Software, Growth, and the Future of the U.S Economy Report of a Symposium (2006) / Chapter Skim
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Panel IV — Moving Offshore: The Software Labor Force and the U.S. Economy
Panel IV — Moving Offshore: The Software Labor Force and the U.S. Economy
Pages 118-149
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From page 118... ...
Its speakers, he noted, represented the business and policy communities. He then proceeded to introduce Wayne Rosing of Google, who in his long experience in Silicon Valley had traversed many prominent companies, among them Caere Corporation, Sun Microsystems, and Apple Computer.
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From page 119... ...
About 40 percent of the company's 1,000-plus employees were software engineers, a figure it wanted to increase to 50 percent; 7 of 11 executive-staff members were engineers or computer scientists, a reflection of Google's identity as an engineering company. Talk of finance and other business topics tended to be crowded out of meetings of the executive staff by its members' focus on "designing things." Dr.
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From page 120... ...
Rosing said, the company had had more than 200 software engineers, and all had worked for him. Really good people, he stated, do not need to be managed, they just need to be given clear goals.
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From page 121... ...
Unable for this reason to hire some people it had in its pipeline to work domestically, Google was opening engineering offices outside the country where foreign employees could be placed after they had been educated, "presumably at taxpayer expense," in the United States. "Now I must ask, why [is this country]
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From page 122... ...
Graduates? John Sargent of the Department of Commerce noted that the dot-com bubble's collapse had ended the era in which it was difficult to find skilled employees in the information-technology area and, in fact, had left unemployment rates at record highs in almost all IT occupational specialties.
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From page 123... ...
It's about doing what's right to have a good company." This and a statement by Hewlett-Packard [the then current] CEO Carly Fiorina that "there is no job that is America's Godgiven right anymore" typified the attitude prevailing in the commercial sector and expressed in various ways by previous speakers: "Hiring here in the United States is important, as is supporting one's nation, but we have businesses to run and that's going to dominate our thinking." This thought process was being "proclaimed throughout Silicon Valley," and echoed, although "more quietly, around the rest of the United States." Growing Complexity Spurs Outsourcing The driving force behind outsourcing, as behind other phenomena characterizing the information-technology sector, was complexity.
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From page 124... ...
Activity that could be placed in the "outsource-offshore" box of the matrix, meanwhile, was marked by a tradeoff: diminished control against very low variable costs with adequate technical expertise. Recalling the days when "made in Japan" implied questionable quality, he observed that "as you grow up, you realize that also implies things such as IP protection, bootlegged software, [and]
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From page 125... ...
Although there might be exceptions to the rule, a software company seeking venture money in Silicon Valley that did not have a plan to base a development team in India would be disqualified as it walked in the door. It would not be seen as competitive if its intention was to hire
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From page 126... ...
Outsource High Variable Cost Low Variable Cost Optimized Skill Sets Optimized Skill Sets Cost Reduction High Fixed Cost Low Fixed Cost Captive Limited Skill Sets Limited Skill Sets Onshore Offshore FIGURE 31 Business drivers: offshoring. workers at $125,000 a year in Silicon Valley when comparable workers were available at $25,000 a year in Bangalore.
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From page 127... ...
While historically it had been companies like TI, Motorola, and Microsoft that hired software developers in India or elsewhere abroad, having a foreign presence had become incumbent even on startups seeking venture capital, as mentioned above. He said that every company he knew of, without exception, was in the process of moving software development to some degree to the Indian marketplace, and that it was inconceivable that any firm would rule such a move out.
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From page 128... ...
Onshore Offshore FIGURE 33 Offshoring software. Offshore-outsourced software development worked first and foremost because of low costs: While costs were increasing compared to previous years, it was still cheaper per person to build software abroad, even taking productivity issues into account.
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From page 129... ...
They had a limited user base of tens of thousands of people maximum against millions for enterprise software. In addition, the farther production strayed from Silicon Valley, the hub of design-automation software, the more difficult it was to get the support that was needed to repair a bug, get a patch, or solve whatever other class of problem arose.
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From page 130... ...
Harding countered, he had had 300 or 400 employees in India producing software of the same quality as that coming out of Silicon Valley. Hardware was a different story, however, prominent among the reasons being "the availability and application of complex design tools that break easily." Kenneth Walker of SonicWALL stated his disagreement with Mr.
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From page 131... ...
Example: Daimler Chrysler's R&D center in Bangalore. · Onsite offshore outsourcing: Bringing foreign workers into the U.S.
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From page 132... ...
$70,000 $14,420 India 0.194 * $70,000 $13,580 FIGURE 35 Overseas software engineers can afford to be paid less.
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From page 133... ...
. He cited a frequent reaction to this table: "That's not a big deal, it's pretty close to the general unemployment rate." But his next graphic, depicting unemployment rates in the technology sector over the previous two decades, provided a perspective (See Figure 37)
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From page 134... ...
(Percent) All Managers 14,468 2.9 Computer & Information Systems Mgrs 347 5.0 Engineering Managers 77 3.6 Computer Scientists & Sys Analysts 722 5.2 Computer Software Engineers 758 5.2 Computer Programmers 563 6.4 Computer Support Specialists 330 5.4 Computer Hardware Engineers 99 7.0 Electrical & Electronics Engineers 363 6.2 FIGURE 36 Domestic IT labor market: record unemployment.
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From page 135... ...
BusinessWeek had recently reported that an employer located in Boston placed an ad to hire a senior software engineer at $40,000 just as a lark and received about 90 responses from highly qualified senior software engineers, who were normally paid twice that. Such downward wage pressure had been characterized as the silver lining of the movement offshore by an IT industry representative, Harris Miller, who argued that forcing down wages at home would mean that the United States could keep more jobs.
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From page 136... ...
115,000 110,000 Employment 105,000 100,000 95,000 90,000 Jan Mar May July Oct Dec Feb May July Sep 1984 1986 1988 1990 1992 1994 1997 1999 2001 2003 FIGURE 39 Job dislocation during low job creation: Total nonfarm payroll employment (seasonally adjusted)
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From page 137... ...
is a net benefit to the U.S."-did not hold up in the current labor market, nor did it account in the longer run for impacts on innovation and security that might be felt as change in the country's occupation mix exercised a chilling effect on both the software and engineering fields. Finally, McKinsey failed to disclose in its study several sources of potential conflict of interest: that it sells offshore consulting services; that India's software services trade association, NASSCOM, had been its client for some years; and that the former director of McKinsey was acting as the head of the U.S.-India Business Council.
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From page 138... ...
Dr. Hira included Rockwell Scientific in the table because it had been put forward by industry advocates as a company that badly needed H-1B visas, which would enable it to hire exceptionally talented employees whom it was in fact paying $120,000 a Company Position Location Annual Wage Accenture, LLC Chief Houston, TX $25,113 Programmer Cognizant System Analyst Tampa, FL $32,870 Technology Solutions Tata Consultancy Programmer Warsaw, IN $21,460 Services Analyst 1 Rockwell Scientific Senior Scientist Thousand $120,000 Company, LLC Oaks, CA Rochester Institute Assistant Prof Rochester, NY $60,000 of Technology of Economics Johns Hopkins Postdoctoral Baltimore, MD $30,500 University Fellow FIGURE 40 Current H-1B and L-1 Visa laws enable and accelerate offshore outsourcing.
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From page 139... ...
"If work needs to be done in the U.S., it should be done by domestic workers unless you can't find a domestic worker," he stated, although he conceded that "maybe you can't find a domestic worker for $21,000." Also, the firms above the bar, all offshore outsourcing firms, are importing orders of magnitude more foreign workers on H-1Bs than firms like Rockwell Scientific.
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From page 140... ...
IT service jobs and $136 billion in wages would go offshore over the following 15 years, while McKinsey had predicted a 30-40 percent annual acceleration over 5 years in the number of such jobs lost to outsourcing.
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From page 141... ...
a complicated business transaction." Another graphic, this one illustrating the differences in salary levels for computer programmers from country to country (See Figure 45) , · Corporations are moving engineering, design, and R&D offshore to follow manufacturing.
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From page 142... ...
· Loss of in house expertise & future talent · Hidden costs · Political and financial stability of host nation · Dependability of infrastructure in host nation (communication, energy, etc) · Complex multicultural project management · Shortage of English speakers · Security and privacy · Intellectual property protection FIGURE 44 Risks associated with moving offshore.
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From page 143... ...
SOURCE: Computerworld, April 28, 2003. 0.45 0.40 0.35 0.30 0.25 Ratio 0.20 0.15 0.10 0.05 0.00 China Korea Japan Kong India Taiwan Russia States Singapore Indonesia South Hong United Country FIGURE 46 Ratio of engineering to total B.S.
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From page 144... ...
He then accorded special consideration to the argument that offshoring's movement up the value chain is accompanied by potential loss of technological competitive advantage. This could be seen as an emerging bone of contention between classical economics and the growth economics school.
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From page 145... ...
Other bills would require government contractors to have 50 percent of their employees in the United States, prohibit work under federal contracts from being performed outside the country, or bar companies that outsourced jobs from contracting with the federal government. Legislation that had failed three years before, but was being revived would extend Trade Adjustment Assistance (TAA)
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From page 146... ...
Options included Trade Adjustment Assistance (TAA) for services; job-loss insurance, which had been featured in a pilot program in previous TAA legislation; and asset building compensation features.
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From page 147... ...
· How should it cope with talent issues surrounding math and science education? · How could the number of "prospectors" in the nation's innovation system be increased, and how could they be given the skill sets not just to make discoveries, but to grow companies?
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From page 148... ...
" Evidence of the climate's chilling effect on engineers and software developers, he said, was that they tended to converse among themselves about offshoring instead of about attending technical conferences and advancing technology, and they did not feel their concerns had met with a straightforward response. "They've been told over and over again, `This is actually good for you, because it frees you up.' Well, it frees you up to do what?
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From page 149... ...
· "Look at the medium term." Focusing on 7 years out, rather than on 2 years out or on 10-15 years out, would bring into view the huge labor-market upturn that would be hitting with the baby-boomers' retirement. That would create job loss -- "quote-unquote" -- for voluntary rather than involuntary reasons, and the country would need skilled labor.
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