Outsourcing

Mr. Mom is an excellent bit of prescient social commentary via cinema. Way back in the ‘80’s, the big three auto manufacturers were suffering the effects of long term market dominance, lack of competition and innovative gestalt. ‘America loves Ford’, even if it was a total piece of crap which would fall apart after 2 years. After all, what else were Americans going to buy?

As it turns out, Japanese cars. The Japanese were supposedly better managers. They made better cars. They had better warrantees. They got better gas mileage. The Big Three were dying. Do the patriotic thing and ‘Buy American’!

And yet, today, the big three are still at it. What happened? They were forced via competition to innovate, to streamline, to cut costs, to improve. With the winner being the consumer.

The current tizzy in IT is India, and how they are stealing ‘our’ jobs. In my previous article, I raised three main counters to this: Software creates the need for more software, Supply and demand will equalize the cost of work per developer, and communication is the hardest part of any software development process (as opposed to hacking out the code, which generally is the easiest part). And every project I work on only reinforces these truisms.

Software creates the need for more software. What happens when a project is completed? Does it get placed in a trophy case where it can be admired from afar for its genius and elegance? Generally, no. it gets used. And whenever anything gets used, it gets changes. Modified. Improved. Made to communicate outside the scope of its original intent. And eventually, thrown away and re-written to take advantage of new advances in theory and technology.

Is this process somehow going to stop if Engineers in India are working on some of the code? What about the East Europeans? Bangladeshi’s? My point is in reality people will continue to discover the need for more efficiency gains through software which will result in more jobs for IT developers. The only caveat is that we may not be able to command the rates we did during the Bubble. Honestly, did anyone really expect the unsustainable rates of the irrational .com era to act as a baseline for wage expectation?

This leads to my next point; supply and demand doing what it is supposed to do. One of the great lefty rallying cries is “A good job for good wages’. I didn’t know that also contained a rider ‘only for Americans!’. Outsourcing has two often ignored benefits: it acts to increase the standard of living where the outsource workers live, and it increases the demand for American exports in those areas. In short, it increases Indian wages, and it opens market-share for Dell et al. And as Indian IT wages increase (as they are all ready doing) the ROI for outsourcing goes down rapidly.

The other effect of this equation is that it results in a suppression of American IT wages to some extent. While I don’t exactly savor this aspect of the equation in the short term, I do like the idea that on average IT workers will become more affordable to more mom and pop institutions.

One of the big advantages that a mega chain like Wal-Mart offers is lower prices of goods. In many ways this is achieved through better supply chain maintenance via IT. The problem that this exposes is that it is expensive to do real-time inventory data mining. And because the mom and pop hardware store can’t afford Just In Time inventory, they charge more. They stock based on what may be false trends. They may waste inventory. Which Wal-Mart can explicitly avoid. Wal-Mart and other national chains are better able to utilize information to increase efficiency and reduce cost to the consumer. Which sort of leads me to my last point. Communication.

Finally, communication is the hardest part of any software development process. In my experience, the absolutely, bar none, most difficult part of a software project has essentially nothing to do with writing the software. It’s gathering requirements such that developer and ‘consumer’ agrees to what is to be delivered – never mind when said consumer is an external client who really doesn’t understand what the want in the first place (like 90% of clients I’ve run into). Yet, in spite of this, someone things that the cost per project will be reduced by the simply expedient of hiring more, cheaper workers. My prediction? Over the next few years we will see an overall reduction in the amount of outsourcing that goes on due to the simple fact that cultural and language barriers will be yet another communication problem to overcome. So while we may see a decrease in ‘cost per project attempt’, more attempts will be required – thereby restoring parity, if not increasing the cost of the eventually completed project overall.

And I still maintain that people prefer to work with someone across the hall as opposed to 12 time zones away.

In conclusion, why am I not worried about outsourcing? Because today the second largest car manufacturer (in terms of employment) in the U.S. is Toyota. And hopefully, someone, SOMEWHERE remembers the wonderful effects of the Smoot-Hawley Tariff Act. We’ve been down this isolationist road before. I’ll be damned if I’m not going to point this out again and again to those volunteering to play isolationist.

Remember, in 1929 the refrain was

“With America’s high standard of living, we cannot successfully compete against foreign producers because of lower foreign wages and a lower cost of production.”
--Herbert Hoover

And we all know how well that turned out.