If we do this to perfection, none of us will have to work anymore, because machines and people in India will be doing all our work for us, and we'll still have the same amount of stuff.

        Until the people in India make their own companies which out compete the US in quality and cost (lower costs of management, etc.) Then the US economy ceases to exist, the dollar is dropped by the world's banks and thus tanks, and there isn't anyone left in the US who has the now needed skills. Aka "how to go from first to thi
    • Yes, that's all correct. At he microeconomics level there's also the fact that the drive to reduce short run costs by outsourcing invariably produces a decrease in customer satisfaction due to the increased difficulty for the firm in maintaining quality and training over longer communication lines. There may also be language and cultural issues too.

      So long run at the micro level, brand quality and profits can be affected. I'm fairly sure if you did an in-depth cost benefit analysis projected over time of
  • by ebusinessmedia1 ( 561777 ) on Thursday April 05, 2007 @03:50PM (#18625501)
    http://dukenews.duke.edu/2006/10/outsourcing.html [duke.edu] here's the study http://www.boozallen.com/media/file/Globalization_ White_Collar_Work_v3.pdf [boozallen.com] This new information should be a wakeup call for policy-makers. The irony is that corporate profits no longer know national boundaries. Solutions are going to take political leadership, and real committment. If no solutions are forthcoming, we will continue to see significant employment displacement here, with all the social problems that that implies.
  • by night_flyer ( 453866 ) on Thursday April 05, 2007 @04:00PM (#18625685) Homepage
    why go overseas? middle america has THOUSANDS of unemployed people that would gladly do the work and a wage that is far less that the coasts thanks to the cost of living.

    Granted this has to do more with call centers and the like. But I would much rather talk to Bubba Anne than Apu
  • So where can I... (Score:3, Insightful)

    by jbarr ( 2233 ) on Thursday April 05, 2007 @04:00PM (#18625689) Homepage
    ...get a job that does nothing more than publish studies that point out the obvious? I really can't believe money was spent to determine this.
  • Anecdotal evidence (Score:4, Interesting)

    by ObiWanStevobi ( 1030352 ) on Thursday April 05, 2007 @04:00PM (#18625707) Journal

    My anecdotal evidence suggests that offshoring adds alot of costs that don't really show up without further analysis. In other words, it looks like you are saving money, but you are not. Luckily, we haven't tried to offshore our R&D (which includes software development), but based on our experiences with offshoring production, I don't think we would try.

    From what I have seen, offshoring does save alot of money that shows up directly on the bottom line. You are paying much less for employees and benefits, so your overhead costs look much lower. However, we have seen quality suffer. The costs from that don't get reported as labor costs, and often don't show up until some time later, so it is hard to see a real correlation between these costs and offshore labor. So upper management, who are often somewhat removed from what actually occurs within the company do not notice the problem.

    One of the biggest problems with offshoring is communication. When all the people in charge speak english, and the people doing the work can only speak marginal engrish, problems occur. Specs are not relayed properly or take much more time to communicate than they normally would. The problem is that even seemingly trivial specs are important, and they can mean a costly product return. We have seen one product return that costs as much as the employee saving for an entire year.

    There are also overhead costs involved in setting up the offshore operation. I'd imaginge even moreso with engineering or R&D. Files and data must be able to relayed quickly and securely. With an oufit overseas you have little control over, this is can be very difficult. And if something goes wrong and important information doesn't make it, or doesn't make it in time, that can also mean costly losses.

    The whole point is that while offshoring saves on employee costs, those savings can be quickly erased by communications or quality errors. In my experience, the cost savings just aren't all they are cracked up to be, although you wouldn't notice by looking at the accounting reports.

  • The key advantage of hiring Chinese entry-level engineers was cost savings, whereas a few respondents cited strong education or training and a willingness to work long hours. Similarly, cost savings were cited as a major advantage of hiring Indian entry-level engineers, whereas other advantages were technical knowledge, English language skills, strong education or training, ability to learn quickly, and a strong work ethic.

    Surely "strong education or training" really means "stronger education or training th

  • I am a contractor at a major telecom company. As it happens, my contracting company is an Indian company. Over half the people I work with are Indian.

    One of my co-workers is Indian and in India. But, he does nothing because of legal restrictions. He is hardly ever around because he gets so many vacations, holidays, and training days. He can only work a 40 hour week and can not work on the weekends, which is when he is actually needed.

    He gets paid a salary to do nothing, my team is down a member, and we thre
  • Labor in the US (Score:3, Interesting)

    by cdrguru ( 88047 ) on Thursday April 05, 2007 @04:13PM (#18625949) Homepage
    Labor in the US is certainly one of the most expensive in the world. As a direct result of this it should be obvious that any technique that will move the work elsewhere where labor is cheaper is going to be done. Any technique.

    Outsourcing will continue because it is at least on the surface cost effective. It will displace higher paid American labor in favor of lower paid labor elsewhere. It does not seem reasonable to assume that at some point all foreign labor will become as expensive as American labor is today. At least not for a long, long time.

    Many people in the US are under some kind of illusion that we can be a country of "knowledge workers" where everyone is above average and college educated. We can simply export work or import labor for anything that is not covered by this. There is a false assumption here that everyone in the US is capable of being trained as a "knowledge worker". We are reforming the economy such that there are no jobs in the US which someone of more modest intelligence and capabilities can perform. This is a mistake on several levels.

    Obviously, we can move work offshore to cheaper labor but we will then be dependent on a longer supply chain and whatever occurs in these foreign locations. This means that an earthquake in India can wipe out a company in the US. Does not sound like a good plan.

    It also means that it is possible to seriously damage the US ability to compete in the world by attacking non-US facilities. If a majority of consumer electronics devices are made in Indonesia, burning down a factory there may prevent a US competitor from entering the market and preserve the market dominance of other countries.

    Certainly when all our military equipment is made overseas, as will soon be the case, it will be nearly impossible to use the military against foreign enemies in league with producing countries. We can also expect complex military hardware to be dependent on foreign powers continued good will to keep it operating. Logic bombs in such equipment can be expected.
  • Like console admin, ID admin, help desk, etc. If you have 50,000 ID's to manage why not send that job to South America. It's not a high skill job and doesn't require any personal interaction.
  • It always amazes me that the same folks who so willingly give away source code are the ones who complain that their jobs are going overseas.

    If you code for free....it really doesn't matter what the overseas programmers/engineers are getting DOES IT.

  • Of course outsourcing and offshoring saves money. And that is a real bitch to people, like me, who have invested in a lot in our IT careers. But, I must admit, it's understandable. If msft, or orcl, were to say: "look, there's just no way our company can remain competitive if we pay developers 5X more than the competition pays. And besides, how do you expect the CEO to get by on less $10 billion?"

    So okay, it's time to get out of IT, I can live with that. What I hate is the Bullsh!t: "offshoring will actuall
  • and they've decided to movie the manufacturing and R&D of their most profitable product overseas (this is a crucial safety device used on pretty much any aircraft flying with more than 2 engines). My neighbor was in manufacturing QA, and was slated to be laid off, but his entire group was forced to stick around since last summer to train their replacements. Their pensions were being effectively held hostage, so they all obeyed dutifully. They were supposed to be done and all laid off by last October, bu
  • Part of the problem with American IT competitiveness has to do with the pace at which the sector is developing. Much of what students learn in class is obsolete by the time they actually enter the work force which means that CS may not be the best major if that's what you want to do for a living. Mathematics with a minor in CS is probably the best way to go right now.
  • by NerveGas ( 168686 ) on Thursday April 05, 2007 @05:17PM (#18627163)

          Our company outsourced a bunch of work to India. In a private conversation, I asked the V.P. why he did it...he was to-the-point, and said "It costs us $7 per hour out the door." Finding employees in the US with the skills would have cost more in salary alone, then factor in unemployment, health benefits, setting up a workstation for them... it's a huge difference.

          Now, our company is the single largest player in our market. We're the 800-pound gorilla. We drove several competitors completely out of business. There's money there, we're not hurting. But when the guys in charge think "We could hire Indians instead, and split an extra $200,000 this year between ourselves...", then you know what the decision is going to be.
  • by J.R. Random ( 801334 ) on Thursday April 05, 2007 @05:22PM (#18627257)

    I would still allow outsourcing, but just subject it to the following condition:

    Before you can outsource any other job, you must first

    1. Outsource the CEO.

    2. Outsource the CFO.

    3. Outsource the CTO.

    4. Outsource the company president.

    5. Outsource all vice presidents.

    Because these tend to be the most overpaid people, this law would have the advantage of creating maximum value for share holders.

  • by zorkmid ( 115464 ) on Thursday April 05, 2007 @05:44PM (#18627589)
    About a year ago a group of friends (coders all) abandoned Northern California and went in together on a farm in Okalahoma and built a couple of extra houses on it. They've been able to drop their billable rate down to where it's still competitive without the whole third world lifestyle (but hey, it's still Okalahoma, dudes).

    I'm kind of conflicted about this. Good on them for finding a way to be competitive but it's just more downward pressure on rates.

    As a side note they're also ramping up to produce wind power and biodiesel (Canola - the thought of any of these four driving a tractor scares me). First stop self-sufficiency and then on to selling the surplus.

    Cooperative living may be the only way to beat Corporate goons.

Between infinite and short there is a big difference. -- G.H. Gonnet