Over lunch at work, our little group occasionally hashes out the big issues by sharing what statistics we know and what commentary we’ve heard and what seems right or fair or likely to be true. Sometimes we get it right — GWB is a dink — other times we’re wrong — I was sure that invading Iraq was morally right in late 2002 and early 2003 — but mostly we enjoy sticking it to The Man and engaging in good-natured banter, especially after the company neutered our internal “talk” newsgroup.
We’re all mostly liberal, though we vary from center-left (i.e., Wyoming Democrat or Congress supporter) to very left (Deaniacs and drug liberalizers), though on certain issues conservative or traditional viewpoints show through. We range in age and experience, though the Americans primarily come from Ivy League or small liberal arts schools. The Desis, I gather, come from progressive, moderately well off families who let their daughters go to America to work and marry for love and all that.
So I’m going to apply the same kind of thinking out loud that we do at lunch to outsourcing, an issue that I haven’t completely made up my mind about. I’ll tell you what I think — it’s probably not so bad as software engineers fret, but we need to do more to stay competitive — and why I think so; and you tell me whether you agree and/or point me to the things you’ve heard or read that should lead me to reevaluate my narrow, misguided views.
We work, our little lunch group, at a medium-sized, private, multinational software company. Our software products are used by other highly educated innovators to do everything possibly imaginable in science, medicine, engineering, finance, and I know not what (because the military won’t let them tell me, that’s why). We have multiple offices on several continents where we support and sell to those researchers and developers; but as far as I know we don’t outsource business processes.
All of this information is available on our website, but it’s worth highlighting that the company has grown organically over the last 22 years by filling a vital need, by being good entrepreneurs, and by following a set of core values that tell us to do right by our customers and communities.
As with any respectable software company, our main purpose is to create quality software, sell it, and support it. (I’m switching over to a general discussion of software companies now, not the one that employs me.) We can do those activities in house, via contractors in developed countries, or using labor and ideas in places with low operating expenses. CDs don’t need to be pressed in house, if they can be made just as well at lower overall expense by companies that specialize in duplication; that just makes sense. But it supposes that the quality is as good or better than what can be produced in house, and the relationship must be manageable and stable. Basically, using a contractor (wherever they are) must create a product that doesn’t detract from the value of the main company. Outsourcing must allow the company to focus on what it’s good at doing by freeing up time, talent, and capital.
I totally accept that there are software engineers in India or China or Iowa or elsewhere who can design and construct software just as well (or better) than I can and that they could be trained in the internals of our products enough to do the same programming tasks that I do. These same people could also learn the needs of our customers and our corporate culture well enough to evaluate what features our customers need and make them fit into our current product lines. They could conceivably also collaborate with marketing and support and sales to get that integrated feel that helps create residual value beyond what’s in the software. Let’s face it: no job is American by birthright and many jobs can be done at a great distance from the place where all the cash receipts go. From time to time, it does scare the hell out of me (though apparently not as much as it does other engineers).
But each one of the criteria for successful outsourcing — qualified, imaginative staff; alignment with company values and needs; and the desire to build a stronger brand — is increasingly rare, costly, and essential to a successful company. These are hidden costs that aren’t usually indicated in discussions over the “race to the bottom” of wages and operating costs. In addition, innovation across a company is still difficult at a distance, and extremely difficult at the team level (at least for now). Many software companies don’t even want their local employees to work from home.
More visible but less frequently discussed costs further offset the wage savings of outsourcing. Believe it or not, our taxes are low compared to many other nations. Corruption abroad inflates prices and slows down business. Electricity isn’t always secure and infrastructures lag. Political instability, work stoppages, and rising wages all erode reasons for offshoring or (worse) entice management to move operations to another source, incurring new setup, operating, and brand-related costs.
Of course, one day innovation and collaboration will happen as naturally between workers separated by great distance as it does in today’s centralized office. How do we keep innovative, core-value jobs where they started?
If we in the U.S. are going to continue as competitive innovators, then education, taxation, economic policy, venture capital, and worker benefits must remain competitive. I’ve previously written that we’re falling behind on education, though it’s certainly fixable if everyone works at it; and I mean everyone: students, educators, parents, legislators . . . even childless suburbanites like me. I’m not qualified to give suggestions on taxation and economic policies; though I think we’re doing alright.
As for venture capital, it’s incredibly easy to get in the U.S. thanks to our speculative risk-reward system. Why, if my previous employer could get loads of cash (twice) without a more complicated business plan than “get bought” and never make a profit until the day it was sold, then I suspect anybody can. So when I asked Nimmi and Deepti (whose Indian fathers own their own companies) how hard it was to get venture capital to start businesses in India, the answer was surprising. “Difficult. And full of bribery. It’s getting easier, though.”
As far as I can tell, that leaves only employee compensation as the primary motivation for sending jobs away from the U.S. (or the Northeast or Silicon Valley or wherever wages accumulate). It’s expensive to pay Americans’ salaries and our healthcare and pension costs. Even if we fix the latter two gaping money pits, we software engineers still expect lots of cash for the service we provide. We’re worth it really — and we have mortgages and student loans and consumer debt and lifestyles that must be satisfied — but sometimes money-types look at numbers and think otherwise.
So one day the world will not only be flat but flat and close. Core competencies and values will be available elsewhere for less (including all of the hidden costs) and will still fit into medium-sized businesses’ collaboration structures. Well-educated workers and their entrepreneurial employers abroad will directly challenge American workers and companies — though the situation will most likely be more complementary than competitive — and we may lose as often as we win. Globally speaking, this is success. India and China and other nations developing their talent pools, infrastructure, governments, and economies will be better places to live and work and raise families than they are now.
But what about the displaced American knowledge worker? Here’s my (thankfully) untested survival guide:
- Be really smart and have depth in more than one skill.
- Save for retirement and a rainy day.
- Work at a small or medium size company.
- Work at a company that understands what it’s doing and the true cost of outsourcing.
- Be part of your company’s core purpose.
- Accept that your job could leave and be willing to take what you know and move on.
Now it’s your turn to tell me what you think. Are we sunk or will we steam on? Are you worried about your job?
There are other class and industry-based aspects to outsourcing, that I want to explore next. (Namely, jobs at the highest and lowest ends of the wage scales seem the most secure. Executives doing the outsourcing will keep their jobs, along with well compensated employees closest to the core purpose of the business. Service workers — maintenance, retail, restaurant — are also unlikely to lose jobs to foreign competition. Of course, the outsourcing of significant numbers of jobs could be an overall drag on the jobs outlook for an area; just ask the rust belt.) Anyone know of any good books?