If you don’t already know it by now, TechRepublic’s bloggers are fonts of information. But as we learned from TechRepublic’s Live 2010 Conference, their opinions are not limited to tech specifics. In the coming months, we will present a question to our roundtable of TR writers and ask them to weigh in (as Michael Kassner did with this piece about buggy software.) This week’s question is:
Is there a compelling reason, other than money savings, to use offshore talent?
First up is Justin James, blogger for our Programming and Development blog:
There is no “compelling” reason to use offshore work, not even money. Does this mean that there is no reason at all to do it? No. There are some scenarios where offshore work makes sense. If you have a job which can be configured in a “set and forget” mode (like Level 1 support reading off of a standard script, programming against a spec developed in-house, etc.), offshore work can save some money, at the possible expense of alienating your customers. In a “follow the sun” situation, offshoring can be useful as well. Another instance where it works is when the offshore work can happen in its own “bubble” without coordination with “the mothership” (like Microsoft’s R&D labs in India). The issue is not just one of the quality of the work. Take all of the problems you have in any kind of third-party vendor scenario, and add a multiplier for time zone, distance, cultural differences, language barriers, and so on. Offshoring simply is not a workable solution in many cases. While offshoring can sometimes save money or give you instant access to a labor pool, I see no situations where it is “compelling.”
Utilizing offshore talent, especially in the case of software development, is effectively capacity-on-demand. Quite in line with today’s array of buzzwords around cloud technologies for on-demand infrastructure services, development staff capacity-on-demand can be very helpful when things need to move quickly. That isn’t necessarily a guarantee that the development resource will be satisfactory. As with utilizing any business partner, offshore development can increase the management footprint to ensure that specifications for the work are very clearly defined and readily available. Regardless of opinion on the topic, it is clear that offshore development is an absolutely pivotal component for major software companies such as Microsoft and VMware.
Deb Shinder, who writes prolifically all across the TechRepublic site, weighs in on the topic:
Some will undoubtedly say that introducing diversity for the sake of diversity is a reason. Certainly considering offshore talent increases the overall talent pool (at least theoretically) so that you may have a larger number of skilled people to choose from. There is also the theory that by reducing the company’s costs, it can reduce the prices for the company’s products/services while maintaining the same profit per unit and thus result in more sales of said products/services.
But in my experience, the decision to do it is always all about the money. That encompasses more than just the difference in salaries, though. It also includes things like benefits, insurance, taxes, physical space issues (including rental, utilities, power), regulatory issues and “red tape” or “hassle factor” – which ultimately translate into … money.
Last, but certainly not least, we hear from Donovan Colbert, a regular blogger for TechReplublic Out Loud:
I’ve got some real strong feelings on offshoring. I think the only reason for offshoring is short-sited economic gain – except for in situations where you can leverage different geographic locations for better support coverage. In fact, I think the negatives of offshoring far outweigh almost all positives. You’re not getting an employee pool that is guaranteed to be any better (or conversely, any worse) than your local domestic workforce, generally speaking. You’ll face the logistical challenges of a distributed workforce in a radically different time zone, and to varying degrees the cultural and language barriers that go along with that.
Possibly the worst aspect is that unless your organization is a global one, every dollar you invest in an off-shored workforce is a dollar you’re unlikely to ever see again as revenue. You’re feeding into the economy and GNP of a foreign company and country to the detriment of your own domestic company and country. When you invest in your own domestic workers, there is a significant opportunity that they’ll also become your customers. When you invest in a worker who doesn’t live in your country, the chances are that this money will not return to your nation’s economy. If your offshore solution deals only internally, you’re bound to alienate and upset your domestic workforce with the communication challenges.
If your offshore solution deals with your public customers, this is only likely to be amplified. Companies like Intel, Microsoft and Hewlett Packard have attempted to justify their outsourcing initiative by claiming that there are not enough domestic workers skilled in math and the sciences to fill their open positions. The truth is that most of the positions that these companies have offshored have been low- and mid-range support and system administration and engineering positions. These positions do not require advanced degrees in math or the sciences. That is perhaps one of the most offensive parts of the offshoring phenomenon to me – that it’s being sold by large global corporations as a response to a lack of skilled domestic workers that absolutely does not exist. One thing we often hear about the other “foreign worker” issue is that foreign workers are the only people willing to do certain jobs. I think this is a business cop-out. Often, business won’t pay what a domestic worker would require to do a certain job. In language that is more precise, what we often mean when we say this is, “Only a foreign worker will do this job for what we are willing to pay.” That isn’t a reason to offshore, or hire a foreign worker. It means we should be paying real wages for those jobs, and adjusting the final cost of whatever product or services those wages result in. When we take advantage of disproportional local economies in this way we upset those local economies and consolidate wealth in a way that is unsound for a healthy global economy.
C level executives, members of the corporate board, and large stock holders (who are frequently members of one or both of the first two groups) reap the rewards, and the rest of the global economy suffers. India is now facing challenges from outsourcing to China and Russia, because of the inflationary cycle that the sudden influx of outsourcing wealth has brought to their tech hubs. This kind of rapid economic growth followed by a subsequent crash is unhealthy and very unstable, not just for the local economy, but globally. I am not an isolationist or a protectionist, and I think healthy global competition is a good thing, but I think that we need more protections to ensure that we’re competing on a level playing field, that handicaps are in place to ensure that competition is fair, and to make sure that neither party engaged in global competition is taken advantage of. I believe that the full consequences of unbridled offshoring, of chasing the lowest paid worker from nation to nation will cause tremendous long term upheaval of the global economy resulting in a massive consolidation of wealth unprecedented in modern times. They’re only doing it for the bottom line.
Now here is the rub: It can’t be a matter of principle or morality for a company. If AMD decides to outsource and Intel sticks to their moral ground and does not outsource, AMD will have a tremendous economic advantage. If you are producing widgets for $.25 a widget and I can produce them for $.05 a widget, the long term prognosis for your viability, all other things being equal, is not good. If I am able to pay $.05 a widget because I am paying Indian workers a 3rd what you are paying domestic workers, and domestic workers won’t settle for that wage, how else are you going to compete? It’s a real nasty situation.