Outlandish outsourcing: What are its long-term effects?

by Scorp | Nov 03, 2003 8:00:00 AM

Tags: Recruitment & Selection, Cable, Scorp , job, outsourcing

Takeaway: With business demands not always predictably even and regular, outsourcing is attractive to corporations--and the price of overseas outsourcing even more so. What can be done to curb what could become the Tech sector worker's nightmare?

"Your job has been slated to be outsourced overseas."

This may be the Next Big Thing in terms of Tech-sector worker nightmares. For many, it's already happened. For others it may soon. And in fact some in the Tech sector are those domestic entrepreneurs benefiting from the idea of outsourcing, offering their services independently on a temporary or as-needed basis to multiple clients.

The principle is simple and well-established. Business demands are not always predictably even and regular. A company needs something done once, or once a year, or in response to a unique set of circumstances so instead of keeping fulltime employees on staff for that purpose, it hires the work out. It'd be senseless to hire a professional, trained cable puller to do an initial install of a physical Cat5 layout, then keep that person on the payroll "in case something breaks." Cable systems, once installed, don't really break on a daily or even a weekly basis. A warranty or service contract is enough. If, at some future point, the company needs more cable strung, it would naturally hire it out again (or put the task on an increasingly thin and stressed IT Dept, which is also an option).

So what about a company that needs a whole new set of applications written? They may have a few coders on staff to do things such as daily/weekly maintenance of a Web site or database, but a major project would be beyond staff capacity. The obvious thing to do is to contract the majority of the work out, and let the regular employees put in any finishing touches.

After accepting bids for the job, it boils down to two feasible candidates: One contractor will bring the job home for $15,000; another will do it for $3,500.

Looking at the backgrounds of the two contractors, the company finds a rough similarity in the quality of previous work done, the reliability of delivering by deadline, and everything else. The only discernible difference between the two contractors is the price—and their countries of origin. The higher price comes from a home-grown, domestic crew; the lower is from India.

Put yourself in that company's place right now. Either the cash saved allows the company to do something else needed, as well as stay within budget (perhaps even to include a good chunk of a possible new hire's salary), or it actually makes the difference between doable and not.

What would induce the company to pay a much higher price for an equivalent product? Insanity comes to mind. Either an insane patriotic fervor on the part of the company decision makers, or an insane government regulation that mandates it by force of law. Such a coercive policy could actually make the difference between a productive year (the company gets the software it needs to be competitive and/or profitable) or a really bad one (the company loses needed business and may even fold).

And they call this "protectionism"…why??

It doesn't protect the rights of the workers if the company is forced to lay off employees, or, worst case, to close its doors. Yet there are plenty of people who would call that company "unpatriotic" (or worse—if in fact there IS a worse insult, these days!) for contracting out the job to a foreign-based concern. The point is, though, that the Law of Supply and Demand, with its inexorable corollaries of Price and Cost, is not mocked lightly nor for long. It's also an historical fact that legislating "protective" trade laws never really works on a long-term basis. It also quickly creates an underground market for smuggled goods. In the case of application code, that smuggling may be done rather undetectably—a few .zip files e-mailed nonchalantly over the wire, and delivery is a fact.

(Smuggling of this nature could be seen as a fairly victimless crime. The main loser is the government which imposes questionable tariffs, and secondarily the domestic coders—whom, it could be argued, were simply charging too much for their wares in a free market.)

What to do about this? There is no easy answer. The typical response is that laws of shaky ethical basis are passed and enforced, at a much higher cost than the results thereof would seem to require, and get mostly bypassed anyway. The other main option is to let the market work as it will, which means that coders living in places where $US200 per month income is viable have an immense competitive advantage over those in higher cost of living areas, such as most developed countries. Eventually this will mean the extinction of a skill in the countries that most utilize it(!) That is a rather dangerous situation economically, but when writing code pays no better in the US than minimum wage, most people won't find that to be a very attractive career option. Likely there will always be a need for onsite coding skills, but if the trend continues, domestic coders will only be fixers and tweakers instead of creators—and still will not be paid commensurately for their skill.

It's not as bad with network and system administrators, but the fact is that many if not most of the daily tasks that admins are called upon to accomplish can be done remotely. Many admins can work quite effectively "from home" with remote management tools, and over the wire, it doesn't matter much whether the physical distance between hosts is 500 meters or 12,000 miles away. What's going to happen when the same skill set can be had for $12,000 or less per year that now goes for $60,000...?

Again, there will always be the need for onsite personnel to place CDs in the tray, connect physical cables, and change out backup tapes. But an employee whose job consists of only those tasks isn't going to need much training nor command much of a salary. And, the domestic high-tech skill pool will decrease accordingly with lowered demand. It's not going to be very inspiring to "work with computers" when the job consists of obeying simple e-mailed orders from overseas to perform low-level tasks and not much else, with no hope of ever advancing into an admin position.

Of course, there's always the help desk.

Traditionally an entry-level position, with low prestige and salary, the ubiquitous desktop support positions may actually be the "safest" from overseas outsourcing pressure; after all, communication skill is what really counts here. Or is it safe? You may have laughed at the fractured English displayed in "All Your Base Are Belong To Us." If you're really, really new to the Web, any of these links will clue you in:

But the fact of the matter is, it just isn't that way any more. English proficiency is a high priority in developing countries and has been for some time, (concurrent with a domestic decline!) such that many foreign-born and -raised people actually speak, read, and write better English than the majority of native speakers.

Yes, there will always be the need for onsite personnel to go physically to the desktop and hit the "any" key, or reconnect the cable that "got moved" to accommodate a vase of flowers, or replace a blown monitor or flaky mouse, but none of that will require an MCSE, either. The reality is that many desktop problems get (temporarily at least) solved with a reboot, or can be handled remotely with tools such as PCanywhere or VNC and, again, the physical separation of the remote operator can be 500 meters or 12,000 miles.

What's the answer to this trend? Good question. Legislated protectionism never works; it's too easily sidestepped and violates basic market principles anyway. But if this continues, dependence upon foreign tech skills will hit harder than dependence upon foreign oil ever has, and produce the same or worse economic vulnerabilities in the US and other developed countries.

The good news is that it's all bound to level out at some point. The lower cost of living overseas is mostly made possible by the unimaginably squalid living conditions of the lower echelons who slave to produce goods and services in return for less than a pittance. With the infusion of wealth into these areas, demand will increase and produce a higher, costlier standard of living for all, eventually—if the mostly oppressive governments in those countries don't find a way to siphon it off into wonderful endeavors such as nuclear arms races.

The bad news is, it's "our" wealth, and it could take the better part of a century. What to do personally in the interim is something of a dilemma.

The worst news is—the Government could try and "fix" it.

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