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Development overhead in India

The recent thread about plumbers and software developers made me interested in the shared overhead carried per software developer in North America, and the same in Bangalore (not because I'm protectionist - which I'm not - but just out of curiousity). As such, my question is thus:

-How do computer hardware costs compare between the US and India?

-Even more importantly, how do software overhead costs compare between the US and India? I would find it surprizing if the big outsource companies were paying more to Microsoft in licensing charges per year than they were paying the actual employee using it. I suspect (based upon no actual facts, but rather just a gut feel) that Microsoft India likely charges dramatically less for software in India, and if this is the case then this effective undermines the American market.

Anonymizer
Sunday, October 19, 2003

Dear Anonymizer,
                            Hardware costs in India are something like 50% HIGHER than the equivalent cost in the USA.  As for MS software costs they are cloaked in secrecy - but it is a well known fact that MS offers large discounts for bulk purchases everywhere. As far as the OEM cost of the OS and Office goes for example, a big name like Compaq would be paying a lot less per license than a small to medium PC Assembler.

                          And the cost of internet access and infrastructure is much, much higher than in the States.

                            If you have been following the nearly endless threads on this topic you will find that the overhead per developer is much higher in India than the US in cash terms, let alone as a proportion of salary.

Stephen Jones
Sunday, October 19, 2003

Commercial real estate there is also more expensive than in the US, except when compared to New York.

http://www.cbre.com.sg/news/31Jul03.htm

They also have other overheads that US firms don't have.  Because they have frequent blackouts for hours at a time, electicity-dependent business like software houses must have a backup generator powerful enough to provide 100% power all day, and the generator is actively used and maintained.

T. Norman
Sunday, October 19, 2003

On the other hand, they have two shifts of developers - their 9-5 and then OUR 9-5 (something like 6pm-2am for them), and their programmers work in conditions we would consider appalling, programmers squeezed into every available space. Each programmer is given a list of tasks to complete that week, and if they don't complete a certain percentage, like 85%, they're given a bad report that week. I don't know what the punishment is for a lot of bad reports, but I'm sure there is a pretty stiff one.

They sit at terminals with just the bare minimum tools they need to do their jobs - no internet even, and they only do what they were trained / are paid to do.

So when you talk about real estate, you should talk about cost per employee, not per square foot.

Come on guys, why no threads on the hidden costs of manufacturing clothes with slave labor in China?

www.MarkTAW.com
Sunday, October 19, 2003

"Come on guys, why no threads on the hidden costs of manufacturing clothes with slave labor in China?"

Perhaps because this is the joel on "software" message board, not the "joel on the garment industry" message board.

rz
Sunday, October 19, 2003

Mark TAW, that is no longer true for the bulk of the firms that do work outsourced from the US.  Many of them now have impressive campuses and equipment that puts common US cube farms to shame.

And the double-shift thing isn't so common anymore, as far as developers are concerned (others like tech support still do round-the-clock.), because with all the job-hopping you can't convince large numbers of developers to stay long in a job where they work the night shift.

T. Norman
Sunday, October 19, 2003

T. Norman - I heard this from a friend of mine who went to India in August for a month - an old co-worker and programmer who grew up in India & worked with me at a company that hires programmers in India.

What you say might be true, I can only speak to what I've heard from trusted sources.

www.MarkTAW.com
Sunday, October 19, 2003

The previous posters' comments on higher costs are correct.

Also to consider:

Your administrative costs per employee are a bit lower.
Your benefits (health insurance, etc) are a lot less, as are your liabilities -- if someone is seriously injured on the job, you just fire them. If they get sick and need a lot of medical work, or to take time off, you fire them. The savings here are HUGE -- these costs in the US may be $10-$30,000 per employee and are brought down to $0.

On the otherhand, you can not possibly underestimate your costs of 'consideration'. If you are not the cousin of somebody important, you should budget $50,000/year in payola to keep the electricity and water connected and running in a small 10 person shop. You'll also need to pay quite a bit to make sure you pass all the inspections, which you won't pass no matter what you do unless you know how to give the five fingered salute.

outsourcer
Sunday, October 19, 2003

"Appalling conditions" are certainly culturally dependant. What for a programmer in an air conditioned office in New York is appalling, can be quite good conditions for the average Indian.

Salaries are lower, but they don't have payments for SUVs or cable with 500 channels. Nobody argues that living standards and cost structures are different, but that is the nature of the beast when competing in *any* industry.

As always, top programmers will flourish while the others will need to do something else. I heard that McDonalds is recruiting...

uncronopio
Sunday, October 19, 2003

uncronopio,

I'm not arguing that. The specific words my friend used were "conditions we would find appalling." And we're not arguing quality of life i.e. no SUV or Cable, we're arguing cost to American firms for hiring in India v. in the US.

www.MarkTAW.com
Sunday, October 19, 2003

I think that, in the short term, many companies will outsource to developing countries because "everybody is doing it". In the long term, some companies will run the numbers, compare productivity, etc. and some proportion X (the majority?) will continue doing it because "it will be cheaper", while others (1-X) will drop it. Maybe costs are not quite a lot lower, but in times with low profit margins that small diference really counts.

I also think that companies will keep developing high profit margin and mission critical applications in the US. Thus, the software industry will show to be not so different from the sport products and apparel industry, despite of what highly educated developers tend to believe.

uncronopio
Sunday, October 19, 2003

I work in India and travel about 6 times a year to US.
In my opinion, campuses of Indian software companies vary. The software campuses  of best companies (like infosys, wipro) will put most software companies in US to shame. they have restaurants with dozens of cuisines, squash courts, football fields, clubs, day care for children etc.
Definitely much better than what US software companies have to offer.

Management practices are also much better than US (It is not easy to hire/fire people in India. Labour laws are much more people-friendly). In US, I see employees living in eternal fear of their boss and ready to do things that they do not really want to.

Indian companies are usually more sensitive to individual needs. (it is not uncommon to offer free cab if your car breaks down and you have work to do in office). Free (or subsidised) lunches, mid-day snacks and dinner are almost the norm. So is flexitime and informal dress code.

Yes, the internet access is expensive and is hence at premium but all companies I know of provide good internet connectivity to all their employees.

( I believe that your friend - or trustworthy source - was working of somekind of bodyshopper or fly-by-night operator and not a real company (there are many of those in India too). I suggest that you ask him to switch vendors ASAP)


"how naive is to think that to this world you can something give...
... and how strange to find reasons: to learn, to love, to live."

Tarun Upadhyay
Sunday, October 19, 2003

The reason managements in Indian outsourcers can readily provide what seem to be generous extras is that pay is so low compared to the fees they charge in the West.

If those firms were honest, they would pay their developers at the same scale they charge their customers.

By the way, a friend of mine who worked in India brought back very poor reports.


Sunday, October 19, 2003

There is still a spectrum of various levels of infrastructure -- some are crappy, some are really decked-out with dual monitors and stuff, but the crappy and crammed conditions are no longer the rule.  As the prices the outsourcers can charge have significantly increased due to the skyrocketing demand, and clients have become more interested in actually visiting their facilities, they have used a lot of those extra bucks to upgrade their infrastructure.

Of course, I can't guarantee that what I'm saying is true because I've never been there personally, but I work with over a half-dozen Indians who tell me about their past experiences and recent visits, and I've seen pictures.

T. Norman
Sunday, October 19, 2003

Tarun Upadhyay,

My friend went to visit his family, not conduct business. He said most people work for Citigroup, American Express, or AOL. It's definately possible he was talking to the wrong people.

My guess is we're all right here, all these conditions exist to one degree or another. A Redmond style campus can certainly exist, but my guess it would be somewhere where real estate is cheap, and probably exist because in the long run, they reduce costs relative to renting the same space.

So... Any size company in the US can find some level of savings by going abroad. Those who can set up, or afford companies who have set up campuses do, and those who simply hire vendors on a case-by-case basis, including fly by night operations can do that.

www.MarkTAW.com
Sunday, October 19, 2003

Mark TAW,

I was in India for 2 months this year and conditions were nothing like you describe.

Walter Rumsby
Sunday, October 19, 2003

> If those firms were honest, they would pay their developers at the same scale they charge their customers. <

The same can be said of consulting companies in the US. I've heard plenty of stories of $200 per hour consultants (no, not plumbers) where the consultant was earning closer to $50. One wonders where that other $150 went... the sales force? Office space? His personal computer?

www.MarkTAW.com
Sunday, October 19, 2003

>"If those firms were honest, they would pay their developers at the same scale they charge their customers.

They can't come close to paying that much, if they expect to stay in business.  For a US programmer, overhead and benefits typically make the total cost of employment add up to about double the programmer's salary.  For an Indian programmer, the overheads are more than 500% of their salary.

If they're charging $30/hr and $20 of that goes into overhead, they don't have much room for increasing the progammers' salary while still making a profit... unless they charge the clients more.

T. Norman
Sunday, October 19, 2003

I live and work in Romania, in the city of Bucharest.

We have absolutely no power problems. Real estate is dirt-cheap.

Hardware prices in Romania are about 20% higher than in the US.

Romanian Developer
Monday, October 20, 2003

Maybe off topic....you decide.

T.Norman passes along the urban legend with:
"For a US programmer, overhead and benefits typically make the total cost of employment add up to about double the programmer's salary.  "

This is absolutely false within our profession.  As a person who pays all his benefits costs, including maximum contributions to my SEP, which no employer offers, I am at less than 31%.  Specifically, for every dollar of earnings, my costs (all costs) are 31 cents with my return 69 cents.  I then pay my taxes. 

Where companies claim you benefits are on "neat" features that have no ROI and you would never pay for them.  The company cafeteria.  If it is run by your company and is on your site, they probably roll it into a benefit.  Health facility, etc.  the same.  You then pay for the benefits of the CEO who gets a 120 million dollar severance package.  It is a benefit and it comes out of a pool. 

Now lets talk about administration.  That document you barely read when it comes from your benefits administrator.  Take a closer look.  The last company I worked for had one dollar in administrative costs for every dollar it paid in benefits.  The were making money on providing benefits to their own employees.  (A fortune 500 company)  All very legal.

So when a company cries about the costs of health care and the costs of benefits, be sure you know what it costs to get on your own.  A company I consulted for last year had its employees paying $200 a month for health care.  I only paid $500 as a lone subscriber.  The worst possible rate you can get.  With over 100,000 employees, they had their people paying close to their entire cost.

Sorry if this sound like a rant but it chaps me to hear people repeat this as the reason to cut salaries and benefits when it just does not wash with reality.

Protected
Monday, October 20, 2003

Overhead also includes real estate, software licenses, hardware, liability insurance, among other things.  I am almost sure you didn't include those costs in your 31%.  Add it all up, and it will be typical for a programmer with a $60K salary to cost $120K to his/her employer.

T. Norman
Monday, October 20, 2003

I did add those in, with the exception of liability which is about $6,000 in the US for $5,000,000.  However, this is a cost that is not included in the normal employee benefits.  It IS an expense but most companies do not buy insurance for it.  (The self insure unless they are smaller than the required value of course.  Smaller firms don't even bother unless a client requires it.) 

However, adding liability and doubling my real estate, because I live in a less expensive area (Boston versus NY), it still only add 2%. 

Even, if you wished to include EVERYTHING as a  benefit, from the pencils to the cost of gas to drive in, you will not double the cost.  You might get close to 40%, but nowhere near 100%.  In fact, most companies right those off directly as an expense.  Something an employee cannot do.

Also, with a SEP I get to put away $40,000 / year.  How many developers get that kind of benefit as an employee? 

I agree that these are expenses and some are benefits, but they are not nearly a the expense that corporations are making them out to be.  Especially, the fortune 500 companies which administer their own benefits and then claim that as a non-profit entity tied to benefit expenses.

Protected
Monday, October 20, 2003

Firms can import computer software and hardware with no sales tax as long as it is used for export. So both costs are less in India.
Indian software offices are much more better than comparable software offices in USA. In USA you see the same cubicle and coffe machies where ever you go. It is so boring US office spaces.
Indian employers give lots of perk to their employees ( including car, home loan, child education loans etc etc etc). Health insurance is given defult. No company advertize  " we give benifits" just like in US. There it is a standard thing.
Employes get lot of free food also. I mean not peanuts and snacks. Full course entree is given free and the employers don't think of it has a big things.
So in short many of the "big benifits" given by US employers are standard stuff in India with no hype associated with it.

Indianguy
Monday, October 20, 2003

Mark,

Are you saying its not the norm for a consulting company to bill out its employees at 150 bucks an hour, and pay their employee's a lot less?  Most of the people in my company are billed out between 100 and 200 an hour, i'm close to 200, and I see about a sixth of that.  Most of the developers make slightly more or less then I do.

--vince

Vince
Monday, October 20, 2003

Dear Indian Guy,
                        Even if software companies could buy computers free of sales tax and customs duty prices would still be as high or higher than in the USA.

                        The USA is the cheapest country in the world for any kind of manufactured goods or processed agricultural produce - actually almost the same thing :) - because of a large market and efficient distribution chain. That isn't going to change soon.

                        Free meals aren't that great a perk in India - the cost of the average restaurant thali is round about 50 cents.

Stephen Jones
Tuesday, October 21, 2003

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