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Outsourcing to India is not a long term threat

I read lots of articles and posts about how most of our jobs will be moved to India. I think we have little to fear of that. With “we” I mean developers and IT workers who develop or administrate non trivial systems. I myself work as a programmer doing trading applications for stock exchanges her in NYC.

Here's my reasons why you don’t have to become a school teacher or bus driver instead of programming C++ or :

Before the recession, money was never a problem. Consultants were paid anything they requested, developer salaries started at 100G + bonuses and new projects with little business impact were started all the time. That this country’s IT departments have to save money, for example by outsourcing, is a new phenomenon and will be changed once the economy turns up again. Then it is all about supporting and enhancing business to any cost. Manager will once again have budgets to spend and then they no longer have to save, so no need for outsourcing. Most managers prefer to have staff working for them instead of just shipping their budget to some outsourcing company. Handling as many projects and having lots of staff is every manager’s goal.

Before the recession, the IT industry demanded that the H1-B quota was increased. Back then, companies rather brought people from India to New York and California, instead of sending their source code overseas. I don’t think that has changed, companies rather have their software developer here than over there. My users always tell me I don’t understand what they are saying, but I usually get it after a while once they show me. Working from India I would just not get it.

According to a Computerworld article, salaries are increasing in India fast, so with this rate, India will only have their low cost-advantage a few more years, see: http://www.computerworld.com/managementtopics/management/outsourcing/story/0,10801,84091,00.html?SKC=outsourcing-84091.

The main problem with developing advanced, business specific IT systems have always been to capture requirements, understanding the problem domain and business processes. This is even harder from India if not impossible. I’m sure that well specified problems, like printer drivers or GUI controls can be described well enough to be developed by someone else, but not business critical systems. A written specification is never enough, and modern agile development processes is hard to do when u live in different time zones

To summarize, once the economy picks up, money will be used to create new jobs here in US, not in India. The reason outsourcing is more popular now than before is because of the economical slump. I predict that in 2005, companies will beg us once again to work for them and pour money on us for it.

Mellowman
Thursday, August 21, 2003

Wrong. The dirt path to Asia will become a superhighway. India's wage inflation will lead to China's eventual dominance. The last clothing manufacturers are shutting down and engineering will follow the same trend. Sure, some industies and functions will stay here but so what. I'll still be working next to you at Wal-Mart in 10 years. I hope you have a master's degree because you just might have to follow my orders in the women's clothing department.

StickyWicket
Thursday, August 21, 2003

If India and China are such software powerhouses, why hasn't their software dominated our store shelves these past couple decades?

Rick
Thursday, August 21, 2003

Take a lesson from thermodynamics ...

Two bodies of different temperatures in thermal isolation transfer heat when in contact with each other.

This means the temperature of one will go down.  But it also means the temperature of the other goes up until both reach thermal equilibrium.

The problem is that we've been out of contact for too long.  Wage deflation will occur and jobs will continue to go overseas until the influx of new cash raises average wages over there to US standards.

*shrug*  That's life.  Cope.

Alyosha`
Thursday, August 21, 2003

Rick,

Because they aren't building shrink wrapped applications. They are largely doing the boring corporate development in areas like finance and insurance.

There aren't a ton of Indian companies building products from the ground up. It's much easier (and profitable) for them to be doing what they are doing right now.

Mark Hoffman
Thursday, August 21, 2003

I am a developer in Eastern Europe. A lot of the software outsourced from the US comes here.

Of course, India is the biggest player for outsourcing, but I think Eastern Europe is also a powerful source.

What I'm writing here is 100% true for East Europe, and may also be true for India.

> There aren't a ton of Indian companies
> building products from the ground up. It's
> much easier (and profitable) for them to
> be doing what they are doing right now.


Working on custom software development is a lot less risky than working on a product of your own.

custom software development = you have a contract and, as long as you do your job, you get the money

your own product development = you need significant starting capital to invest, then you develop the product, and then the product may sell or may not sell, so it's very risky


So:

custom software development = very low risk, low initial investment, medium profits

your own product development = high risk, high initial investment, possibility of high profits

Do you understand now why companies in East Europe and India prefer to do custom software development, instead of developing their own products?

It's a very logical and rational choice.


A difference between US and East Europe is that, even with the US economic problems, there is a LOT more venture capital available in the US.

In East Europe, there is almost no venture capital available for starting a risky business.

Even if you have a very safe business, you will still have a lot of problems financing it.

So, in East Europe, most companies are bootstrapping - they use their own profits for financing themselves, and usually they don't use any outside sources.


There is a myth between US programmers that the Indian and East Europe programmers are not creative, but just "code monkeys" that just do what they are told.

This is simply not true.

But because of the economic conditions, it is a lot less risky for us to follow instructions, than to work on our own products. As I explained above, it is a rational choice.

But, as the companies here doing custom software development for clients in the US get richer, we have the cash for investing in writing our own products.

This is already happening:

Many of the larger software development companies in my country who achieved wealth by developing software for US clients are now starting to develop their own products.

I know it is sad for you, the US programmers, to find out about this, but it's real.


One of the most effective way you can keep your high paying jobs in the US is to become domain experts.

For example, let's say you work for the energy industry. If you do, then learn everything that you can about the energy industry.

A developer in East Europe or India won't be able to replace you, then, because the industry in East Europe is vastly different, compared to the industry in US.

Even if I go and learn everything I can about the energy industry in my country, I won't be able to compete with you or take your job, because my knowlege won't apply in the US.

A developer in East Europe
Thursday, August 21, 2003

I will call this post The Triple Threat.

Mellowman wrote, "The reason outsourcing is more popular now than before is because of the economical slump."

Agree.  But it is also because it is "an easier thing to do" than it was 5 years ago.  Management always will do what is good for them.  Lets pretend for a moment that it can proved that big multi-national companies aren't saving any money on outsourcing work abroad.  Would this stop the trend?  I say no because managers don't have any long-term incentive to care unless it means no bonuses or promotions.


Mellowman wrote, "The main problem with developing advanced, business specific IT systems..."

The main problem is that most established businesses  have developed their core software systems decades ago or migrated them to an ERP system.  Occasionally, companies will migrate a legacy system to a client/server type of platform.  In other words, there probably isn't as much work to be had in this area as you think there is.


Mellowman wrote, "...My users always tell me I don’t understand what they are saying, but I usually get it after a while once they show me. Working from India I would just not get it."

===  The other form of outsourcing  ===

Well, that is one reason why Indian based consulting firms such as InfoSys and Tata consulting have a large physical presence here within the U.S.

Have you ever worked for a large consulting firm (U.S. or foreign based)? 

* No bench time (and they try to fire you so you can't get UI)
* No training
* Inept co-workers
* Recruiters placing you wherever they can
* Firm takes 50% or more of the billing fee

If you answered yes to my first question - then have you ever worked on an application outsourcing (maintenance) project?

* Must be reachable 24 hours a day, 7 days a week, 365 days a year.

* Required to support huge legacy systems (Maintenance Programmer - not exactly something that looks good on a resume)

* Required to support a large number of heterogeneous applications and systems (C++, VB, ASP, Java, COBOL, SAS, CICS, DB2, SQL Server, Access, etc.).  Some people call this being overwhelmed and overworked.

* Required to support in-house software systems that nobody in the company knows anything about.  Yes, Mr. Recruiter I gained a lot of knowledge of FOO and BAR which are only used at XYZ Corporation.


Then there is the H-1B and L-1 visa programs ...

One Programmer's Opinion
Thursday, August 21, 2003

Mellowman, the fallacies in your analysis are that you presume corporate management - the decision makers - have good understanding of the software process and are concerned about consequences more than two years away.

Those presumptions are not valid.

analyst
Thursday, August 21, 2003

An excellent post by "A developer in East Europe".

StickyWicket
Thursday, August 21, 2003

I still think our fear is due in part to a lack of information.  Do we _really_ know how effective offshore development is?  We're taking it for granted that it's a straight apples-to-apples comparison.

Are there piles of people out there saying "man, sending that CRM project to Bangalore was the best thing I ever did.  Fantastic, clean, maintainable code and all completed on time!  You bet I'm sending over my next project".  Are we hearing that over and over?  I haven't.  Doesn't mean that isn't people's experience.

Does anyone out there know for certain that most companies are happy with their decision?  Or is it too early to tell how their decision has turned out?

I'm more willing to be afraid with real information than be afraid of uncertainty...

Bill Carlson
Thursday, August 21, 2003

Does anyone out there know for certain that most companies are happy with their decision? 

Even if it's a failure companies will call it a success. I have done a few large projects that the technical people deemed failures but were twisted and called a success by upper management or directors.

Also, how is the cost for outsourcing accounted for. Where does it show up on the books? I have only taken a couple accounting courses but I do know that so called aggressive accounting is used at places.

Tom Vu
Thursday, August 21, 2003

The funny thing about it is that the worse a failure the outsourcing is, the bigger the success it can be made to look like.

Say they outsource a project that could be done locally in 10 person-months, and the offshore firm does it in 25 person-months.  Management will calculate their savings by comparing it with the cost of 25 person-months locally. So if it had taken 40 person-months, the savings would be made to look even bigger, as it would then be compared against 40 person-months locally.

Like I said before, outsourcing is about creating the *illusion* of savings so management can secure bonuses for themselves, just like dotcom was about creating the illusion of profits so management could secure bonuses for themselves.  Reality is often quite different.  But the reality will be hidden as long as it is financially possible to do so.

T. Norman
Thursday, August 21, 2003

I think the threat is two-fold.  First, you have customers going to american companies with requests, these companies then farm out the work to India/China, wherever.  How long do you think it will be before the Indians/Chinese/wherevers learn how to cut the middleman?  Not long, IMHO.

Second, why does software quality suck?  Because hiring a test team of the same size as the development team is expensive.  But when the wages are 1/10 the american rate, it's still only 20% the domestic cost for development.  So now you have development teams, working in parallel with test teams, combined making much less than half the american *development* team, and producing software of much higher quality.  Testing counts, it also costs a lot of money done right.

I think that second issue is what will kill the domestic software industry.  I've worked too many jobs where "Quality is job 1, except when it's time to ship the damn thing".    I've shipped too many products that needed more testing, and used too many products that needed more testing (read: Microsoft) to have warm fuzzies about the whole testing thing.

snotnose
Friday, August 22, 2003

The elimination of taxes on dividend income is going to drive all companies to pay dividends. Analysts believe that dividend payments rather than growth will drive investment now. Some analysts believe that the tax cut coupled with negative prime interest rates will force businesses to borrow to pay dividends and that starts to look like a way for the goverment to pay business through the Federal Reserve to pay dividends.

The net effect of all of this is that VC capital will dry up.

The effect of the recession and the recent political changes is to put old money in charge again at the expense of whatever you wanted to call the "New Economy," which was one thing for certain, new money.

Dividends are the pasture of the cash cows.

Microsoft very quickly decided to pay dividends. There were others likewise, but I've forgotten.

David Locke
Friday, August 22, 2003

"They are largely doing the boring corporate development in areas like finance and insurance..."

So does this mean all the tech school lackeys with their thick local accents and other riff-raff will drift off to other industries, leaving us real coders to do just the cool stuff??

Rick
Friday, August 22, 2003

"I read lots of articles and posts about how most of our jobs will be moved to India. I think we have little to fear of that. With “we” I mean developers and IT workers who develop or administrate non trivial systems."

That includes Indian developers as well! And they surely don't need to be afraid of jobs coming their way :-)

Oh, you're from The States? In that case, of course, you assume that most people, including JoS Forum readers, are too. Nevermind then.

Dr.Maybe
Friday, August 22, 2003

On the more serious side:  I'll have to second StickyWicket, that was a very good post by "A developer in East Europe".

The reason why USA, despite recent events, has so many market leading software products, is because of the economy. Though not as free as at has been, it is still very free compared to other countries and has been for a long time.

Asian countries won't be "equal" competitors until they become more free.

/ a Western European developer

Dr.Maybe
Friday, August 22, 2003

Dr. Maybe, sounds like you are from 'Old Europe'. But in the end, it doesn't matter, because the US will always retain its economic, military and technological edge. We'll fight the whole friggin' world if we have to. :-P

Rummy
Friday, August 22, 2003

I don't think your logic follows David.  The market is a little more savy than that.

What will most likely happen is that there will be more demand for dividend paying stocks, which therefore results in the sheep of the market blindly buying dividend-paying stocks.  Thus the price of dividend-paying stock will trade at a greater premium.

It should be good for microsoft to pay out some dividends, given that they have been sitting on quite the pot of cash for some time now.

I think the blue-sky benefits of stock price investing will continue to draw people in, no matter what.  There's still substantial tax benefits to buying into something and then cashing out in a few years. 

I think it's going to be hard to attract the large investors with dividends if you are borrowing to pay those dividends because of how your balance sheet will look.

Flamebait Sr.
Friday, August 22, 2003

Rummy, what doesn't matter? What are you trying to say? That USA is the greatest country in the world and will always be and everything your president always does is the right thing?

I was just making a point about many Americans seeing the States as the center of the world, sometimes, failing to realize the world outside.

Sure, you have to go all patriotic when you don't know much about the world around you. It's not USA vs. The World. It's more complicated than that.

I'm not anti American. I like the original idea of a free country with a very small government. And I like that you admire people that do great things instead of envying them and stealing most of their money with taxes. The latter is more how it is like where I live, in Scandinavia. And as I said in the second post, that is the main reason why you can make so competitive products.

Have you ever seen the movie "Wag the Dog" with Dustin Hoffman and Robert De Niro? Even though it's from 1997 it has a strong resemblence with the situation today. Quite interesting.

BTW my country is still helping you in Iraq and Afghanistan right now, so I don't live in "Old Europe". Since it's in Scandinavia that means I live, in which country?

Dr.Maybe
Friday, August 22, 2003

Dr. Maybe, I apologize for not making it clearer that I was being sarcastic. A thousand pardons.

Rummy
Friday, August 22, 2003

Maybe,
even without your hint it was clear you live in Western Europe.

Johnny Bravo
Friday, August 22, 2003

Hehe, Rummy, you got me. It's not often that I fail to see when someones being sarcastic - even in writing. And there even was a smiley!

It's properbly my prejudice towards some patriotic Americans, I'm sorry. I thought you were a 13 old kid or something :-)

Dr.Maybe
Friday, August 22, 2003

I'm going to guess that you live in Denmark, land of the right-wing western europe gov't.

jeff l
Friday, August 22, 2003

You're right jeff1! Where are you from?

Although the current gov. isn't especially right wing. But one of the partys "The Danish Folkparty" supporting the gov. has a "right wing" profile on foriegner politics. But basicly their all pretty much social democratic(labour).

Were paying 60+% income tax, 25% VAT, 180%!! on cars etc... The current gov. consists of the two least socialistic partys, but they are not very good at reducing our massive, dreadful "welfare state". Besides that, and sometimes the weather when its not summer - it's a pretty good country though.

Dr.Maybe
Friday, August 22, 2003

"Folkparty" - do you have a "Deathmetalparty", too?

I've been in Cobenhavn this spring. It's beautiful. At least you know where your money goes to.

Johnny Bravo
Friday, August 22, 2003

Yeah... The most important thing in the parlament is what kind of music is to be played on the state-radio, right now the RnBparty is pretty big.

No seriously, maybe it should be translated into the "Danish Peoplesparty" instead.

About I know what the money goes to? It doesn't all go into making Copenhagen beautiful, actually there are a lot of regulation in the flat-renting area, resulting in pretty ugly buildings in some areas. Most of it goes into paying people for not working. This makes a lot of foreigners want to live here, and that makes it necesary to prevent billions of people immigrating. That is why there has been some talk about the right wing politics in Denmark in the world press.

In stead of being known as a right wing country, it could be known as the exporters of Lego bricks and the actor that plays Aragorn in LOTR :-)

Dr.Maybe
Saturday, August 23, 2003

Pay not to work in Denmark - is that real?

Heck the closest thing to this in North America is Canada and Vermont.

Ram Dass
Monday, September 08, 2003

I quote from Information Week, January 14, 2004:

"A study by Foote Partners shows salaries for IT workers with specific skills was 23% lower in 2003 than in 2001, and that the number of jobs moving overseas will continue to grow."

Has that got your attention?  Are you REALLY listening?

M. Paulding

M Paulding
Thursday, January 29, 2004

Why does no one talk about the outsourcing to IRELAND ??
All the boom in Irish economy was due to the US multinationals outsourcing. This happened for atleast a decade. Why just blame India ???

Dr. Travis
Wednesday, April 28, 2004

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