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ANDY GROVE (!!!) warns on dangers of offshoring

http://www.forbes.com/2003/10/10/1010grovepinnacor.html?partner=my_yahoo&referrer=

He's basically saying the U.S. is going to lose it's lead in software and technology service industries very quickly if current trends continue.

It's stunning that this is coming from the chairman of Intel.  He admits that he is torn between his obligations to share holders and U.S. workers.

Way to go Andy.  If this doesn't get policy makers' attention, nothing will.

Jim Rankin
Friday, October 10, 2003

Offshoring is gonna piss me off until telecommuting is generally accepted. Hypocrisy burns me more than anything.

Philo

Philo
Friday, October 10, 2003

The difference between telecommuting and offshoring, is that the offshored workers still have to work under the thumb of management.  So it's not *exactly* hypocrisy.

hmmm
Friday, October 10, 2003

But then who is managing the offshore managers?

It is pure hypocrisy.  Even though telecommuting probably has greater potential for real net cost savings than offshoring (by cutting down on office real estate and being able to offer lower salaries than your competitors, etc.) it isn't able to create the *illusion* of savings that offshoring can.

NoName
Friday, October 10, 2003

I agree with you Philo.  Now say I work from home for 30% of my current wages...  All of a sudden telecommuting is cool.

Mike
Friday, October 10, 2003

Following that line, it's hypocrisy to ever have more than one division, or one office branch. 

It's not the fact that the coding is done somewhere else that matters, it's that it's done under supervision in a controlled environment.

I for one, completely understand.  There is no way I'd trust anyone to work on my product from an uncontrolled home environment.  If you had a product worth serious money, would you?

hmmm
Friday, October 10, 2003

The US programmers might make less than 30% of what US programmers make, but the offshore firms charge more like 50-60% of US wages+overhead.

If we accept 15% less salary to telecommute, or even 30% less if we telecommute from a low cost of living state, and combine that with the reduced office real estate costs, US programmers would be almost as cheap as offshore.

--
Friday, October 10, 2003

That first sentence should start "The offshore programmers ... "

--
Friday, October 10, 2003

I go into the Office two days a week. The rest of the time I work from home. Between email, terminal services, citrix, messenger, etc. it's like being in the office. My office phone is simply forwarded to a dedicated line at home.

I also have the "pleasure" of "over-seeing" the efforts of an Offshore development group from India.

What do these two things have to do with each other? I am in the position of knowing how important that 2 days a week at the office are. Most of my development effort requires the input of a lot of people: managers, Analysts, sales people, etc. Face to face communication is really needed.

We have found working with the off-shore group frustrating. It's like they are literal minded. They do what you tell them to do, but not what you expected. They deliver something in the time frame they quoted, and then we spend twice as much time debugging it. And usually re-writing a great deal of it -- especially the UI stuff.

There's a big gap in the culture. And that point has been driven home to me. Communication is very, very difficult. There is often big misunderstands about the requirements.

So why are we still using them? Well, for one thing I've heard that the owners are finally fed up, and we will be dropping them. Turns out it's cheaper to go with either a local contractor or <gasp> hire someone !!

Bill K Ramsey
Friday, October 10, 2003

I've had that taking the spec to literally problem as well.  You have to spend 3 times as long writing the spec because the offshorers are not able act creatively or make suggestions.  There should be some ambiguity in the spec, and that's were the implementation team uses their intuition and experience to deliver what is really desired.  I have a feeling that a lot offshorers don't have the intution it takes to deliver what you really want. 

The problem is they never question anything.  In the past I've been given specs that didn't make a lot of sense, and I gone to the creator, and they say, "oh yea, I didn' t think of that." 

With the offshore work you get exactly what you ask for, but sometimes once the implementation starts it becomes obvious that what you ask for isn't exactly what you want.

Certainly someone is going to jump up and say "write better specs."  But, let's be real, there has never been a successful software project where the spec hasn't changed during implementation based on a better understanding of the problem.

that's been my experience
Friday, October 10, 2003

"There is no way I'd trust anyone to work on my product from an uncontrolled home environment."

That's crazy talk. A typical developer's home setup is more secure and far more productive than a typical developer's workplace.

Dennis Atkins
Saturday, October 11, 2003

"If we accept 15% less salary to telecommute, or even 30% less if we telecommute from a low cost of living state, and combine that with the reduced office real estate costs, US programmers would be almost as cheap as offshore. "

The overhead for a developer is twice his salary. An offshore developer cost 80% of a local developer when all costs are factored in. Therefore, a home office contractor can be paid MORE than a office worker and still be cheaper than an offshore worker.

Dennis Atkins
Saturday, October 11, 2003

I've heard real estate prices are going nuts in Bangalore.  Can anyone confirm this?


Saturday, October 11, 2003

" " I don't know, but I think Sgt. Sausage should look into it ;)

Mark T A W .com
Saturday, October 11, 2003

"That's crazy talk. A typical developer's home setup is more secure and far more productive than a typical developer's workplace. "

I doubt that, but that is beside the point.  For the most part, the business world is a world of paranoia, back stabbing subterfuge and other internecine politics.  The closer to the top you go, the more paranoia and the more malevolent the games.  Why would anyone expose themselves to (in their eyes) unecessary risks? There is no upside to the employer to allow telecommuting, but there is a significant upside to outsourcing.

hmmm
Saturday, October 11, 2003

I'm not following ypour reasoning on the connection between malevolent backstabbing and a preference for outsourcing but not telecommuting.

As far as productivity, I know it's true! I'm able to post almost three times as many articles on JoS on the days I telecommute.

Dennis Atkins
Saturday, October 11, 2003

Are you sure you folks didn't just hire a crappy Indian software company and therefore got crappy coders?

Let's hear some other experiences about working with offshore companies. I've generally had no problems.

Karl Max
Saturday, October 11, 2003

Our company had recently outsourced two projects to some offshore firms and the delivered quality was excellent. One of the projects got delayed by a few weeks but the final product exceeded our expectation.

Not that I'm an outsourcing advocate but IMHO its a viable business practice in the current time.

*.*
Saturday, October 11, 2003

>"There is no upside to the employer to allow telecommuting, but there is a significant upside to outsourcing."

Normally telecommuting is done on a special case basis.  A valued employee moves far away, and they reluctantly allow them to telecommute.  There isn't much advantage to that, besides avoiding losing the employee.

However, there is a significant upside if telecommuting is done en masse.  They could cut down on office real estate costs by reducing the space required down to a set of meeting rooms and "floating" cubicles for the once or twice a week when they would come to the office for meetings (naturally, you can't have everybody being at the office on the same days).  They would get the benefit of less overhead, without the cultural differences, time zone differences, lack of company-specific business knowledge, and lack of face-to-face communication that happens when you send work offshore.

In addition, they would be able to pay below-market salaries because many people would accept a lower salary to telecommute. Or at least they could get better-quality candidates to accept jobs without paying them above the market average.

T. Norman
Saturday, October 11, 2003

"I'm not following ypour reasoning on the connection between malevolent backstabbing and a preference for outsourcing but not telecommuting."

People aren't rational.  It may (or may not) make sense to telecommute, but in the (often irrational) mind of the employer it is a bigger risk to have employees in disparate locations, without supervision (FEAR).  On the other hand, outsourcing confines workers to a single secure location, where they presumably cannot steal code and offers significant savings (GREED). 

There is still risk with the latter, but greed overcomes fear.  It's an emotional, not a logical decision.

Just all presumptive speculation on my part. :-)

hmmm
Saturday, October 11, 2003

It's not hypocrisy.  Offshoring saves a boatload more than telecommuting your local employees.  Offshoring benefits the company.  Telecommuting benefits the soccer mom employee, and bathrobe wearing employee

Bella
Saturday, October 11, 2003

> We have found working with the off-shore group frustrating. It's like they are literal minded. They do what you tell them to do, but not what you expected.

Learn to write better specs then.  This is partly your fault.

Bella
Saturday, October 11, 2003

hey, what logic fails here:

to get 10 times my salary, you have to be 10 times better than me! seems fair to me.

if i can prove you are not better than me and i cost 3-5 times less, then i'm competative, right?

and then we are plenty available :-))

my opposite perspective,
</wqw>

(happily outsourcing in eastern europe:-)))

wqw
Saturday, October 11, 2003

I'm really tired of hearing all the cribbing about outsourcing. Stop blaming the people and countries to which outsourcing is being done. Its not the fault of an Indian or a Chinese or whoever that you are jobless. Their costs are based on their own living standards and economic conditions. They will ALYWAYS be cheaper that any talent anywhere in the world. Its the big corporates who take the decision to outsource at the first place. Nobody puts a gun on their head to do that. If the big corporates are so darn ethical then why don't THEY think about the jobless figures in their country and start doing something about it for a change. Let's face it, outsourcing is a safe route for most corporates. Combine that with the pressure these companies are putting on the politicians and you can go figure ... its a nexus.

Uncle Sam
Saturday, October 11, 2003

I've been telecommuting for a year. Things I've noticed:
1) I have a better setup here than I've had on any job (dual monitor, awesome machine) at no cost to my employer.
2) I get more done in general. Minimal meetings, I don't spend 2-3 hours a day changing locations, no coworkers yapping loudly in the next cube.
3) I enjoy my job. A lot.
4) If I have a family obligation in the middle of the day, I miss an hour of work. If I was working in the office that would be either a half day or full day off.
5) I work when I can think. Instead of sitting in the cube from 9-5 and hoping to get 4-6 hours of work done, I get to my desk when I'm ready and generally get 6-10 hours of work done.

I recognize this is extremely personality-dependent, but if you have a type A geek that enjoys programming, telecommuting (with specific assigned deliverables and measured performance) should be win/win for everyone.

Telecommuting isn't done because poor managers believe "if I can't see you, you're not working" - thus the jackoff that does nothing but is in the office 9-5 gets more respect than the guy who works 11-8 every day (manager goes home at 4) and does most of the work for the company.

Offshoring overcomes this because it's perceived as a massive savings (on a purely hourly basis, not on a per-project or quality basis), and because it's the current management trend.

Philo

Philo
Saturday, October 11, 2003

This is really sad.  Andy, you're breaking my heart. 

The day the US tech sector becomes dependent on favors from those jackals in Washington is the day everything worth keeping about the tech sector dies. 

If customers think outsourcing is where they get their best value, that's what they ought to do.  If we can't show them otherwise, we don't deserve the business. 

Do you want customers, or sugar daddies?

Matt Conrad
Saturday, October 11, 2003

Yeah, I was a bit surprised Grove called for government regulation as the only way to preserve US tech jobs.

That might be nice in the short term but in the long term protectionist policies usually hobble the whole industry. (Grove mentions the fallen US stell industry, which as I recall still foundered despite very extensive protectionist regulations!)

I think also there is something to be said for diversifying the culture of software developers (I'm thinking that some of these offshore developers might be good at writing secure software, due to the emphasis on attention to detail and work ethic in their local cultures, as well as having a different approach generally than the typical US programmer nerd)

Dan Maas
Saturday, October 11, 2003

oops, before the flames start...

I say offshoring is perceived as a massive savings on an hourly basis as opposed to per-project or QA because from what I've seen, that's all that's evaluated. Logic dictates that offshore IT teams will have a spectrum of talent and ability - there will be some superstars and some crap. My point was that the poor management that outsources wholesale does so "because the workers cost $15/hr" without doing the total cost analysis of having to generate far more accurate requirements, the timezone differential, and the increased iterations necessary for a deliverable.

I didn't intend to put down the offshore teams - only the poor reasoning of the domestic management in using them.

Philo

Philo
Saturday, October 11, 2003

This is a hot topic, and I expect we'll hear a LOT about it in the upcoming years.  Putting aside my own interests, this trend has the potential to lead to the largest disaster this country has ever faced.  Why so alarmist?  Well, there are two factors:

First, this does not just impact IT jobs.  Any job that does not require a constant local presence is a candidate for outsourcing.  You may feel comfortable now, but as technology marches on increasingly fewer jobs will be immune from outsourcing.

Second, while outsourcing of manufacturing jobs has been going on for a long time, we're now crossing over to outsourcing *highly desirable* jobs.  Careers, actually.  Careers that in many cases are the best that an average middle-class and upper-middle-class worker is able to achieve!  Unlike with manufacturing job losses there aren't any obvious comparable or better careers emerging for people to retrain into... or for the next generation to pursue.  (Few people become executives right out of college.)

The ultimate affect, if this remains unchecked, is an unprecedented erosion of the middle class -- the backbone of this country.

Long term I think some sort of global re-balancing is inevitable.  I'm normally against government intervention, but in this case I think a light nudge to slow down this trend and give people time to adapt is necessary.  One idea I've heard is to require some minimum standard regarding human rights, wages (relative to cost of living), trade equality, etc. before jobs can be outsourced to a given region.

Tony
Saturday, October 11, 2003

I just found out I cost 30 times as much as you eastern european outsoured contractors. I cant compete with that!

I M Scared
Saturday, October 11, 2003

"If customers think outsourcing is where they get their best value, that's what they ought to do.  If we can't show them otherwise, we don't deserve the business.

Do you want customers, or sugar daddies?"

amen.  thats _exactly_ the point as far as I am concerned.

FullNameRequired
Sunday, October 12, 2003

Grove has a good point:  As a community, we should decide whether our corporations are acting against us in the long-term.  Are we weakening our tech labor base, so other countries can become stronger and compete with us?  They're growing talent and will soon be able to build companies easier than American offshorers.  These new companies will have tremendous advantage competing against their former backers.

Indians and eastern Europeans are happy to lead us down this path.  It's only logical.

While helping other countries is not bad, there should be small government incentives to not destroy ourselves.

anonymous
Sunday, October 12, 2003

Uncle Sam there hasn't been one word posted bashing indians or chinese please stop being stupid, and read the posts

the artist formerly known as prince
Sunday, October 12, 2003

http://discuss.fogcreek.com/joelonsoftware/default.asp?cmd=search&q=india

Uncle Sam
Sunday, October 12, 2003

You guys sound exactly like the ____ (steel, manufacturing, car making, pick one) workers used to sound. It might just be that software workers are not that special after all. When you buy shoes, clothing, stereos, etc, are they made in the USA? Probably not, and most people would not pay 2-3 times more just to get the same things made in the USA. I think it is just the invisible hand doing its work, and software is just another industry where the USA will struggle to compete on terms of cost.

Government regulations and subsidies are just another name for aniticompetitive behaviour. Get over it!

uncronopio
Sunday, October 12, 2003

>> Get over it!

It may take a while for the "skilled" lot to get over their dotcom hangover. But very rightly pointed out, software industry is just another industry - based on business regulations, driven by economic factors and profit oriented. Now if offshoring helps the business ... well then that makes it a periodic trend.

qwerty
Sunday, October 12, 2003

But we do have a lot of anticompetitive behavior.  For example, we have farming subsidies, partly because it's just a bad idea to get all our food elsewhere.  Would you like to be dependent on another country for your food basics?  What happens when all our farmers decide to quit, and one day we'll need them and their knowledge again?

But foreign countries can build their own software on their own shores and compete against us.

anonymous
Sunday, October 12, 2003

By the way, I am very undecided on this issue.  But I like how difficult arguments help me to understand it.

anonymous
Sunday, October 12, 2003

The ultimate question is, who benefits from offshoring besides executives who use it to claim bigger bonuses and the offshore firms?  I really haven't seen any evidence pointing to anything becoming cheaper as a result of offshore outsourcing of software.

Are banks and that outsource able to provide more services with lower fees?  Are insurance companies that outsource able to offer lower premiums or more coverage?  All I see are more fees with fewer benefits.

Car manufacturing was different ... that was straight up fair competition.  Foreign cars gained large market share in the US because of their high quality, not because they were cheaper.  US consumers largely rejected the cheap ones like the Yugos and Russian Ladas.

Other types of offshoring resulted in cheaper prices for consumers, such as clothing.  If offshoring software development brings real savings, our wallets should be able to experience those savings.

It is also different because other industries don't have the same large variance in productivity from worker to worker or company to company.  It is well known that some programmers are 10X as productive as mediocre programmers.  Productivity ratios from one organization to the next go as high as 100:1.  With offshoring of software, you are lucky to save as much as 30%.  But you could easily slash costs by much more than that just by hiring at least a few of the right people and establishing good practices in architecture and other development processes.  Some organizations are so immature and disorganized with software that they don't even have a testing or QA environment -- every program goes straight from a developer's desktop into production, and/or they don't use anything for source control.

This trend of outsourcing is also different from past ones in that it is happening much much faster. So fast, that it is likely to be just a fashion rather than a well thought out strategy involving honest analysis of real costs and benefits.  Do it because everybody else is doing it.  Another fashion just like the dotcoms.

T. Norman
Sunday, October 12, 2003

"You guys sound exactly like the ____ (steel, manufacturing, car making, pick one) workers used to sound."

The question is, after manufacturing, electronics,  IT, radiology, aerospace, engineering, software development, accounting, telecommunication, etc. all get outsourced, what is left behind for the rest of the middle class?

Some medical, law, movie industry, restaurant work, janitorial, hair styling, flight attendants, salespeople, some management, plumbers, ...

So we all become doctors, lawyers, or managers, or get pushed down into run of the mill low-end service jobs?  That's the problem, and technology will make the "safe" jobs outsourcable over time.  Our population is dwarfed by countries such as India and China, so don't think they couldn't absorb them all.

I'm exaggerating somewhat to make a point, but there is a real cause for concern if we outsource large numbers of the well-paying desirable jobs to cut costs.

The people who think it's just going to affect IT and software development are going to be surprised.

I won't even mention that we're outsourcing our work to the same countries that have the worst records of intellectual property violation, meaning they won't drive the world economy by buying stuff back from us.

Tony
Sunday, October 12, 2003

This is definittly not a tech issue. Businesse in this country are getting offers for all kinds of services: Financial analysis, loan underwriting, even medical diagnosis.  Capture the data. Send  [somewhere] for processing. Get the result back.  Web services sure will help here.

Oracle sent much of it's corporate accounting to India last year.

Business Process Outsourcing will be a huge issue this next decade.

fool for python
Sunday, October 12, 2003

Occupations for the middle class will keep changing, but there is no point to paying more for a service that you can get much cheaper from somewhere else.

Coming back to the manufacturing examples, you will get only the top of the line (and with large profit margins) products manufactured in the USA. Thus, the best and more expensive shoes and bikes will be really 'made in USA'. The rest will only be 'designed in USA'. In this way, only highly skilled (or skilled in a very specific niche) people will continue in the industry. Highly productive developers - the ones doing 10x the code of your average programmer - will stay in the software market. The others will need to do something else, because we can get people doing their work for less than half of the price.

If you are old enough, you'll remember that, initially, many Japanese products were crap. It took them a while to get really sophisticated to be able to compete in the USA. Many of overseas software is still the equivalent of an early seventies Japanese car; but they will eventually produce high quality software. There are already quite good Israeli programs, but they probably don't have the critical mass to outsource much of the work in the USA. India will get there.

"Would you like to be dependent on another country for your food basics?"
There is quite a bit of interdependance for food, energy (where is good part of the oil coming from?), clothing, etc.  Subsidising farmers (or software developers) is always paid directly or indirectly by the consumer, and you are only making things less afordable to keep a small pressure group happy. Eventually, they will also fall.

uncronopio
Sunday, October 12, 2003

>"India will get there."

Not necessarily.  Russian and Korean cars still haven't got there yet.

NoName
Sunday, October 12, 2003

"Occupations for the middle class will keep changing, but there is no point to paying more for a service that you can get much cheaper from somewhere else."

Changing to what?  What emerging job sectors are opening up to absorb the range and types of jobs that are at risk for outsourcing?

I have no problems with other countries entering markets to compete; as I said earlier, to some extent it is inevitable.  However, usually this takes time, as it did with Japan in the 70's.  The problem with the type of outsourcing that is occurring is that we are both giving away our expertise and shifting the allocation of jobs faster than people are able to adapt. 

It's one thing when they're low end jobs and people have equal or better jobs to move into, but it's another thing to outsource jobs where people with masters degrees that have worked their whole life become an expert in their field gets displaced because they're not more productive than TEN average skilled workers in China or India.

Unskilled workers can move between those types of jobs fairly easily, while highly skilled workers require more time before they can adapt to equivalent careers (in general).

Tony
Sunday, October 12, 2003

>" I really haven't seen any evidence pointing to anything becoming cheaper as a result of offshore outsourcing of software."

That's because on it seldom is cheaper if you add everything up.  Add back the extra coordination and documentation work, plus the time the local programmers spend cleaning up the crap that comes back, plus the duplication of effort (the offshorers will review and test the code before sending it to us, then we have to review and test the code again), and you haven't saved anything.

Like Philo said, it is easy to jump on the bandwagon by focusing on the lower per-hour cost.  When you take twice as long at half the price with double the bugs, it isn't a real savings.

--
Monday, October 13, 2003

>"... gets displaced because they're not more productive than TEN average skilled workers in China or India."

You don't have to be as productive as ten offshore workers.  It's more like somewhere between 1.5 and 2.  Indian outsourcers charge about $30-$40/hour, which is around half the cost of salary+benefits+overhead for a US programmer with a $65K salary. That $30-$40/hour is even before adding back the indirect costs and risks.  And they're not getting any cheaper.  As more companies outsource to them and the US dollar falls, they'll just get more expensive -- while at the same time their quality is *dropping* because they've had to relax their hiring standards just to meet the demand for bodies.

--
Monday, October 13, 2003

"Do you want customers, or sugar daddies?"

I want a sugar daddy.

Jim Rankin
Monday, October 13, 2003

"...and the US dollar falls..."

Except China, at least, has their currency pegged to the dollar, so that doesn't work.

Are other developing countries doing the same?

Jim Rankin
Monday, October 13, 2003

You mean Sugar Mama...:)


Monday, October 13, 2003

>"Except China, at least, has their currency pegged to the dollar, so that doesn't work."

If it falls enough, they'll start to demand more dollars for their services.

T. Norman
Tuesday, October 14, 2003

To assert that US designed or manufactured shoes are high quality is laughable. Obviously, you haven't work a pair of handcrafted Italian shoes.

Svelte Vixen
Sunday, October 26, 2003

Offshoring is the economic equivalent of committing slow suicide.  Greed is the only motivation for it.  Quite clearly, corporations that are now considered "American" will have no attack of conscience when the time comes for them to relocate their HQ's to their new center of gravity: China, India, etc.  Corporations are soul-less entities and bereft of any sense of patriotism, loyalty, or national interest.  The only way to stop offshoring and the decline of the American empire is for Congress to nationalize said companies and use our military to colonize geographic zones with abundant relevant labor.  Call it Roman Empire Redux.  Life is cruel so why should we pull any punches.  We've got the world's best military so let's use it to our advantage....

Al Haig
Monday, February 16, 2004

I totally agree with Al Haig.  He's right.  Why should we take this lying down?  We've got troops in Afghanistan so let's go after India and Pakistan next.  We can split China with Russia.  We can give France their African colonies back and make them feel as if they are actually a world player again....  Turn the Germans loose on E. Europe and all wll fall into place...

Cherry Garcia
Monday, February 16, 2004

What everyone seems to be forgetting is that the currency exchange rate between two countries is defined by the comparative efficiencies of the two countries in the basket of goods that are traded between the two, roughly speaking. I will be surprised if the Dollar to Indian rupee rate does not continue to fall (currently at 45 from nearly 50) till such time as the flood of outsourcing becomes a smaller flow and the situation stabilizes. After all, the US cannot continue to get all its goods AND services imported if it has nothing to export.

San Sanjuro
Friday, February 20, 2004

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