Offshore Lore

Myths and facts of white-collar out-sourcing


Last week in a story one-part Pentagon Papers and three-parts Fucked Company, The New York Times jumped into a debate that has been simmering for several years in tech circles—the off-loading of jobs to places like India. You can bet that more stories and plenty of political interest will follow.

Relying on smuggled-out tape of a con-call between top IBM managers, the Times gets credit for taking the story beyond bulletin boards, happy hours, and places like Fucked's sister site, InternalMemos. The Times also wrangled some absolutely jaw-dropping quotes that indicate corporate honchos expect to be able to bluff their way past questions about moving high-paying jobs offshore without anyone calling them on it. It is a dangerous gambit which could produce the worst of all possible worlds: some sort of government hurdle requiring companies to demonstrate a "need" to out-source.

Take this howler from IBM spokeswoman, Kendra R. Collins, "It's not about one shore or another shore. It's about investing around the world, including the United States, to build capability and deliver value as defined by our customers."

No, it's about working the cost side of balance sheet in search of profits; revenues have been flat for two years and show little sign of improving. This is what good managers do, and there is no reason to be ashamed of it if you truly think you are going to make the company stronger.

But the catch is that out-sourcing is being embraced without much sign that it will actually make high-tech firms, particularly software companies, more effective. Highly collaborative, imaginative work might suffer in the hands of technically adept but inexperienced programmers.

The Times also passes along some dubious information on the actual cost of Indian outsourcing which makes the pay gulf between the U.S. and elsewhere seem impossibly wide. Stephanie Moore, vice president for outsourcing at Forrester Research, claims that "crackerjack" Indian programmers can be had for $5,000 a year. That might be close to what the programmers see, but it doesn't represent the cost to a U.S. company to outsource.

According to people who actually negotiate outsourcing contracts for a living, your costs are more like $22 an hour for each warm body once all the third-party finders' fees are paid. An experienced programmer's take in India would be around $11,000 out of total cost of over $40,000. That's still quite a gap from the $60,000 an American might demand but once the all-important question of productivity is factored in, it may not be much of a bargain.

Simply put, once you leave the U.S. you are leaving behind the world's best, most proven pool of programmers. That's is not to say that there aren't excellent programmers in Russia, China, India, and elsewhere. But large-scale, world-changing software development ain't easy. The Net bubble devalued just how hard it is to build neat technology. Shawn Fanning is the exception that proves the rule.

Or as one software engineer who has worked with out-sourced labor for years puts it, "If software development in India is so great, why don't they have a single software company worth a crap?"

Another veteran software developer thinks corporate planners across the industry are delusional and that the matter is somewhat self-correcting. "Your dealing with people who are too smart to just sit back and train their replacements," he tells me. Still, he thinks we are in for a period of flux as out-sourcing plays out as the latest management fad, like TQM or worshipping Jack Welch.