The Offshore Threat, is it Real??

There are a lot of IT workers and potential IT workers in less developed parts of the world and many people in North America and Western Europe are understandably scared. The basic premise is that since it costs less to live in the 2nd and 3rd world, these people can afford to work for less money and can “steal our jobs.” Certainly in other industries, for example manufacturing, this has been happening.

I have a long history with “offshore outsourcing,” with both Asia and Eastern Europe. I was the CTO of offshore outsourcing company Cerint Technology Group (which I must add was a “textbook failure” of a startup – ask me someday!). I have some opinions and the experience to back them up. Being a wonderful, intelligent, open minded guy :), my opinions evolve and I’m happy to hear and maybe even publish dissenting opinions! Quite simply, in offshore outsourcing some things work well and some simply do not. Some jobs are easily moved and some are not.

Certainly some IT jobs will go offshore but a great many IT jobs will exist onshore. As the general long term trend in IT is up, ignoring the (extremely significant) current boom/bust cycle of the Internet explosion, the number of jobs is increasing. The jobs that go overseas will tend to be lower level jobs, for example telephone support. It also helps to remember that many of today’s high level jobs will be tomorrow’s low level jobs. Remember Cobol was once hot. There is an excellent chance that if you are in IT your current job won’t reside where you are in a few years. It might not even exist anywhere although there may be a very different job with the same title. But it probably didn’t exist a few years ago, and jobs and work are evolving quickly in IT just as they have in the past. This is no surprise! Since we are currently emerging from the Internet bust, the short term and long term outlooks for IT jobs are positive as well. Two years ago I would have said the long term outlook was good but the short term outlook miserable.

Why won’t all IT jobs go offshore? There are a number of reasons:

The benefits of “low cost” are not always valid. Often times more management (or micromanagement) is necessary which increases costs. I can think of a couple projects using offshore resources where everything had to be micromanaged. We couldn’t just tell them what to do; we had to tell them how to do it in incredible detail, including specifying the exact algorithms for run of the mill programming tasks. Of course this isn’t always the case, and I’ve occasionally seen similar circumstances in the US, but it very often is a significant factor in offshoring.
In Edward Yourdon’s book Outsource?: Competing in the Global Productivity Race, he says that it's hard to determine if cheaper code is produced offshore. Cost savings are not automatic or easy.
Offshore prices are also going up, e.g. the Silicon Valley type boom in Bangalore, India and other places. Just the boost to a local economy from the influx of foreign money drives up prices.

Cultural and other differences certainly come into play and can be very significant. We have different values than many other cultures, there are language difficulties and time difficulties as well. Certainly India suffers from these difficulties. Other areas suffer to a lesser degree; for example Poland has an essentially Western European culture similar to the USA, there are many well educated and experienced software and other engineers who speak English very well, and the time difference is not as significant. Whenever I had a question or issue working with Poland I could simply pick up the phone and call as our standard work days had significant overlap.

Many IT tasks are not particularly well suited to offshoring. Information Security is one area that is often mentioned. Any project in which Intellectual Property Rights are paramount is not – Intellectual Property Rights essentially don’t exist in many locales! Also projects where the requirements are evolving are not typically suitable for offshore outsourcing. This one is less obvious, although part of the reason is that offshoring requires another level of management which tends to stifle flexibility and innovation. A whole book could probably be written on the topic – let’s just call offshore outsourcing of projects with evolving requirements a “Worst Practice” for now.

Also for some unknown reason, most innovative software is developed in the US. There are counterexamples of course, but for some reason the US seems to be the hotbed of software innovation. Perhaps our mindset, cultural values, or . . . ?

What about offshore workers coming to the first world and working here – is that a threat? For example there are approximately 500,000 technical workers in the USA under the H1-B visa program. They take jobs that are apparently hard to fill with US residents. N. Sivakumar's book Debugging Indian Computer Programmers: Dude, Did I Steal Your Job? argues that H1-B visa holders, as well as high tech immigrants, are desirable and help support our economy, and I largely agree.

Every H1-B visa holder has at least 16 years of education. US taxpayers didn’t subsidize this education as they didn’t go to US public schools or use US taxpayer subsidized student loans. We’re getting educated people for free.

Each one has a US Company sponsoring their application and there is a job waiting for them, which might have not been available for or easily filled by a US resident.

H1-B workers pay the same taxes as other legal US residents but reap fewer of the benefits. Most are single and don’t send children to the schools they help subsidize and few will ever collect on Social Security or the medical-care systems their taxes help support.

Sivakumar also refers to a Berkeley study that shows during the boom years of the 1990s, Chinese and Indian immigrants started almost 25% of the high-tech startups in Silicon Valley, which translates to the creation of approximately 100,00 new jobs.
There are a lot of IT jobs worldwide and then number is increasing. The Internet bubble, or rather its burst, has made the IT job market pretty miserable, but the long term trend is up. Many current IT jobs are going offshore. Many of these jobs didn’t exist a few years ago, and many jobs we’ll be doing in a few years don’t exist today. Jobs and employment in IT has never been static and there is no reason to believe it will be in the future.

It wasn’t too long ago that people worried aloud that we didn’t have enough qualified IT people. The USA is able to pick the best intellectual draft choices from around the world and bring them to the USA to work. The H1-B program lets the USA get well qualified IT people in addition to the ones educated partially at US taxpayers expense. They pay taxes that subsidize social programs they almost certainly won’t get to take advantage of and many of them are quite entrepreneurial and start companies that create jobs. Sounds like a good deal to me.