Bulletin of Skeptical Views of Offshoring, 2005

By 2007, global spending on outsourcing will top $50 billion per year, according to market analyst Gartner Inc. But not all of these outsourcing projects will succeed. Many outsourcing projects fall apart because companies fail to consider the costs and complexity that are associated with outsourcing.

Deciding to outsource an IT project is a strategic decision for a company and it's important to not rush headlong into a project without proper planning, said Nick Rossiter, a partner at Mithras Consulting Group, which advises clients on outsourcing-related issues.

In June, Gartner released a report that outlined common pitfalls for companies that outsourced IT services. That report identified five factors that companies often fail to fully consider when deciding whether or not to outsource IT functions: cost, productivity, communications, culture and organizational readiness.

If your company is considering an outsourcing project, Gartner recommended that you start by analyzing the total costs of the project. Don't look just at the difference in labor costs, the report said. Be sure to factor in additional costs for conducting due diligence, communications, oversight, international travel and training, it said.

That's sound advice, according to Rossiter. "These costs can be greater than the cost of labor," he said.

Since outsourcing costs will not be constant during the life of a project, companies should consider the costs for different stages of the project. Since initial costs are generally highest during an outsourcing project, your company may not realize significant cost savings until one or two years after the start of the project, according to the Gartner report.

It's also important to be realistic about the level of productivity that outsourcing providers can offer, Gartner said. Some companies assume that the productivity of an outsourcing partner will match that of internal IT staff: this isn't always the case. In particular, be prepared for lowered productivity during the initial phase of an outsourcing project.

Throughout the life of the outsourcing project, productivity levels may be affected by staff turnover at the outsourcing provider. In these cases, new staff may have to be trained to fully understand the applications they are working with. "They need time to get really efficient" Rossiter said.

Another key factor to consider is whether your company's senior management has bought into the outsourcing project. Support from top executives is "instrumental" in keeping an outsourcing project on track, the report said.

Effective communication between your company and your outsourcing provider are also important to the success of an outsourcing project.

All communication between your company and the outsourcing provider should be documented and made as clear as possible to avoid misunderstandings, Gartner advised. This is particularly important when conveying the technical requirements and business objectives of an outsourcing project. If companies fail to communicate these goals clearly, problems that may arise include lower productivity and increased errors in the project, it said.

Another issue to consider when choosing an outsourcing service provider is culture, which differs from country to country and between companies.

Be sure to consider which cultural issues may affect the working relationship between your company and your outsourcing provider, Gartner said. Seek advice from consultants and consider cultural training when necessary to ensure a smooth working relationship with your partner. In addition, sending internal IT staff overseas to work with the outsourcing provider may help to minimize the risk of cultural issues affecting the success of the outsourcing project.

Rushing into an outsourcing project before you have fully considered all of the factors associated with these kinds of projects can result in additional costs or poor results, Gartner said.

Be sure your company is ready to outsource before taking the plunge. Make sure that internal staff understand the reasons for outsourcing and are supportive of the project. Carefully consider all of the risks and determine how much risk your company is willing to accept. Once you have done this, look for ways to mitigate risks, it said.

Companies should also assess the maturity of their own IT operations before outsourcing, according to Gartner. Some factors to consider are standardized methodologies, project management skills and service-level agreements, among others. Any weakness in these areas may result in lower productivity and a less-than-desirable result, it said.

When considering an outsourcing project, companies are well advised to take their time, considering a range of different geographies and service providers, Rossiter said. India is the best-known outsourcing center and has a large number of experienced outsourcing service providers. But there are other choices, such as China or The Philippines, which have a smaller number of experienced outsourcing providers to choose from, he said.

"Above and beyond that, It depends on the business goal of the client," Rossiter said, noting that many Japanese companies choose to outsource to China because of the close economic relationship between the two countries. Some U.S. companies have also chosen to outsource to China in order to further their business objectives in the country, he said.

When you've settled on a partner, you should consider starting off with a smaller IT project that is not mission-critical before moving on to larger and more important projects. This will allow you and your outsourcing partner to develop a strong working relationship and will minimize the risk of problems, Rossiter said.

If the project goes well, you can pass more projects to the outsourcing service provider, he said.

[Jul 1, 2005] Coding for $15 an hour News.blog CNET News.com

Could a computer coding job paying just $15 per hour signal something's wrong with the tech world?

That relatively measly amount is what's promised in an ad for a "ASP.NET Programmer" on the America's Job Bank site. The job, which calls for "at least 1 year's experience either in school, at work, or a combination of the two," is being offered by employment services company AppleOne, according to the ad.

$15 per hour for a computer programmer makes the position fall below the 10th percentile for the programming occupation both nationally and in California, where the job is said to be located. It's less than what some security guards make.

And it has Kim Berry, president of the Programmers Guild advocacy group, steamed about the way domestic techies have to compete with a greater number of foreign workers. A $15-per-hour coding gig doesn't jibe with the recent expansion of the H-1B guest worker visa program, Berry argued in an email Thursday.

"(Department of Labor) and Congress--under the law of supply and demand, aren't wages supposed to go up when there is a shortage?" Berry wrote. "And if there is not a shortage, why did you recently increase the H-1B quota by another 20,000 foreign workers per year?"

To be fair, one defense of H-1B visas is not linked directly to a shortage of workers. Harris Miller, president of the Information Technology Association of America, has argued that the visas give U.S. companies important access to international talent as they compete globally.

Even so, the ad's wage does make one wonder if guest worker visas and the rise of offshoring are undermining U.S. tech careers--and by extension threatening the country's tech leadership.

[Jul 1, 2005] Of cubicle sex and outsourcing News.blog CNET News.com

We've heard reports that business process outsourcing work in India can be a dead-end job replete with long hours and unpaid overtime. But it seems such workplace woes are being offset to some degree with moments of sexual healing.

A story in the India press today reports that BPO workers are smooching and more in office settings, which have transformed into personal spaces in addition to professional domains. "From making friends to cultivating relationships, BPO units are slowly becoming hubs where inter-personal bonding takes place," the story in The Economic Times says. "And it comes as little surprise that many also give vent to their sexual urges in the office space."

The story says that footage from cameras at a leading Mumbai-based BPO unit showed a couple having sex in an office cubicle.

One source quoted in the story suggested that serving Western customers may be changing the behavior of Indian BPO workers. "Most of us have shed a lot of inhibitions when we come into this sector, trying to fall in step with a different time zone and culture that becomes a part of you," said Nicola D'Costa. "Couples walking with their arms around each other's waist/shoulder or grabbing a quick kiss in vacant corridors does happen."

Posted by Ed Frauenheim

[Jun 29, 2005] Gates warns against reliance on outsourcing - Computerworld

Gates, who was speaking at the Nippon Keidanren (Japan Business Federation), Japan's biggest and most influential business group, urged IT companies to beware of outsourcing too much to save costs and to keep their key engineering resources and intellectual property at home.

"If you rely too much on people in other companies and countries ... you are outsourcing your brains, where you are making all the innovation," he said.

... ... ...

At a national level, both the U.S. and Japan need to train more and better engineers if their economies are to stay at the cutting edge of technological innovation, which would create value that helps support both countries' high standards of living, he said.

Gates cast the U.S. and Japan as competing in a global market economy that had grown from about 1 billion people 20 years ago to 4 billion people. In this expanded, increasingly competitive economy, India and China are training engineers who are driving their economies forward, yet Japan and the U.S. aren't keeping up, he said.

"The number of students in engineering and IT is going down. ... Staying ahead means setting a very high bar," Gates said.

[May 24, 2005] Enterprise Systems Who Benefits from Outsourcing Not the Line of Business by Stephen Swoyer

Some business customers are organizing “shadow” IT groups to replace IT resources that have been outsourced

Who benefits from outsourcing? Executives, of course: CEOs at the 50 biggest U.S. outsourcers generally receive more in compensation than do chiefs who are less bullish about outsourcing.

From the perspective of some business constituencies, however, the benefits of outsourcing seem questionable, at best. End users, for example, report having to fight their way through several levels of bureaucratic indirection, and almost all are putting up with longer lag times in response to support calls.

One upshot of end-user frustration with the Brave New World of outsourcing is insurrection of a sort: Mad as hell and not willing to take it anymore, some line-of-businesses are organizing “shadow” IT groups to replace IT resources that have been outsourced, both domestically and internationally.

When IT Isn’t a Core Competency

When a new CIO came on board at a major telecommunications carrier and provider of managed network services two years ago, he had surprising news for the company’s IT staff: We don’t do IT. Information technology is not a core competency, this CIO said, arguing that the money his company was spending on IT could be better invested elsewhere.

Shortly thereafter, the CIO decided to outsource all of his company’s IT operations, tapping the services arms of both IBM Corp. and Electronic Data Systems (EDS) Inc. to do the job. He touted projected savings in the neighborhood of $150 million, but assured employees, analysts, shareholders, and others that cutting costs wasn’t an “overriding consideration.” At the same time, he announced plans to eliminate several hundred IT jobs—although, as it turns out, the company cut between 1,400 and 1,600 IT positions.

Two years later, the telco and network services giant is about to enter the third phase of its lock, stock, and barrel IT outsourcing effort. The results of this move are only now becoming apparent. At least one of the company’s biggest business units—the managed network services group—is far from satisfied.

As a result, says a former employee who (along with several hundred of his colleagues) was hired in a similar capacity by IBM Global Services (IGS), these folks are surreptitiously reaching out to former employees at IBM, EDS, and elsewhere. “That’s the group that’s disregarding the [CIO-driven] initiatives and trying to create its own shadow IT group now,” says the IGS pro. “They weren’t happy about it from the outset, but the deeper [the company has] gotten into this, the more unhappy they are. I still work with the same people over there, and all I keep hearing is how much they would like to hire most of us back.”

What is the managed network services group so upset about? Consider a mundane issue—a production support call to fix a sudden failure in a line-of-business application. Actually, the production support call came not through regular channels—that is, through the IGS ticket system—but directly from the line of business itself, just as it would have before the company’s IT operations were outsourced. According to the IGS IT pro, the fix—which required some tinkering at the database level—would have taken all of 30 minutes to implement. Before he could do it, however, he had to get approval from his IGS supervisor, which he assumed would be a mere formality.

“I was told the specific request was something that they had not paid for, something not explicitly covered in the contract, that I was not, under any circumstances, to do anything about it until they paid for it,” he reports. The result, he says, was that he didn’t receive instructions—through IGS channels—to fix the application until a week later. “It was kind of ridiculous, because this would have taken me thirty minutes at the most to do.”

IT in Exile

In some enterprises, there’s another kind of shadow IT group, too: IT pros who’ve survived big lay-offs, often because they’re needed to support critical operations that can’t be outsourced—yet. In the world of outsourcing, these hardened survivors often become the touchstone for end-user and line-of-business gripes. More often than not, many report, they’re forced to pick up the slack for the shortcomings of “green” outsourcing tenderfoots.

Take Don Cave, an IT professional with a prominent global insurance giant, who survived his company’s decision to outsource one of its database applications to the Indian subcontinent. In a previous life, the same application was managed by a veteran crew of in-house professionals, says Cave; these days, it’s supported by several “green” IT pros.

The result? Cave and his co-workers have been cleaning up after the offshore team for several months now. “We will make it a success, and the company will save millions each year,” he says. “As a result, the offshore groups will gain even better understanding of the system and how to modify it successfully. Then they will hold even better cards to back up an increase in cost. Eventually they will become as skilled as our former staff, and probably cost 70 percent with extra overhead for testing and other interfaces.”

What stings most, says Cave, is that management is willfully oblivious to this situation. In fact, he says, his company recently concluded a project in conjunction with offshore “experts” that—by any objective criteria—was an abject failure: Not only did it go over budget, but it also resulted in a dissatisfied line-of-business customer. The reaction of company management? Deny there’s a problem, Cave says. “Of course dissatisfaction [was] denied, except if the user is asked directly.”

Coming Full Circle

Most IT pros hold out hope that company management, intoxicated with the purported cost savings of outsourcing, particularly outsourcing of the offshore variety, will eventually get wise to the inevitable trade-offs. There are some indications this is already happening, actually.

A recent study from professional services giant Deloitte Consulting found that many one-time outsourcers are bringing it all back home, so to speak. The Deloitte study, "Calling a Change in the Outsourcing Market," found that 70 percent of survey participants reported having negative experiences with outsourcing projects. Almost half (44 percent) didn’t realize the expected cost savings, and a majority (62 percent) found that outsourcing requires a greater-than-expected degree of management and oversight.

As a result, Deloitte says, fully 25 percent of one-time outsourcers are bringing applications and services back in-house.

The Deloitte study also debunked several other oft-claimed benefits of outsourcing. For example, proponents frequently claim that outsourcing can free up internal company staff to focus on projects that deliver more business bang-for-the-buck; for a majority of respondents (57 percent), this wasn’t the case. In fact, because of the increased management overhead associated with the outsourcing model, many companies said this was impossible.

This is far from surprising to most IT pros, of course.

“This project [I’m now on] has been joked about for staying mainframe, but the cost savings over implementing this in ‘newer technology’ will be in the tens of millions of dollars,” says Cave. “If it were the outsourcers alone, they would probably just do as desired by upper management and build a whole new subsystem. But once [management] was presented [with the cost estimates], they realized that the numbers don't lie.”

The latest from Paul Craig Roberts Outsourcing: A Greater Threat Than Terrorism

Is offshore outsourcing good or harmful for America?

To convince Americans of outsourcing’s benefits, corporate outsourcers sponsor misleading one-sided “studies.” Only a small handful of people have looked objectively at the issue. These few, and the large number of Americans whose careers have been destroyed by outsourcing, have a different view of outsourcing’s impact. But so far, there has been no debate, just a shouting down of skeptics as “protectionists.”

Now comes an important new book, Outsourcing America, published by the American Management Association. The authors, two brothers, Ron and Anil Hira, are experts on the subject. One is a professor at the Rochester Institute of Technology, and the other is professor at Simon Fraser University.

The authors note that despite the enormity of the stakes for all Americans, a state of denial exists among policymakers and outsourcing’s corporate champions about the adverse effects on the United States. The Hira brothers succeed in their task of interjecting harsh reality where delusion has ruled.

In what might be an underestimate, a University of California study concludes that 14 million white-collar jobs are vulnerable to being outsourced offshore. These are not only call-center, customer service and back-office jobs, but also information technology, accounting, architecture, advanced engineering design, news reporting, stock analysis, and medical and legal services. The authors note that these are the jobs of the American Dream, the jobs of upward mobility that generate the bulk of the tax revenues that fund our education, health, infrastructure and social security systems.

The loss of these jobs “is fool’s gold for companies.” Corporate America’s short-term mentality, stemming from bonuses tied to quarterly results, is causing U.S. companies to lose not only their best employees—their human capital—but also the consumers who buy their products. Employees displaced by foreigners and left unemployed or in lower-paid work have a reduced presence in the consumer market. They provide fewer retirement savings for new investment.

No-think economists assume that new, better jobs are on the way for displaced Americans, but no economists can identify these jobs. The authors point out that the track record for the re-employment of displaced U.S. workers is abysmal: “The Department of Labor reports that more than one in three workers who are displaced remains unemployed, and many of those who are lucky enough to find jobs take major pay cuts. Many former manufacturing workers who were displaced a decade ago because of manufacturing that went offshore took training courses and found jobs in the information technology sector. They are now facing the unenviable situation of having their second career disappear overseas.”

American economists are so inattentive to outsourcing’s perils that they fail to realize that the same incentive that leads to the outsourcing of one tradable good or service holds for all tradable goods and services. In the 21st century, the U.S. economy has only been able to create jobs in non-tradable domestic services—the hallmark of a Third World labor force.

Prior to the advent of offshore outsourcing, U.S. employees were shielded against low-wage foreign labor. Americans worked with more capital and better technology, and their higher productivity protected their higher wages.

Outsourcing forces Americans to “compete head-to-head with foreign workers” by “undermining U.S. workers’ primary competitive advantage over foreign workers: their physical presence in the United States” and “by providing those overseas workers with the same technologies.”

The result is a lose-lose situation for American employees, American businesses, and the American government. Outsourcing has brought about record unemployment in engineering fields and a major drop in university enrollments in technical and scientific disciplines. Even many of the remaining jobs are being filled by lower-paid foreigners brought in on H-1b and L-1 visas. American employees are discharged after being forced to train their foreign replacements.

U.S. corporations justify their offshore operations as essential to gaining a foothold in emerging Asian markets. The Hira brothers believe this is self-delusion. “There is no evidence that they will be able to out-compete local Chinese and Indian companies, who are very rapidly assimilating the technology and know-how from the local U.S. plants. In fact, studies show that Indian IT companies have been consistently out-competing their U.S. counterparts, even in U.S. markets. Thus, it is time for CEOs to start thinking about whether they are fine with their own jobs being outsourced, as well.”

The authors note that the national security implications of outsourcing “have been largely ignored.”

Outsourcing is rapidly eroding America’s superpower status. Beginning in 2002, the United States began running trade deficits in advanced technology products with Asia, Mexico and Ireland. As these countries are not leaders in advanced technology, the deficits obviously stem from U.S. offshore manufacturing. In effect, the United States is giving away its technology, which is rapidly being captured, while U.S. firms reduce themselves to a brand name with a sales force.

In an appendix, the authors provide a devastating expose of the three “studies” that have been used to silence doubts about offshore outsourcing—the Global Insight study (March 2004) for the Information Technology Association of America, the Catherine Mann study (December 2003) for the Institute for International Economics and the McKinsey Global Institute study (August 2003).

The ITAA is a lobbying group for outsourcing. The ITAA spun the results of the study by releasing only the executive summary to reporters who agreed not to seek outside opinion prior to writing their stories.

Mann’s study is “an unreasonably optimistic forecast based on faulty logic and a poor understanding of technology and strategy.”

The McKinsey report “should be viewed as a self-interested lobbying document that presents an unrealistically optimistic estimate of the impact of offshore outsourcing and an undeveloped and politically unviable solution to the problems they identify.”

Outsourcing America is a powerful work. Only fools will continue clinging to the premise that outsourcing is good for America.

COPYRIGHT 2005 CREATORS SYNDICATE INC.

Reversing outsourcing Open Source ZDNet.com

[May 13,2005] America is losing: More phony jobs hype By Paul Craig Roberts

CounterPunch Careless journalists and commentators are hyping the 274,000 new April payroll jobs as evidence of the health of the US economy. An examination of the details of the new jobs puts a different view on the matter.

April's job growth is consistent with the depressing pattern of US employment growth in the 21st century: The outsourced US economy can create jobs only in domestic nontradable services.

Of the 274,000 April jobs, 256,000 were in the private or nongovernment sector, and 211,000 of these were in the service sector as follows: 58,000 in leisure and hospitality (primarily restaurants and bars), 47,000 in construction, 29,200 in wholesale and retail trade, 28,000 in health care and social assistance, 17,300 in administrative and support services (primarily temps), 11,700 in transportation and warehousing, 8,800 in real estate. A few scattered jobs in other service categories completes the picture.

Americans regard themselves as "the world's only superpower," but the pattern of American job growth in the 21st century is that of a third world economy. The US economy has ceased to create jobs in high tech sectors and in export and import-competitive sectors. Offshore outsourcing of manufacturing and of engineering and professional services is dismantling the ladders of upward mobility that made the American Dream possible.

Not only is the US economy creating third world jobs, according to analysis by Edwin S. Rubenstein (vdare.com, April 2, 2005), it is creating the jobs for Hispanic immigrants. Rubinstein examined job growth by ethnicity and found that Hispanics (13 percent of the work force) are gaining 60 percent of the new service jobs.

Rubinstein's findings are consistent with the racial composition one observes on construction sites, in fast food restaurants, in waste services and among hospital orderlies.

Until recent years American jobs had nothing to fear from low-wage foreign labor. Americans' high pay reflected their high productivity from working with the most capital and best technology.

The collapse of world socialism and the rise of the high speed Internet forced Americans to compete head to head in the same global labor market with low wage foreign labor working with identical capital and technology. When US and European corporations move their manufacturing, research and development offshore or contract with offshore producers to supply the products and services that they market, the jobs and associated incomes are also transferred abroad.

Americans and Europeans cannot compete in labor markets with Chinese, Indians, and Eastern Europeans, because the cost of living in North America and Europe is so much higher. In addition, there is a vast excess supply of labor in China and India that overhangs the labor markets there and keeps wages low.

The claim by outsourcing's proponents that outsourcing creates new and better jobs for Americans is pure fantasy. This claim can find no support in job and income data. Moreover, the same incentive to outsource that is sending so many jobs abroad applies equally to any new replacement jobs.

The only American jobs that are safe are in domestic nontradable services that cannot be outsourced, and even in these domestic services, such as school teachers and nurses, foreign workers are being imported via work visa programs.

Outsourcing's proponents claim that it benefits corporations and their shareholders. This is true only in the short run. The substitution of foreign labor for American labor allows executives to reduce costs and increase profits, thus producing large bonuses for themselves and capital gains for shareholders. The long run effect, however, is to destroy the US consumer market and to reduce US corporations to a brand name with a sales force selling foreign made products to Americans employed in third world jobs.

Offshore outsourcing is a new phenomenon that has received little attention from economists, who mistakenly view offshore outsourcing as just another manifestation of the beneficial workings of free trade and comparative advantage. In fact, offshore outsourcing is the flow of resources to absolute advantage. Economists have known for two centuries that absolute advantage does not produce mutual gains. Unlike the operation of comparative advantage, absolute advantage produces winners and losers.

China and India are winning. America is losing. It is as simple as that.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.He can be reached at: pcroberts@postmark.net

Reprinted from CounterPunch:
http://www.counterpunch.org/roberts05122005.html

[May 5, 2005] (COMPUTERWORLD)

Offshore outsourcing by financial services firms will double over the next four years as these companies turn over larger and more strategic parts of their operations to offshore providers, reported market research firm Datamonitor PLC.

Anders Maehre, managing analyst at the London-based company, said financial services firms in the U.S. spent about $590 million on offshore services from third-party outsourcers last year, while their European counterparts spent about $480 million overseas.

But by 2008, Datamonitor expects offshore spending by financial services firms in Europe and the U.S. to nearly double to more than $2 billion, said Maehre. Among the services financial companies will increasingly send offshore are business process functions such as mortgage processing, insurance underwriting and claims processing.

Financial services firms are asking their offshore providers to play an ever larger role in core operations, said Maehre. Providers that were initially tasked to perform specific application and support work, for instance, are now being asked to take over the development area, he said.

In some cases, the rationale behind these expanded outsourcing deals isn't just cost reduction, said Maehre. The move is also seen as an opportunity to improve business processes that companies may be a struggling to fix internally because of political resistance.

Offshore providers are also reacting to customer demand for more extensive services by buying up consulting capability. Last month, two large offshore firms, Satyam Computer Services Ltd. and Cognizant Technology Solutions Corp., each bought consulting companies to better enable them to help companies with strategic IT development.

"We have seen the market evolve, and the expectation of our customers [has] changed dramatically over the last few years," said B. Ramalinga Raju, founder and chairman of Hyderabad, India-based Satyam. "Customers are no longer content with getting the low-end technology services from offshore."

Satyam last month acquired Citisoft PLC, an investment management consultancy, for $23 million, with an additional performance-based payment of up to $15.5 million over a three-year period.

Teaneck, N.J.-based Cognizant acquired Fathom Solutions LLC for $19 million in cash and stock, and a "contingent consideration" of $16 million payable in two years. That firm was founded by former Accenture executives in 1999, and has expertise in financial services and telecommunications.

"We're continuing to move up the value chain in the services that we offer," said Francisco D'Souza, chief operating officer at Cognizant. He said the purchase will better enable his company to give customers "the best of both worlds" -- strong offshore capabilities coupled with consulting services.

The India-based firms are also competing against U.S.-based providers such as IBM and Electronic Data Systems Corp., which have been building up their own offshore centers to add to their existing consulting capabilities, said Maehre.
 

Eclicktick Consulting: OutsourcingPaper

Computer Consultants - How to slow down outsourcing

Law that require that every worker that serves US customers be paid atleast US minimum wage as required by Federal law will slow down outsourcing. Other ideas: http://www.geocities.com/saveusajob...urcing_laws.htm

beernuts wrote:

> Zalek Bloom <ZalekBloom@hotmail.com> wrote in message
> news:<tb3mg0tcr5bjalb257oh3730j1515bhe52@4ax.com>...
>
> That wouldn't help slow down IT outsourcing, or at least the bulk of
> it, since the Indian IT guys I know tell me their compatriots in India
> make about 20k/yr or around that, well in excess of minimum wage.

What WILL slow down and even stop IT outsourcing is the elimination of IP rents. At present the American OWNERS of the enterprise collect all the rent (return to monopoly ownership privilege) on the software created by the foreign producers. Outside US borders the price of the software is minuscule as pirated copies are easily obtained. Only Americans pay the inflated (rent seeking) prices. Same with pharmaceuticals. Middle class Americans pay the toll as Bill Gates gets richer and richer. If the Indians are as good as the Americans at producing software then why does Bill Gates need to get the rent, and why does software cost so much? It is
my undersatanding that Indian manufacture of pharmaceuticals is much the same kind of deal and if not then the Chinese probably do the pharmaceuticals for sale in places other than the USA. Again: Americans pay all the rent.

The American producer's anger with the Indians taking the jobs is misplaced. The anger should be directed at our own government and its continued reward to rent seekers. If the software were priced exclusive of rent, then we would all (Indians and Americans alike) benefit from the comparative advantage. But as it is, so
called, "free trade" is merely exacerbating wealth disparity in the USA and keeping foreigners from realizing the full return to their efforts.

I can't imagine why the Chinese pay any money to Nike at all. They
have shown they can make tennis shoes. Why not tell Nike to take
a hike?

--
http://GreaterVoice.org (a work in progress)
 

The Trucker

The Trucker <mikcob@verizon.net> wrote in message news:<cekaug0231c@news4.newsguy.com>...
> beernuts wrote:
>
>
> What WILL slow down and even stop IT outsourcing is the elimination
> of IP rents. At present the American OWNERS of the enterprise
> collect all the rent (return to monopoly ownership privilege) on
> the software created by the foreign producers. Outside US borders
> the price of the software is minuscule as pirated copies are easily
> obtained. Only Americans pay the inflated (rent seeking) prices.
> Same with pharmaceuticals. Middle class Americans pay the toll
> as Bill Gates gets richer and richer. If the Indians are as good
> as the Americans at producing software then why does Bill Gates
> need to get the rent, and why does software cost so much? It is
> my undersatanding that Indian manufacture of pharmaceuticals is
> much the same kind of deal and if not then the Chinese probably
> do the pharmaceuticals for sale in places other than the USA.
> Again: Americans pay all the rent.
>
> The American producer's anger with the Indians taking the jobs is
> misplaced. The anger should be directed at our own government and
> its continued reward to rent seekers. If the software were
> priced exclusive of rent, then we would all (Indians and Americans
> alike) benefit from the comparative advantage. But as it is, so
> called, "free trade" is merely exacerbating wealth disparity in
> the USA and keeping foreigners from realizing the full return to
> their efforts.
>
I just dont see how that is the problem. Surely the fact that an Indian programmer can live on USD4k/yr means that however low western government taxes are we could not compete down to that level of cost!
Wherever you live in the western world there will be a minimum floor that cannot be lowered. We benefit from clean running water, a low infant mortality, long life expectency etc, these are the things we are paying for. If we want to compete at their level we will have to forego those advantages. Do you suggest we do that?

The real question we sould be asking is is it right (in the moral sense perhaps) that globalisation allows companies to exploit the developing countries lack of infrastructure & cost base for their own
(greedy) ends? Before anyone suggests that we are helping the poor I ask you this: are you happy to donate your job to India and then live on the breadline yourself so that another family can be wealthy in
India? I'm damn sure I didn't volunteer.


> I can't imagine why the Chinese pay any money to Nike at all. They
> have shown they can make tennis shoes. Why not tell Nike to take
> a hike?

Ian Illy wrote:

> The Trucker <mikcob@verizon.net> wrote in message
> news:<cekaug0231c@news4.newsguy.com>...
> I just dont see how that is the problem. Surely the fact that an
> Indian programmer can live on USD4k/yr means that however low western
> government taxes are we could not compete down to that level of cost!

But that is not the point even though I disagree with your claim. My point was that comparative advantage (even taking advantage of overpopulation in less developed societies) S HOULD make prices retreat to a level that makes it possible for people to work much less or (as you would have it) get paid a lot less and still have
the SAME or even a better standard of living. But the delivery of rent to the owners of the IP rights takes this away. The producers are ripped off by the rentiers.

> Wherever you live in the western world there will be a minimum floor
> that cannot be lowered.

The Bush Regime is fighting real hard to lower it. The Republicans are rent seekers. They really want a very wealthy nobility through inheritance that tells us all how to run our lives. They are truly anti-democracy
and anti-freedom as they do not believe that the common people are capable of deducing and subscribing to a morality that is beneficial to the ascent of man. It is a self fulfilling prophecy in that the uninformed and misinformed are robbed of any means of self determination.

> We benefit from clean running water, a low
> infant mortality, long life expectency etc, these are the things we
> are paying for. If we want to compete at their level we will have to
> forego those advantages. Do you suggest we do that?

No. I'm actually suggesting a return to a much more progressive income tax here in the USA, and a dramatic reduction in FICA tax. This should allow us to recoup much more of the rent and at the same time decrease direct wage costs here in the USA. Some form of National Health Insurance to supplant the patchwork
employer insurance system would also dramatically reduce the wage costs here in the USA and provide for better worker mobility as a means to keep employers in line. Ye ole "take that job and shove it" deal.

> The real question we sould be asking is is it right (in the moral
> sense perhaps) that globalisation allows companies to exploit the
> developing countries lack of infrastructure & cost base for their own
> (greedy) ends?

No. And that is why it is imperative to capture that economic rent (the proceeds of the exploitation) for the good of the people here in the USA. This will serve to marginally increase job opportunities here in the USA while not destroying the Indian economy. Comparative advantage will still remain while the rip off goes away.

> Before anyone suggests that we are helping the poor I
> ask you this: are you happy to donate your job to India and then live
> on the breadline yourself so that another family can be wealthy in
> India? I'm damn sure I didn't volunteer.

I was a heterogeneous systems administrator and damned good at what I did. I was also a software configuration specialist and networking know it all. I watched two Indians screw with a database installation
for two weeks before the management gave up and allowed me to show them how to do it. I now drive a truck for a living but I like it better than all the crap I had to put up with from the Republican Business types. I make less dough but I really see a lot of this country. I live in the truck and pay rent to no one. Of course Bush is doing all he can to allow Mexican nationals to operate and live in the trucks and take that job away too.


--
http://GreaterVoice.org (a work in progress)
 

[May 4, 2005]  Information Week/Editor's Note: Outsourcing, Caps, And A Ship Of Fools

There has been much kvetching lately about the need to find more qualified IT workers, led by none other than Microsoft CEO Bill Gates and his homeboys. Also in the news, at least two efforts to address the issue: On the one hand, we have Congress approving what amounts to an additional 20,000 H-1B visas, as long as the holders earned a master's degree or higher from an American university (and this matters why??); on the other, we have a very clever attempt to take advantage of both the upside and downsides of outsourcing via a can't-miss marketing ploy--the Love, er Code Boat.

After years of corporate downsizing, merger-induced layoffs, and wholesale outsourcing of IT departments, it just seems incongruous to me that if a shortage of IT labor exists, it's as big as we're led to believe. For one thing, technology companies, which tend to employ a lot of technologists, are still laying off broad swaths of people. For another, the size of this alleged shortage is darn hard to pin down. A couple of years ago, I led a team of reporters in an attempt to ferret out some cold, hard statistics in a bid to look into the urban myths of outsourcing. It quickly became clear that the government was not anxious to keep close track of this issue. We found few useful statistics and very little effort to track the size of the IT worker market. Outside the government we found mostly two camps, each with extremist views and self-serving statistics. It's no surprise, really. This is an emotional issue. People's livelihoods are at stake, as are corporate IT investments.

Read more about Microsoft's hiring woes and the Love Boat of programming, the SeaCode concept, by reading my blog.

Patricia Keefe
pkeefe@cmp.com
www.informationweek.com

[Apr 23, 2005] Independent/Disillusionment puts outsourcing into reverse By Julia Kollewe

Many large companies that outsourced information technology and other services are bringing operations back in-house after failing to achieve desired cost savings, says a new global study by Deloitte.

The research found that the tide is turning, with almost three-quarters of companies questioned experiencing significant problems with outsourcing projects, and 44 per cent not seeing any cost savings materialising. A quarter of companies have brought functions back in-house after realising that they could be managed better and more cheaply internally. Chris Loughran, a consulting partner with Deloitte, said that of the three areas usually outsourced - IT, finance and human resources - companies were generally most satisfied with the outsourcing of HR services. He said companies were going through a learning process and now realising that they were better off keeping some functions in-house.