Sunday, September 12, 2004

Outsourcing: The Economist a Lefty Shill?

The publication commonly known for its left wing socialist rantings, The Economist, comes out with the accusation that IT Departments are now getting shipped to India as part of corporate offshoring practices.

After the call-centre, now the IT department is off to India

IN A shiny new building in the drab construction site that is Noida, a Delhi suburb, teams of young Indian engineers are, in a manner of speaking, managing the world. A number of America's best-known companies have entrusted the remote running of part of their global computing networks to HCL Comnet. This information-technology services firm is at the crest of what Gartner, a consultancy, has called “the next big wave” of Indian outsourcing deals, covering remote “infrastructure-management services”.

India's outsourcing boom started with software development and has expanded into a whole range of business services that can be handled a continent away, of which the country's hundreds of call-centres are just the most prominent examples. This takes that trend one stage further, and shifts offshore much of the administration and maintenance of a firm's IT systems. Gartner's Partha Iyengar divides remote IMS work into three categories: monitoring global network operations; providing helpdesk support and maintenance; and administering databases.

It is as yet a small part of India's IT business. According to NASSCOM, the Indian industry's lobby, the country's exports from the software, other IT services and business-process-outsourcing industries grew by more than 25% to $12 billion last year, of which infrastructure services accounted for just over $300m.

But the potential is huge. A report by Deutsche Bank puts the entire size of the global infrastructure-management market at $86 billion. Firms have been outsourcing infrastructure management for years. Arno Franz, of TPI, an outsourcing consultancy, describes it as an industry created in the 1970s and 1980s by EDS, an American giant that came out of efforts by General Motors to automate its car plants. Along with IBM, EDS still dominates the business. Often these firms would actually buy their clients' computer systems. Or they would have annual maintenance contracts. Either way, their customer had fixed their information-technology costs and were free to concentrate on their “core competencies”.

Of course, The Economist is not a left-wing publication but they really did post the above article admitting that the information technology infrastructure jobs - the bread and butter of sysops and sysadmins - was going to get shipped overseas starting at a firm nearby you. That's the good news. The bad news is that academics in the US are still lying to people about what is going to happen to them - more on that supporting my position later.

31 Comments:

At September 12, 2004 at 12:39 PM, Anonymous Anonymous said...

Well of course a lot academics are lying to the people and themselves.

I think a good many of them have so bought into the ideology of off-shoring that they are blind to its pitfalls. Of course some may not care at all.

But the ordinary people know something is amiss despite the exhortations of suspect economists.

Just this morning I was reading the want ads for IT people for the Los Angeles area - pay ranges are now down to $11.00 - $30.00 hr for experienced techs & sys ops.

Considering the cost of living in Los Angeles these are not good salaries. On the low end you couldn't even afford a apartment only rent a room. On the high end you could afford a decent apartment but no house.

Rodger

 
At September 12, 2004 at 1:12 PM, Anonymous Anonymous said...

No surprise. The sad truth that people don't want to see is that most work in mature industries is monkey-work and is, therefore, east to outsource. I remember back in the 90's when all the IT folks were high on the hog thinking they were "knowledge workers" and that that somehow protected them - I said then that they were next in line and that they'd better fight H1-B's and they'd better unionize.

But "professionals" don't unionize. Too bad they didn't realize they aren't professionals. No one is anymore who doesn't have a powerful professional association making it ILLEGAL to work in the profession unless acredited - and controls the accreditation.

 
At September 12, 2004 at 4:49 PM, Anonymous Anonymous said...

I'd have to agree, that the "knowledge workers" screwed themselves. They should have taken a lesson from the doctors and lawyers. Instead they bought into the Ayn Randian bullshit that they are free-agents, etc.

A lot of them are real anti-social types so that may have also played in a role in the inability to organize as well.

I know, I used to be a customer service/field rep in the IT industry and I was the one the big geeks sent out to deal with the customer since they hated dealing with ordinary people.

 
At September 12, 2004 at 7:42 PM, Anonymous Anonymous said...

[cm]

Rodger, others: First let me disclose (perhaps for the first time on this blog, but not in general) that I'm one of those dreaded H1B SW engineers - from Europe. I came to the US (after quitting a well-paying job) in part because my home country had few to no job opportunities in the specialty that I was looking for. At the time my current employer apparently had a hard time finding domestic employees in my specialty. How much age, "passport", and "salary" discrimination, and HR/recruiter incompetence was part of this can only be speculated. Honestly, there was a lot of competition for SW engineers during .com times (modulo the above discrimination), and people were jumping ship in non-hip industries like crazy. (Also a lot of professionally low-grade individuals were hired then who could not perform adequately in their jobs, if I may say so with no arrogance intended. This despite high-grade people looking for jobs, but such is life with an imperfect market everywhere.) When I joined in 2000, I saw the trailing edge of this, and was told it was actually worse before that. Based on the quite good raises I got in the past 4 years, I'm sure my starting salary was too low (in line with the H1 wage dumping argument?), but then who knows.

Regarding "economists lying", I'd submit that many people in every walk of life appear to be misguided about the purpose of economic activity -- is it supposed to enhance the aggregate standard of living (which I believe), or to enhance specific economic indicators (GDP, unemployment rate, individual payroll income, etc.)? It strikes me that many economists are "mental prisoners" of their macroeconomic models -- they don't appear to make the proper connection between their model "performance" and individual and aggregate welfare. This includes figures I generally like as P. Krugman, B. de Long, S. Roach, & others, according generally to their writings. (But they do occasionally allude to the underlying thing, so it may be a matter of explicit/implicit exposition in their articles.)

Rodger, yes something does look amiss. However, (again w/ no arrogance intended) do I sense some kind of entitlement thinking in who can afford a room/apartment/house? (I'm in the apartment/no house -- at my financial comfort level -- category *with a double income*. "Silicon Valley" that is.) The salaries that you quote are somewhere between CA minnimum wage - cleaning person - supermarket checkout operator - & slightly above.

Anonymous, "most work in mature industries is monkey-work" seems to put it about right, although as a foreigner I have to infer the meaning of the latter. Unfortunately -- re. the quality of work :-(.

Anonymous #2, I'm not so sure about the anti-social part. Yes there is quite a number of jobs that most people rather wouldn't want to deal with, but that does not imply that it's work for anti-social people.

The bottom line is that anybody who makes a positive contribution should get a decent enough (basic & up) living wage for it. Make no mistake, I think that the living standard has to scale with the magnitude/importance of the contribution (although this is very tough to define, measure, and administer), as I'm coming from a society that fell apart because people were not rewarded for making a contribution.

What do you think? I would appreciate if we could get a fruitful discussion out of this. And please do identify yourselves somehow so that we know who said what.

 
At September 12, 2004 at 8:05 PM, Anonymous Anonymous said...

(Ian)

I made the monke-work comment. I've programmed (though it's been a long time). If you can break something down into it's components, you can program. It's not very complicated work (I always used to be amused at how much importance recruiters put in specific language experience - a good programmer can be competent (not great, but competent) in a language he's never touched, in about two weeks if he puts his mind to it. There are certain things all languages have to do - you just figure out how the specific language does them.)

And that was before all the pre-created module libraries became so common. Most programmers these days couldn't do assembly work if they had to (neither can I anymore, but I have done it.)

The sheer breathtaking stupidity I've seen by programmers and system analysts (hardcoding in tables, for example) indicates to me that the minimal level of skill needed to be vaguely competent at programming is such that it can be easily outsourced.

 
At September 12, 2004 at 8:34 PM, Anonymous Anonymous said...

cm,

I did posts 1 & 3.

Sure the wages in LA are the equivalent of janitors in Silicon Valley. But this is what the companies are paying. In some areas its even lower.

Nor is it entitlement to ask that a job which requires 2-4 years of college and some years of experience pay a decent wage and allow the worker to support him or herself. Its called being civilized and not being a sociopath.

In fact decent wages help prevent the 3rd world syndrome that is so common in newly capitalistic countries. Where you have a handful of hucksters and mafioso making all the money and line workers being kept in permament impoverishment.

Personally I see the H1-B visa and its insane cousin off-shoring as a blatant attempt to maximize short term profits at the expense of the American worker.

You see for the last 20 years big business has done everything possible to regress wages, workers rights, etc. The H1-B visas and Off-shoring are their latest attempts and gutting the working class in this nation.

So far they've done a good job of it and I see people like Delong, Drezner, Krugman along with Glassman and the other AEI pukes as apologists for it.

Give them enough time and they'll off-shore even the H1-B visa workers. That is unless you can make it on $700.00 a month like the coders in Bombay make. Though now I hear that Russia, China and Eastern Europe are even offering lower wages.

 
At September 12, 2004 at 8:34 PM, Anonymous Anonymous said...

cm,

I did posts 1 & 3.

Sure the wages in LA are the equivalent of janitors in Silicon Valley. But this is what the companies are paying. In some areas its even lower.

Nor is it entitlement to ask that a job which requires 2-4 years of college and some years of experience pay a decent wage and allow the worker to support him or herself. Its called being civilized and not being a sociopath.

In fact decent wages help prevent the 3rd world syndrome that is so common in newly capitalistic countries. Where you have a handful of hucksters and mafioso making all the money and line workers being kept in permament impoverishment.

Personally I see the H1-B visa and its insane cousin off-shoring as a blatant attempt to maximize short term profits at the expense of the American worker.

You see for the last 20 years big business has done everything possible to regress wages, workers rights, etc. The H1-B visas and Off-shoring are their latest attempts and gutting the working class in this nation.

So far they've done a good job of it and I see people like Delong, Drezner, Krugman along with Glassman and the other AEI pukes as apologists for it.

Give them enough time and they'll off-shore even the H1-B visa workers. That is unless you can make it on $700.00 a month like the coders in Bombay make. Though now I hear that Russia, China and Eastern Europe are even offering lower wages.

Rodger

 
At September 12, 2004 at 10:25 PM, Anonymous Anonymous said...

[cm]

Ian: I think we are pretty much on the same page. The bad programming you are alluding to I have seen as well. Let me offer however as somebody who has seen both sides of the outsourcing game, that in that context it is more often than not miscommunicated requirements, lack of oversight, and treating people as cheap inferiors, as well as too many middlemen in the communication path, that is in the way of desirable performance. But sheer incompetence or lack of engagement is of course part of the picture often enough.

 
At September 12, 2004 at 11:26 PM, Anonymous Anonymous said...

[cm]

Rodger: No offense please on the accomodation front. I was specifically aiming at the 'buying a house' part. If we define an apartment as 1+ room with private bath, and preferrably separate living room and a bedroom per household member, that's definitely not asked too much.

Offshoring of H1 workers is already happening. From what I know, H1's tend to get as much less than non H1's (in the same company) only as can be explained by the "servitude" part of their job arrangement. Benefits under a group plan cost the same, and many of those guys tend to have families as well, so there is probably not much bias on that front. Bottom line, H1's don't cost that much less (after H1 importation), and are still much more expensive than offshored laborers when looking only at raw salary.

Once you add in travel and infrastructure costs, domestic project management and oversight staff, and put money on delays due to time zones, miscommunication, and, well, different experience levels, combined with the fact that offshore experience gain will cost increasing premiums or you will lose your experienced people, I doubt that offshoring _of engineering_ saves anything, everything else being equal. And of course, outsourcing important parts of the business or even core competencies means giving up control over them and building your own competition.

Once US companies notice, if ever, what service they have done themselves, it may as well be too late -- capable people being out of their job too long and experience lost, pissed, disillusioned, disloyal, and having lost their inclinations, and the opportunity cost of not using their capacities while they were there.

One thing that appears to receive little attention in this context is the negligence of education. As outsourcing corporations, and corporations in general, get tax breaks, funds are stripped from the education and public research system. Why do you need education or research when you can import foreign labor or outsource your R&D? Or else, why don't poeple pay for their education themselves? (We are living in a "market economy" after all, are we not?) Once the current worker generation retires or becomes "too old" to work in high-pressure jobs, we will learn what education is worth.

But rest assured that European countries are making exactly the same mistakes (if that gives you any consolation).

Regarding the economists, I think they are not so much shilling as being "blinded" by their macro frame of thinking, and frankly, they are probably feeling as least not immediately threatened by "free trade".

What do you think?

 
At September 12, 2004 at 11:28 PM, Blogger calmo said...

Interesting comments basically responding to a fall(ing?) entry level IT positions/salaries. The wages mentioned sounded pretty scary but the numbers of graduating computer science students in India vs US is also pretty scary, no? I wonder if both these numbers are driving US students into other more lucrative fields?
And can I ask whether within this discipline (software development) there is significant productivity growth as the programming gets more modular, perhaps writing itself one day?

 
At September 12, 2004 at 11:37 PM, Anonymous Anonymous said...

[cm]

calmo: And what would those more lucrative fields be? Figuring out how to sue people or economic players with money, or figuring out how to avoid getting sued, or how to achieve "compliance" that can be documented in defiance of plaintiffs? Managing other people's work, or managing the managing of others' work? Managing outsourcing activities?

 
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