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Business Cycles

Joel has a point about business cycles - they have been around for hundreds of years.  The essential point of the Fortune article is this:  when the current cycle bottoms out and then recovers, frequently some segment of the workforce does not fully recover and is irrepairably damaged.

Example:  after the recession of the late 70's small goods manufacturing in the USA was sent overseas and never came back - those jobs were lost during the "bust" and never came back at the next "boom".  Software development is absolutely going through the same thing now to one degree or another - an awful lot of development work that was done in the USA is now done overseas and is never coming back.  Next on the list is financial back office operations - one recent WSJ article talked about one in four USA accounting jobs being outsourced in the next 24 months.

So, the moral of the Fortune story: economic cycles happen, but the economic reality of various industries can change irrevocably during a low point in a cycle.  This I think is not disputable.

Mitch & Murray (from downtown)
Monday, June 16, 2003

Mitch & Murray wrote, "an awful lot of development work that was done in the USA is now done overseas and is never coming back."

That's neat, how you can know what's going to happen in the future.

Brent P. Newhall
Monday, June 16, 2003

Brent,

You don't have to be psychic to be able to predict what will happen in the future. A little business sense, a little common sense and you have a reasonable chance of predicting many things.....

Many software jobs have gone overseas. No one doubts that. Now, for them to come back then it will have to be shown that it is more costly for the development work to continue overseas. For many of the projects, it will alwas be cheaper to be overseas. Therefore....The aren't coming back.

Mark Hoffman
Monday, June 16, 2003

> For them to come back, it will have to be shown that it is more costly for the development work to continue overseas.

No, no, no, all that needs to happen is some b-school researcher writes that modern business management is bringing it back. Reasons could be:

- Total Code Ownership (TCO)
- Business Process Rejuvenation (BPR), or
- Strategic Software Utilisation (SSI)

This is scheduled to occur late 2003, early 2004.


Monday, June 16, 2003

I find it fascinating how people will claim that the fundamental reason why software development (or any other "high value" intellectual work) has moved overseas and is never coming back is because it is "cheaper" overseas (note that the decline of the US dollar in recent months has greatly diminished the difference though), and therefore it is a given that it will stay there. Perhaps no one has noticed, but right now and over the past decade the vast majorty of software development in North America happens in the largest, most expensive office buildings in the middle of the most expensive cities. Why do you suppose this happened rather than software development villages popping up in the middle of Nebraska? Hell, even in a metropolitan areas most dev offices are in the most expensive area, rather than in a chaper location in the 'burbs .

The reason, of course, is that business is not all dollars and cents, and has never been. Exactly as Joel mentioned: This is a business cycle. Every business cycle there are countless croonies foretelling the demise of Western civilization, and the coming of the next great depression (I am so tired of that particular piece of perpetually recurring prophecy that I would like the death penalty to be meted out to any who proclaim it and their prophecy doesn't come true...okay, maybe not quite so harsh...a lashing with cat-o-nine-tails. Carry that through to cover any proclamations about the "Next Hitler", "Next Vietnam", or "Next World War"). Couple that with the fact that many who've fallen on hard times want to exaggerate the world's misery to unnecessarily justify their own personal situation and you have this cycle of doomsayers that comes every 6-10 years.

Dennis Forbes
Monday, June 16, 2003

"... business is not all dollars and cents"

Obviously not of the famous Forbes family, hmmm?

Just kidding. 

The reason it's just now happening is that the resources are just now coming available.

     
Monday, June 16, 2003

Dear Dennis,
                    There are two reasons for having software development in expensive offices in central locations. The first is to be near the customer; the second is to be near a pool of skilled labour, which is why companies pay exorbitant rents to be in Central locations. A third reason, becoming less important, is that of bandwidth.

                    Now when you outsource or offshore the first reason, nearness to the customer, doesn't apply. However the other two do, and places such as Bangalore or Hyderabad, or St. Petersburg, or Bucharest all are the equivalent of downtown New York or Silicon Valley in their respecitve countries. This is why they will win over Nebraska.

                    I doubt if the jobs are coming back; some no doubt will but a lot more will go overseas to replace them. As the Fortune 500 article said a lot of companies have being doing pilot projects; what they are now going for is the big roll out. Now what will happen is that there may be a shortage of skilled workers when this happens. At present call centres in India are using top quality university graduates to replace the high school drop outs and college students that manned many of them in the US and UK. There is not an infinite supply of them however.

Stephen Jones
Monday, June 16, 2003

Many of the casualties described in these stories are not even hands-on implementation people, but are people with fancy, removed-10-levels-from-hands-on-work duties in their former "lives". People whom if you asked what they actually did or accomplished could not really point to hard specifics.


Administrative "mentats" (to use a term from Dune), in other words.


I'm not saying that everyone ought to grub for bits and bytes or dig ditches, but I sometimes think that many people in the recent past got ahead of themselves by hiring into positions that have such abstract or nebulous duties that they can't communicate their value as workers to anyone who isn't on the same "level".


Considering that I've been placed on the defensive in many job interviews by interviewers who wanted to hear me describe some "tangible business benefit" I've delivered and not just wanting to hear "developed software" - I don't have a lot of sympathy for people who expect to continue to live in highly rarified environments...

Bored Bystander
Monday, June 16, 2003

but I sometimes think that many people in the recent past got ahead of themselves by hiring into positions that have such abstract or nebulous duties that they can't communicate their value as workers to anyone who isn't on the same "level".

I don't know Bystander, the last three places I worked-
Actuate
Schwab (Short Contract right during their last layoff)
Critical Path (Contract is ending this month)

it seems the grunts (QA's, Programmers) got the axe, while the "e-strategy manager" types survived

Daniel Shchyokin
Monday, June 16, 2003

"an awful lot of development work that was done in the USA is now done overseas and is never coming back"

Why?

http://www.joelonsoftware.com/articles/StrategyLetterV.html

"if you have a competitor who lowers their prices, the demand for your product will go down unless you match them"

-Joel

The simple equation is, we can't lower our prices far enough.

cycle-o-matic
Monday, June 16, 2003

I think it might be wise to look at IC design and fabercation In the down turn in the late 80's alot of that work went to East Asia (Taiwan and Korea ).  In the 90's the price of doing business creep up in that industry in Asia. Now some US based companies are some moving high end operations back to the US and  out sourcing to Malaysan, Indonesia and mainland China (Along with the Original Taiwanese companies).  It is a mater of markets,  when the cost of business (the total cost of business, not just payment to company) start to be what developing in the west will be then jobs will come back. 

Not as many as were lost but it will happen.

Also if any thing happens (another terrorist attack on US soil comes to mind) then the cost of doing business with South and South-East Asian might rise arificailly.  (Restrection on any one that might be a threat) is a real posibility.  Or some political instabilty in India or China, maybe even between India and China (They have been at war in the past,  but it is highly unlikely.) could affect some out comes.

A Software Build Guy
Monday, June 16, 2003

It's interesting that the bank I work for is moving all its development 50 miles across the country; because it's decided even having the development happen in a different city is "too far away".

They (top management) want the entire operation on ONE site: Management, development, the servers, the call centre, everything. They want all these people talking to each other in the restaurant at lunch time.

We only really have a London office so we count as a "proper" bank in the eyes of the City.

This is curious, because every other financial services company is frantically ramming workload offshore as fast as it can. I don't quite know if we're being really smart or really dumb yet.

And, as the other half is finding out, "cheap" does not mean "cheap and good". And it's a lot harder to find out whether they're both when they're 9,000 miles away. It's hard enough when they're on the desk next to you (before they've burned a lot of project time, that is).

I'm just wondering if companies are EVER going to learn that all more bad programmers gets you is more bad code, and what you actually need is LESS programmers but better ones.

Katie Lucas
Tuesday, June 17, 2003

It's just plain nuts to say that things are getting worse when everything is getting better. This has just been another part of a cycle and things are turning around.

"Job Market Worse since early 1990s" (6/17)

http://story.news.yahoo.com/news?tmpl=story&cid=509&e=2&u=/ap/jobs_outlook

"Here come the Duppies - tales of the downwardly mobile" (6/13)

http://money.cnn.com/2003/06/12/pf/saving/duppies/index.htm

"Consumer Prices: Largest rise in 9 months" (6/17)

http://story.news.yahoo.com/news?tmpl=story&u=/nm/20030617/bs_nm/economy_prices_dc_2

Use of Human Zombies becoming popular again: (6/17)

http://story.news.yahoo.com/news?tmpl=story&cid=573&e=4&u=/nm/colombia_zombie_dc

Low pay, no pay, high prices, drugs, crime, illiteracy, kids doped up on Prozac going on shooting sprees, crazed zombies -- what more could we want? After all things couldn't possibly get any worse right? That's the theory?

Dennis Atkins
Tuesday, June 17, 2003

It's wrong to say jobs won't come back. I think they *will* for two reasons.

1. It's fine to outsource simple routine software. The sort that might be written when you don't want to spend much money (for example during a recession). But when you want something unique and new developing it's much more important to be in control and in contact with the development team on a day to day basis. When companies once again have a little more money to spend on things they hope might make them money rather than just essentials I think that more of the software development will be done locally.

2. Startup software companies *will* be formed locally and grow into bigger companies employing more people. There are not many startup software companies at the moment. But there will be soon, and they will be local comapnies employing local people. Software is one of the few businesses where economies of scale operate in reverse. It's more expensive for large companies to produce software than small companies.  A few large companies can dominate the mass market software and are highly visible  but most software is witten on a small scale for internal use specialised use so you never hear about it. This is what will grow hugely as the economy grows and most of those jobs will be local ones.

JB
Thursday, June 19, 2003

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