Editore"s Note
Tilting at Windmills

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April 6, 2007
By: Kevin Drum

OUTSOURCING UPDATE....Is the world flat? Sort of. Here's the latest outsourcing news from India:

Nearly two decades into India's phenomenal growth as an international center for high technology, the industry has a problem: It's running out of workers.

...."The problem is not a shortage of people," said Mohandas Pai, human resources chief for Infosys Technologies, the software giant that built and runs the Mysore campus for its new employees. "It's a shortage of trained people."

....A shortage means something feared here: higher wages.

Much of India's success rests on the fact that its legions of software programmers work for far less than those in the West — often for one-fourth the salary. If industry can't find enough workers to keep wages low, the companies that look to India for things like software development will turn to competitors, from Poland to the Philippines, and the entire industry could stumble.

I remember crunching some numbers back in the 90s and concluding that it was only cost effective to outsource software coding if the basic hourly rate was one-fourth to one-third the cost of doing it locally. Even at half the hourly rate, the numbers didn't work. For companies with larger presences in India it probably works out differently, but this is still a decent rule of thumb, I think.

If India is truly starting to reach this barrier, it means that more and more of their business is going to have to be driven locally, not by Western companies who are outsourcing their development projects. And it also means they're going to have to radically upgrade their internal infrastructure. Bottom line: Outsourcing to India will certainly continue to increase, but I wouldn't be surprised if the era of skyrocketing growth is at an end.

Kevin Drum 5:36 PM Permalink | Trackbacks | Comments (56)

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Hmm, I'm not so sure I agree. For one thing, the Indians are -- and for a long time have -- invested a large amount in education, both basic and advanced. That is, they're continuing to train up large numbers of technical workers.

Also, management is becoming more sophisticated. Indian companies are establishing management offices in the US, so the problems of coordination and management that once were borne by US clients are now being absorbed and reduced by the Indian companies themselves. That in turn means that their sources are cost effective even at a higher basic labor rate than 1/4 to 1/3 of comparable US salaries. (The Russians have been doing this for longer, and it's proven successful.)

Now, it may be that, no matter how good their improvements, they just can't grow liek they did before, at least in percentage terms. Early growth is always the most spectacular, and therefore the least sustainable, at least in terms of rates. But they're doing what they need to do to move from a start-up phase to a growing-but-not-yet-mature phase, so I wouldn't be surprised if the VOLUME growth continues apace for a while.

Posted by: bleh on April 6, 2007 at 5:57 PM | PERMALINK

Good luck with improving India's infrastructure. I will become a theist if someone achieves that objective in my lifetime.

Posted by: gregor on April 6, 2007 at 5:58 PM | PERMALINK

Isn't this the normal chain of events that happens as part of the economic cycle among skilled workers? That's the good part of capitalism and competition.

It's not just big companies who benefit from outsourcing - in fact, it seems like outsourcing often doesn't work well and often backfires for big companies. I had a one person company doing training seminars and I was able to get custom development done on an online registration system done for a few hundred dollars through an Indian company that I just wouldn't have been able to get done otherwise.

Posted by: Lee Stranahan on April 6, 2007 at 6:00 PM | PERMALINK

Suppose we changed the tax structure so that, wages were counted as a deduction of say 2x the actual value, and nothing else was, then tax the rest accordingly. Companies would have little incentive to hire cheap labor. We could tweak the code to basically make it about the same profit over a wide range of worker pay, and then the other costs would ruin outsourcing.

tyrannogenius

Posted by: Neil B. on April 6, 2007 at 6:04 PM | PERMALINK

Will this put pressure on India to work even harder to educate a larger precentage of it's population? I hear what bleh says, and agree that the Indians have invested a lot in educating many of their very brightest, but that cream only goes so far. Keeping wages low, especially as this generation of highly educated strike out on their own, is going to be difficult.

Posted by: Ron Byers on April 6, 2007 at 6:08 PM | PERMALINK

Outsourcing to India will certainly continue to increase, but I wouldn't be surprised if the era of skyrocketing growth is at an end.

Unfortunate. Both for India and America. One of the chief causes of the strong Bush economy in this country (for example, the drop in unemployment rate to 4.4 today is because US economies were outsourcing labor (likee software engineering) to better workers in India who could create sofware at a more efficient and cost-effective manner.
This saved American businesses tons of money resulting in American workers being reallocated to jobs in which they had a better comparative advantage and cheaper goods and better wages due to the comparative advantage. With the outsourcing being reduced, this will be less likely to happen which may result in a slower economy and inflation. Hopefully this won't happen because there are other places like Kenya, American businesses can outsource to.

Posted by: Al on April 6, 2007 at 6:08 PM | PERMALINK

A lot of things havechanged since the 90s. The number of Indians who have worked in an with the US. The number of US firms becoming failiar with India, communications and computer use, and acceptance of same. And I'm missing a lot as I haven't applied myself to this.

However, India is not immune to any the eceonomic pressures familiar to any developing economy. For example, take Japan from 1950 to today; also a tiered society, but far more egalitarian in essence, and smaller. See what they've gone through. India's disadvantage is that it is class riven and the educated minority expect to live as well as anyone in the world and will push the cost of living upwards to the detriment of the majority. There is already conflict of clearing poorer people out to make way for malls and property development.

Their rapid growth is bringing all the problems expected.

And on top of that, global warming adjustment.

I'll agree with Gregor on the infrastructure.

Posted by: notthere on April 6, 2007 at 6:10 PM | PERMALINK

I think bleh is exactly right.

Outsourcing for cheap programmers needs the programmers to be cheap because they did not formerly have the experienced people to make even the lower levels of technical management. They had a room full of entry level programmers and some business support staff to rent a building and buy them chairs and stuff. Basically they had to be enough cheaper than an entry level western programmer that the inefficiencies in long range coordination were overcome. As time goes on they gain that expertise and don't have to be guided by western engineers to the degree that was previously required. So the costs go up, but the inefficiencies go down.

And yea, I think it is pretty typical across many industries.

Posted by: jefff on April 6, 2007 at 6:10 PM | PERMALINK

never fear, there are lots of programmers in russia, and after that china. of course the timezone sucks, especially with china (but they only have one, so you can get used to it).

Posted by: supersaurus on April 6, 2007 at 6:14 PM | PERMALINK

Ron Byers: I DO think this sort of thing is creating incentive to expand education beyond the "cream," but I believe it's also true that (1) compared to many other countries in the same situation, India HAS actually offered basic education much more widely, and (2) they ARE actually expanding basic education within the country, and not just funding top-tier education.

That said, as far as I'm concerned, the more the better.

Posted by: bleh on April 6, 2007 at 6:21 PM | PERMALINK

never fear, there are lots of programmers in russia, and after that china....

Posted by: supersaurus on April 6, 2007 at 6:14 PM | PERMALINK

The Russians have a contracting population which, in opposition to received wisdom, might well be an advantage this coming century, and, so far, an expanding economy. If they do things right, they'll use their programmers. China have somewhat a non-foreigner direct involvement and limited, though expanding, language skills; not llike India at all.

Al makes his usual valueless contribution. You are such a tool. Of course, one of the reasons for the lack of wage growth throughout the US middle and lower-middle class is wage degradation. Outsource to Kenya?

What does this guy do for a living. It's not knowledge based. Not in anything he spanks off about.

Posted by: notthere on April 6, 2007 at 6:26 PM | PERMALINK

gregor: Good luck with improving India's infrastructure. I will become a theist if someone achieves that objective in my lifetime.

I've worked offshore oilfields in a dozen countries and hung out there with people in the oil bidness who had worked in scores more. India is the consensus winner for worst bureaucracy. (Nigeria is the most corrupt. Iraq is the most corrupt in the Middle East. Saudi is the most arrogant. AGIP, the Italian oil company, was the best to work for. Total [French] was one of the worst.)

Posted by: anandine on April 6, 2007 at 6:36 PM | PERMALINK

India is a smelly shithole with bad food and ugly women. Their language is retarded and the only thing they make well is incense and hashish. Fuck 'em.

Posted by: Rudolf Guiliani's lacy underwear on April 6, 2007 at 6:59 PM | PERMALINK

You heard it from Al first - outsourcing good American jobs like software engineering so that those college trained employers can become air conditioner repairmen, landscapers, and other forms of manual labor, is good for our economy, and if this trend starts to diminish, the Patriotic thing to do is send those jobs to Kenya.

That's how Republicans support our troops - by making the military the only decent-paying job in America left.

Posted by: An Anonymous Patriot on April 6, 2007 at 7:09 PM | PERMALINK

bleh: Indian companies are establishing management offices in the US

And are amongst the worst abusers of the L-1 and H-1B visas. Let's tighten up the L-1 requirements, and ditch the H-1B. Oh, no, wait, that makes us xenophobes or bigots, or indicates that we actually have some self-interest, or something. Besides, what would that do to all the contributions that Democrats get from "hi-tech".

Google "hillary tata".

Posted by: alex on April 6, 2007 at 7:10 PM | PERMALINK

Al: One of the chief causes of the strong Bush economy in this country (for example, the drop in unemployment rate to 4.4 today is because US economies were outsourcing labor (likee software engineering) to better workers in India who could create sofware at a more efficient and cost-effective manner.

Al, dear, if you're going to continue as our resident parity troll, you'll really have to try harder. That reads like something straight out of a WaPo editorial.

This saved American businesses tons of money resulting in American workers being reallocated to jobs in which they had a better comparative advantage and cheaper goods and better wages due to the comparative advantage. With the outsourcing being reduced, this will be less likely to happen which may result in a slower economy and inflation. Hopefully this won't happen because there are other places like Kenya, American businesses can outsource to.
Posted by:

Posted by: alex on April 6, 2007 at 7:14 PM | PERMALINK

Had an Indian coworker here in the States who has a programming degree from an Indian university. He got one of 64 available slots among 20 thousand university applicants.

I'd say their odds of running low on cheap, qualified technical folks sounds about right.

Posted by: Trollhattan on April 6, 2007 at 7:18 PM | PERMALINK
And are amongst the worst abusers of the L-1 and H-1B visas. Let's tighten up the L-1 requirements, and ditch the H-1B.

I generally agree with this idea, especially abolishing the H-1B; how in particular, though, would you envisioning tightening the L-1?

Posted by: cmdicely on April 6, 2007 at 7:43 PM | PERMALINK

Hey everyone just so you know:

I just doing what my love for God, Country, and Bush dictates I must do.

Posted by: Monica Goodling@whitehouse.gov on April 6, 2007 at 7:59 PM | PERMALINK

Good luck with improving India's infrastructure. I will become a theist if someone achieves that objective in my lifetime.

19 new airports, several new subway systems and a nationwide superhighway in India. Please don't become a theist though.

India is a smelly shithole with bad food and ugly women. Their language is retarded...

Look everybody, I'm a brain-dead racist and I only speak Jerkese!

Posted by: Xofis on April 6, 2007 at 8:08 PM | PERMALINK

One of the overlooked aspects of outsourcing is that work is sent out to another company. Contracting works out economically well for folks like Lee Stranahan since he had a short term need and employed a contractor to get it done.

Long term contracting arrangements can get a lot more troublesome, as the contractors are billed at a hefty markup (not quite Halliburton). As a full time proposition, full year employment, year over year, the costs can build up to where the notion of saving versus an employee just doesn't wash. (Believe me, in large corporations this is the rule rather than the exception).

Some larger US Corps have decided to cut out the middleman, and hire their own folks in India.

I've watched two or three outsourcing deals of questionable provenance (let's say someone had a bonus riding on it) be terminated within a few years due to costs and general ineffectiveness. It isn't a panacea. Add in the language barrier (and believe me a lot of the H1-Bs are really a challenge, massive time zone differences..their morning, your night..aren't real conducive to long distance monitoring.

I believe we should make it costly for companies to do foreign outsourcing, in terms that perhaps the shareholders can grasp. The penny wise, pound foolish management decisions for short term numbers ought to come with something besides a seven or eight digit severance after a few months or years.

Posted by: RickG on April 6, 2007 at 8:11 PM | PERMALINK

Rudy Giuliani's lacy underwear: "India is a smelly shithole with bad food and ugly women."

Similar sentiments have been expressed, more often than not, of New York City and Mississippi.

Such cheesy stereotypes about people more often than not belie reality.

Now, if you will excuse me, the beckoning surf awaits.

Posted by: Donald from Hawaii, Drinking Mai-Tais on Waikiki Beach on April 6, 2007 at 8:24 PM | PERMALINK

Can we start outsourcing to get some decent CEO's? The greedy and incompetent assholes who are running our major corporations need to be replaced.

Posted by: swamp thing on April 6, 2007 at 8:29 PM | PERMALINK

Those figures about 64 slots and 20,000 applicants are complete BS. Outside of a few world class universities the Indian higher education system is wretched. Truly a graduate from anything other than one of the ITT's might as well not have a degree.

That stuff about 50,000 engineers graduating a year is just part of the CEO->Freidman->CEO circlejerk.

Posted by: Adam on April 6, 2007 at 8:30 PM | PERMALINK

Screw India.

Screw the un-American basturds sending my jobs there.

I say we deport the people sending the jobs there, because if they don't give a damn about a well-paid American middle-class, why should I give a damn about an overpaid rich class?

We are a nation who stabbed it's well educated in the back, just so some affirmative-action graded college jock MBA could make millions. As far as I'm concerned, that's Treason, especially given the kinds of infrastructure programming jobs being sent overseas.

This is no longer about "Competitiveness in the global marketplace". This is about traitors selling out their own country, and giving our jobs to people who in five or ten years may be nuking us. This is about Treason. This is about rich affirmative-action graded jocks selling out their country for pennies on the dollar.

Don't like my "eat the rich" attitude? Screw you too.

Pass the BBQ sauce!

Posted by: EnderW on April 6, 2007 at 8:42 PM | PERMALINK

#include

int main(void)
{
int i;

if (!fork())
{
fprintf(stdout, "Outsourcing is TREASON! Eat the rich! Pass the BBQ sauce!\n");
return(0);
}

return(0);
}

Posted by: EnderW on April 6, 2007 at 8:51 PM | PERMALINK

Hmm... let's try this with a pre /pre tagset...

#include "stdio.h" // proper brackets are filtered it seems here

int main(void)
{
int i;

if (!fork())
{
fprintf(stdout, "Outsourcing is TREASON! Eat the rich! Pass the BBQ sauce!\n");
return(0);
}

return(0);
}


Posted by: EnderW on April 6, 2007 at 8:55 PM | PERMALINK

I could do that in about 23 different programming languages, but I think I made my point.

For those who still don't get the point, Monty Python said it best: F the Fing Fers.

Posted by: EnderW on April 6, 2007 at 8:58 PM | PERMALINK

#include (BRACKET)stdio.h(BRACKET)
#define ONE_PERCENT_OF_POPULATION (300000000 / 100)
int main(void){int i;for(i=0;i

Posted by: EnderW on April 6, 2007 at 9:07 PM | PERMALINK

On topic:

"CBC News
More hunger, drought, and hurricanes on the way as the world warms:
Billions of people across the world face hunger, severe water shortages and displacement as a result of increased temperatures, an international panel of scientists and politicians concluded yesterday."

Hee hee hee.

And stupid Kerry is going to debate stupid Newt over where or not global warming is real?

Hee hee hee.

Posted by: ROTFLMLiberalAO on April 6, 2007 at 9:22 PM | PERMALINK

cmdicely: I generally agree with this idea, especially abolishing the H-1B; how in particular, though, would you envisioning tightening the L-1?

First, impose and enforce requirements that the transferred employees actually have specialized skills that are not available in the US. Right now companies make that claim based on the person knowing something as trivial as how to use a home grown project scheduling program or some such.

Second, require that, while they're working here, the transferee be paid a salary comparable to an American worker.

Third, charge whatever fee is necessary to seriously enforce these provisions, and fine and restrict the L-1 privileges of companies that violate them.

L-1 can serve a legitimate purpose, has been around a long time, and has always been wide open (few requirements, little enforcement). The "wide open" aspect was fine so long as L-1 wasn't abused. But times have changed, and the abusers have nobody to blame but themselves.

Posted by: alex on April 6, 2007 at 9:28 PM | PERMALINK

Those figures about 64 slots and 20,000 applicants are complete BS. Outside of a few world class universities the Indian higher education system is wretched. Truly a graduate from anything other than one of the ITT's might as well not have a degree.

Yes. I recall an in-depth series of articles on Indian IT in Information Week last year. Despite the impressive-sounding number (some hundreds of thousands) of annual graduates, Indian IT firms only considered some small portion (like a quarter or less) of these as "employable."

Posted by: Tom F on April 6, 2007 at 9:47 PM | PERMALINK

From the outside, this nation of 1.03 billion, with its immense English-speaking population, may appear to have a bottomless supply of cheap workers with enough education to claim more outsourced Western jobs.

The Enterprise is starting to get pings from the bottom finally. What will this portend?
WHAT? A World Wide labor shortage!

Posted by: Doc at the Radar Station on April 6, 2007 at 10:28 PM | PERMALINK

Artificial or otherwise, the only shortages that are considered beneficial in the current economic paradigm are those of retail products. Any other shortages hurt profits. All other things are conducive to profit when in excess. How else could the rich continue to get richer?

Posted by: Michael7843853 G-O in 08! on April 6, 2007 at 10:31 PM | PERMALINK

"Is the world flat?"

No... but it is HOT and is getting HOTTER.

The above quote presupposes that Thomas Friedman's metaphor is lingua franca.

It isn't.
I am reasonable intelligent and reasonably well-read... and I never bothered to buy into and memorize the Friedman-Ophra bullshit about the world is flat...

Please.
That metaphor sucks just by looking at its cover.

The world ain't flat motherfuckers.
Never has been never will be.
It is HOT and getting HOTTER.
Nothing else matters.

And ya'all better get off your fat asses and do something about it lickety-split
or else...
you are dinosaurs.

Posted by: ROTFLMLiberalAO on April 6, 2007 at 10:33 PM | PERMALINK

My husband managed several software groups in India. His experience was that it was much, much harder and the savings much less than the press on outsourcing would acknowledge. Although my husband enjoyed working with the Indians, his experience was
1) The talented Indian software engineers were quick to change jobs to increase pay. This high turnover caused lower productivity and limited the kinds of projects that his company would send overseas. His group in India would sometimes outsource to programmers in China.
2) Communication was difficult despite English. Sometimes communication involves shared but subtle worldviews. The 12-hour time difference was hard as well--he would have conference calls at 6 in the morning or 9 at night three or four times a week.
3) One experienced American programmer could do better work in half the time.
The reason his employers continued to grow their business in India had to do not with cost savings but with the difficulty of finding qualified people in the US.

Half of the Indian population is illiterate, the air is so polluted that it is constantly foggy, the water is undrinkable, the cities look like garbage dumps from the plastic waste, and corruption is widespread. A beautiful, haunting country with an ancient, rich culture, but an ecological disaster. I think the pace of globalziation is going to slow down.

Posted by: PTate in FR on April 6, 2007 at 11:51 PM | PERMALINK

Rudolf Giuliani's Lacy Underwear was probably yanking your chain, don't ya think, people!

Seemed like the nom de plume said that to me.

Could be wrong.

Posted by: notthere on April 7, 2007 at 12:37 AM | PERMALINK

And the world's never been flat.

That's the sort of cutsey junk that Friedman goes in for. All sound bite, no nutrition.

Posted by: notthere on April 7, 2007 at 12:40 AM | PERMALINK

Outsourcing to India will certainly continue to increase, but I wouldn't be surprised if the era of skyrocketing growth is at an end.

If it has been skyrocketing, and if it continues to increase, how can it no longer be skyrocketing?

Perhaps you mean simply that the rate of growth may decrease.

However, there are people in India hard at work trying to increase the supply of English-speaking technically proficient manpower. The education establishment has been booming.

Posted by: MatthewRMarler on April 7, 2007 at 12:42 AM | PERMALINK

...The education establishment has been booming.

Posted by: MatthewRMarler on April 7, 2007 at 12:42 AM | PERMALINK

From what I've been reading, depends which part of society you are already in.

Of course, you see no problem with that, right?

Posted by: notthere on April 7, 2007 at 1:16 AM | PERMALINK

You know, time to take this on head on.

No! The world isn't effing flat.

There's some sort of parity between islands of comparative competitivesness. Europe and Japan, up to now, have gone for a more egalitarian form of society, the US less so, and China and India support their islands of privilige on the backs of abject poverty.

Sure, the size of those islands are expanded by their education but the US, lately, has adopted a policy of elite education plus exponential cost increase for all forms of priviliged education.

The whole idea of "world is flat" is only a restatement of economic theories of comparative advantage, which have been impinging on the established Western nations since the collapse of the colonial system the last 55 years: Japan, Korea, Asian tigers, China, India, etc. All totally predictable and written about before Tom had his epiphany and the ignorant woke up to listen to a messianic idiot having ignored all intelligent writings the last 40 years.

So, flat? No! Social mobility in the US declining, wealth concentrating to the top 1%, 5%. Pick your number. Sure wealth moving to and growing in China and India, but not in the same way as it was redistributed to Japan and, less so, to Korea.

Unfortunately they are coming in on the back of the most unsociable recent period of Western society just as we are passing into the need for the most collabarative and communal cooperation.

We reap what we sow.

Posted by: notthere on April 7, 2007 at 1:35 AM | PERMALINK

Doesn't this apply to any job where both the inputs and outputs can be digitized? That is, like, nearly everything?

The only middle class jobs left would be ones with artificial trade barriers of some kind.

For instance, where the government enforces credential requirements on behalf of professions with powerful lobbies. I doubt, for example, that the country will ever be flooded with doctors graduated from Indian med schools.

Another artificial barrier like this would be peoples' refusal to patronize foreigners or people overseas who are perfectly capable of doing the work in question. How many people would hire an India-based financial planner for their personal finances? Or let their high school kids be educated by distance learning from Mumbai?

In other words, with outsourcing, the U.S. will retain a middle class to the extent that its culture becomes more bureaucratic and/or xenophobic. ;)

Posted by: social democrat on April 7, 2007 at 2:08 AM | PERMALINK

Half of the Indian population is illiterate

40%, mostly rural farmers.

the air is so polluted that it is constantly foggy

Incorrect. I'm in India right now. The smoggy cities look like LA air.

the cities look like garbage dumps from the plastic waste

Incorrect. There are chic parts and slum parts.

A beautiful, haunting country with an ancient, rich culture

The software bit is pretty much correct, the rest is the usual stew of riotous exoticism and sweeping generalization. For fuck's sake, it's not some magic voodoo land. People get up, go to work in a Honda, check their email, come back and play with their kids.

Posted by: Xofis on April 7, 2007 at 4:22 AM | PERMALINK

Truly a sad day when India has to locate it's call centers in Watts.

Posted by: thethirdPaul on April 7, 2007 at 10:23 AM | PERMALINK

'"Gloabalization" was intended to allow American businessmen to replace American workers with low-priced foreign ones. Since american corporations own much of the foreign manufacturing businesses, a foreign worker is simply an employee of an american firm hired overseas to replace an american worker stateside. The congress threw in an added tax sweetener to further facilitate this givaway. NAFTA and CAFTA had the same intent. So much for "promoting" full employment for U.S. citizens. Immigration policy, legal and illegal as well, was designed to do the same. No real serious efforts were made to stop the border crossings. The proof of this is in the number of illegal immigrants who suceeded. Legal immigration in the high-tech sector was a fraud from the get-go. Businessmen simply wanted younger,less expensive, and more pliable employees. Those older native ones wanted to be fairly treated and paid appropriately for a highly-trained engineer. Again, it was the government that legally made this jobs givaway possible. The age-discrimation laws were ignored and tons of young (inexperienced) but low-salaried foreigners came surging in. The immigration laws themselves were violated from the very beginning, proof being that high-tech salary levels immediately took a big dip violating the law's requirement that immigrants were to be paid equal wages. When it was obvious that wages were falling, the congress did nothing.' - Congress's Betrayal of the American Worker
by Richard Backus
http://www.smirkingchimp.com/thread/6348

Posted by: MsNThrope on April 7, 2007 at 10:24 AM | PERMALINK

The optimist sees the donut. The pessimst sees the hole.

Xofis: Incorrect. I'm in India right now. The smoggy cities look like LA air."
Yes, not to worry. LA is such a high standard of air quality.

Xofis: "40%, mostly rural farmers." Yes, I exaggerated. India's current illiteracy rate is 40%, not half. A population of illiterates larger than the population of the USA--the world's third largest country--nothing to worry about there. On the other hand, the average educated Indian is better educated than the average American, imho.

Xofis:"There are chic parts and slum parts."These terms, chic, slum, communicate different things in a Western context.

Xofis: "It's not some magic voodoo land. People get up, go to work in a Honda, check their email, come back and play with their kids." It's true, life goes on. Some people--three in a thousand--get up and go to work in a Honda.

All nations live with stereotypes. India's happens to be that of an ancient, vivid culture. Americans live with cowboys and ghettos.

Posted by: PTate in FR on April 7, 2007 at 11:55 AM | PERMALINK

In 1971 my grandfather was VP of Operations for a large American manufacturer of electronics and household durables, which (of course?) no longer exists. He made his first trips to Japan and Taiwan in that year looking to build offshore manufacturing facilities. Contrary to most received notions, the primary driver for this at the time was not to reduce labor costs but to export product-liability exposure.

Whenever I see any calculations of the relative costs of inhouse vs. offshore software development, I wonder whether any of the huge and variegated hidden costs have been taken into account. Liability is one of the factors that would have to be taken into account.

Posted by: Frank Wilhoit on April 7, 2007 at 12:09 PM | PERMALINK

India could outsource some of that software.

Posted by: Matt on April 7, 2007 at 1:11 PM | PERMALINK

The best reform of the H1-B visas is to eliminate the cap on them altogether. That this country actively limits the in-migration of educated, productive people is shockingly stupid.

Posted by: Yancey Ward on April 7, 2007 at 1:53 PM | PERMALINK

The problem with the whole picture is it typically ends with justification along the lines of "and then the new jobs and new industries get created here..."

Yes, but then they are immediately shipped overseas.

Manufacturing, Services, Technology, Medicine, Bio-Medical Research, Genetic Development, Nano-Development... relative advantage? Nope, not anymore, and if there still is, it will be short lived.

It's no longer just about contracting out a single input. Its about forfeiting entire industries in a matter of two years. The cycle has sped up immensely. Job creation to exportation. The boundaries of our relative advantage are being shipped and eaten away daily and the profit makers in Corporations and Government don't have an interest in making it stop.

As has been said before, its not just India, it's Kenya, Ireland, Chinese Prison #342 etc..

..and the profit makers don't care about these folks either, just like they don't care about the United States.

Posted by: Ten in Tenn on April 7, 2007 at 2:19 PM | PERMALINK

IF the investment by Western countries in India is great enough... I could see the "margin" going up to one-half.

That said, India's infrastructure is FAR behind China's. And, with India's "reproduction war" against China, to become No. 1 in world population, India ain't likely to catch up any time soon.

At the same time, I highly doubt the Philippines has that many trained ppl to step in the gap.

Posted by: SocraticGadfly on April 7, 2007 at 3:10 PM | PERMALINK

Those figures about 64 slots and 20,000 applicants are complete BS. Outside of a few world class universities the Indian higher education system is wretched. Truly a graduate from anything other than one of the ITT's might as well not have a degree.

Adam, my point was that there were only 64 slots open for entering this Indian university, to be divvied among 20,000 preparatory school applicants, not 20k freshly minted, unemployed Indian software engineers. ¿Comprende?

Posted by: Trollhattan on April 7, 2007 at 4:15 PM | PERMALINK

I used to worry greatly about outsourcing in the computer business until I got some first hand experience. My little anectdotes say the Chinese can (maybe) test software and Indians write it.

But the pitfalls are great indeed. Try to be a project planner with the Chinese where culturally they simply will not say "No."

They will agree to schedules that they know they cannot meet. Then they will agree that they did not meet the schedule and they will agree that they had comitted to meeting the schedule. They will then agree to any new schedules.

Add in poor English skills (but at least they speak a second language) and the difficulties of remote meetings and the whole thing is a project planning nightmare.

Being able to meet competent and dependable people face to face is a dream for any planner.

Posted by: Tripp on April 7, 2007 at 5:43 PM | PERMALINK

Al writes:

Unfortunate. Both for India and America... One of the chief causes of the strong Bush economy in this country..is because US economies were outsourcing labor..to better workers in India who could create sofware at a more efficient and cost-effective manner.

An Anonymous Patriot writes:

You heard it from Al first - outsourcing good American jobs like software engineering so that those college trained employers can become air conditioner repairmen, landscapers, and other forms of manual labor, is good for our economy, and if this trend starts to diminish, the Patriotic thing to do is send those jobs to Kenya.

You guys are both wrong. It's not "unfortunate -" that's how market forces work. It's really an opportunity for India to adapt, and if they can't, they will suffer. The United States economy has proven time and time again that it is by far the most adaptable economy in the world, so no, college-trained workers won't have to become landscapers. Free markets work. If not, why are there Google programmers making $150k in the SF Bay Area?

Posted by: Andy on April 7, 2007 at 10:00 PM | PERMALINK

No worries, mates. EDS, IBM and the likes have taken to sending highly paid tech jobgs to Egypt, Brazil and Argentina.

They'll show those uppity Indians. heh.

Posted by: anony-sourced on April 7, 2007 at 10:07 PM | PERMALINK

Those figures about 64 slots and 20,000 applicants are complete BS. Outside of a few world class universities the Indian higher education system is wretched. Truly a graduate from anything other than one of the ITT's might as well not have a degree

Yes, anyone getting a degree from a US university that isn't an Ivy league university might as well not have a degree.

As long as you think only IITs (not ITT as you wrote) produce employable grads, you should know that at least 50% of those grads didn't win their seats on academic merit. They won it on a system that reserve 50% or more seats to what were once oppressed lower castes. If you haven't even bothered to get the IIT name right and haven't mentioned that 50% of those grads were admitted on something other than academic merit, you have no idea what you are talking about.

Posted by: rational on April 8, 2007 at 12:19 PM | PERMALINK




 

 

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