In defence of outsourcing

In defence of outsourcing

Summary: COMMENTARY--The knee-jerk reaction to outsourcing is that it is a bad thing - but this doesn't acknowledge that it can have benefits, and that it is probably here to stay Few topics are as controversial as outsourcing. This is understandable.

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TOPICS: Outsourcing, China, India
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The knee-jerk reaction to outsourcing is that it is a bad thing - but this doesn't acknowledge that it can have benefits, and that it is probably here to stay

Lastly, large economies are often their own biggest markets. Exports account for 10 percent of GDP in the United States (which is currently the world's largest economy), compared to 43 percent in South Korea and Switzerland, 36 percent in New Zealand and 28 percent in France. This position is mostly a function of America's size, at 300 million people, and its wealth, with a GDP of US$10tn. As China's 1.3 billion citizens grow in affluence, Chinese companies are bound to find that China is its biggest market.

As Asian economies grow, programmers are going to be too busy serving their own markets to offer much competition for American or European software projects. It is in the interest of Western programmers, therefore, that Asian economies develop as fast as possible.

Company competitiveness matters
Many who oppose outsourcing offer no alternative means to make up for the cost savings missed by a refusal to outsource. This matters, because modern companies compete on a global stage. Unless every company in the world decides to forego use of lower-cost software developers, companies that fail to outsource will make themselves less competitive.

Furthermore, consider the importance of software within modern business. Software is critical to the efficiency of even small companies, irrespective of industry. By forcing companies to pay more for Information Technology solutions, countries make their companies that much weaker.

One of the problems with America's recent steel tariffs (now removed) was that it benefited 0.5 percent of the economy (steel production industries) at the expense of 13.1 percent (steel consuming industries, such as automobile manufacturing). The cost of forcing companies to pay more for software would be even greater, as far more industry uses software than consumes steel. This leads to a weaker economy that produces fewer jobs overall.

In short, preventing companies from outsourcing merely impoverishes the many to benefit the few.

China and India are the markets of the future
The United States and Europe have been the largest and most important markets for the last 100 years. That status provides tremendous advantages to companies based in these regions, as young companies often rely on their local market for business, and residents have special knowledge of their home markets which can't be replicated by a foreigner.

Though the United States and Europe will always be important markets, the status of most important will pass to others as 2.3 billion potential consumers (China and India combined) enter the ranks of developed nations. American and European companies are tripping over themselves to place a stake in the Chinese market, and for good reason. China is already a bigger market for personal computers than the United States, and they have managed this with a population whose average per capita GDP is US$900 (though in purchasing power parity terms, the figure is closer to US$3,900). Imagine how much product can be sold to the Chinese when that average merely doubles, as is likely in less than 10 years?

The people who best understand that market, as discussed in a previous section, are those who actually live there. There is a lot of value, therefore, in employing developers in those markets. Such developers would apply their "special knowledge" of local market conditions to help American and European companies build products that better meet the needs of Asian consumers.

Likewise, note that foreign software is more expensive in developing countries, both as a percentage of the average income (developing world citizens earn less) and due to weaker currencies. By using lower-cost workers, Western companies build products that are more affordable in developing markets, enabling these companies to grow larger and hire more workers at home.

Local creation of software would help prevent future protectionist tendencies in these important markets. This was one of the motivations behind the decision by Japanese automakers to "outsource" manufacturing to locations around the United States. China will be as important to the health of Western economies as American and European markets are currently to the health of the Chinese economy. If Western nations take a "me first" attitude at the height of their economic power, why should we expect China or India to do anything different when their economies surpass, in terms of size, our own?

Rich nations have the chance to shape the future of economic relations by example. If we set a bad example, the economic leaders of the future are likely to follow it.

Building a globally competitive workforce
You don't make a champion runner by limiting with whom he trains in order to avoid stressing him too much. Similarly, you don't make a rich nation IT workforce capable of facing foreign competition head-on by hiding them behind protective barriers.

Programmers in India and China cost less. Closing borders won't make those workers any less competitive, nor change the benefits companies derive from outsourcing to such locations.

There are ways for more expensive programmers to justify their existence, some of which David Berlind mentioned in a recent article on the subject. They can move up the value chain by managing outsourced development tasks. They can spend more time in design work, as design is something that will always be kept domestic simply because requirements gathering is a very people-oriented task. And as mentioned, there will ALWAYS be a demand for local programmers to service custom domestic software needs.

What CANNOT change is the reality that exists in China and India. Rich-nation workers MUST face that reality, however painful the adjustment might prove. Failure to do so now merely harms Western businesses and forces future generations to pay more for our reluctance to face the pain of transition now.

Remember the 'Big Picture'
Bill Joy, a co-founder of Sun Microsystems, generated a lot of controversy when he warned in a Wired magazine article of the dangerous potential posed by nanotechnology, genetic engineering and robotics. We'll be able to change our environment, and ourselves, by altering DNA. We will build resources molecule by molecule at practically no cost (so much for non-proliferation treaties).

Such power, as Bill Joy noted, can lead to catastrophe if used improperly. Given recent events, there seems to be large numbers of people with an interest in engaging in such improper use. In what kind of world do you feel safer, one where you have a majority of poor and desperate people crushed under totalitarian regimes and aching for a decent share of global resources, or one where most of the world had decent incomes and democratic governments?

Both South Korea and Taiwan were military dictatorships until relatively recently. What changed, for the most part, is that people in both countries reached a sufficient level of affluence as to have time to pay attention to how they were ruled. No government can long face down the will of its people, and nothing boosts the will to be free than to grow accustomed to being free in one's economic life.

Obviously, outsourcing by itself won't make or break third world development. However, as part of a general willingness to trade with developing nations (a willingness which would be undermined by special protections for "white collar" IT workers), its part is not inconsiderable. People need to keep an eye on the bigger picture. Think globally if you truly want to create a safer future.

John Carroll is a software engineer now living in Geneva, Switzerland. He specialises in the design and development of distributed systems using Java and .Net. He is also the founder of Turtleneck Software.

Topics: Outsourcing, China, India

John Carroll

About John Carroll

John Carroll has delivered his opinion on ZDNet since the last millennium. Since May 2008, he is no longer a Microsoft employee. He is currently working at a unified messaging-related startup.

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8 comments
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  • John Carroll really should be defending the job rights of Western workers and not the benefits of outsourcing! Outsourcing, on Global scale undermines these rights, and makes thousands of people unemployed in the developed nations while crates a handful of jobs for a few lucky survivors! His argument that the displaced Western programmers should look towards satisfying custom programming needs of their decimated job market, is flawed! It fails to appreciate that profitability always comes from the mass market, the very same market that global outsourcing destroys! Chinese and Indian programmers are more then capable of satisfying the emerging needs of both local and foreign markets. What we are witnessing is the global economic wealth upheaval. The major, and most populous, developing countries are growing at a faster rate then the developed countries. This economic growth attracts global investment and produces globally competitive software products. Having absolutely no national loyalties, and motivated by pure bottom line, the multinational companies will sell the Chinese and Indian software to anybody that is wealthy enough to buy their products. And here lies the bitter truth! The unemployed do not have the wealth to effectively participate in a consumer economy, causing global companies to abandon unprofitable markets! This wealth contraction trend, which will accelerate in the developed countries, will eventually create third world Western economies and big boys on Wall Street will happily savour the alluring views of Shanghai or Bangalore, rubbing their hands with glee, without the care in the world regarding the fate of third world western workers! Why should they, greed is good! Isn
    anonymous
  • When Asian developing countries 'outsourced' the projects to western corporations who charged an arm,leg and an occasional head, everything was fine and dandy. No cries of losing jobs to 'foreigners' were entertained.

    Now when the situation is reversed, the ugly 'western hypocracy' rears its head.

    You want the developing countries to open up its borders to compete 'fairly' yet, are unwilling to do so yourselves.

    There is one thing certain. You can run, and you can hide, heck you can even sink your head into the sand pit. But you are not going to stop the Indian and Chinese technology professionals.

    Suddenly, this line springs to my mind - 'resistance is futile, you will be assimilated...'

    Aah... karma can be such a wonderful thing...
    anonymous
  • Azizi Khan and John Carroll are really talking about two different things here! When the Asian developing countries were
    anonymous
  • Azizi Khan and John Carroll are really talking about two different things here! When the Asian developing countries were
    anonymous
  • Not as naive as one might think. I am a firm believer that what goes around comes around.

    How many times have we seen high paying jobs and projects awarded to foreigners because it was assumed that local talents were not good enough! Like in your own words, that professionals like us did not exist in your eyes. Now when organisations and countries are giving us acknowledgement, i am sure it feels like hitting a brick wall for you. Perhaps its a lesson well learnt from the western world - when in business, play to win.

    And that is exactly what we are doing. Playing to win! Do you actually believe that the developed countries can actually do anything to stop India and China. You would be foolish ( and naive ) if you thought so.

    IT jobs is going the same place where manufacturing and agriculture - where its cheaper.

    Seems to me that, when 'mericans play "hardball" its ok and the rest of the world has to just bear it, but when it comes to some serious competition, well 'yer all go singing like pansies. And that is what is happening here.

    Asia is coming up so fast and so hard, its sending chills down your spine. Living in Australia, i feel it too. But I embrace it because its inevitable. Perhaps you lot should spend some of the free time to hunt for some missing WMDs ;-)
    anonymous
  • Not as naive as one might think. I am a firm believer that what goes around comes around.

    How many times have we seen high paying jobs and projects awarded to foreigners because it was assumed that local talents were not good enough! Like in your own words, that professionals like us did not exist in your eyes. Now when organisations and countries are giving us acknowledgement, i am sure it feels like hitting a brick wall for you. Perhaps its a lesson well learnt from the western world - when in business, play to win.

    And that is exactly what we are doing. Playing to win! Do you actually believe that the developed countries can actually do anything to stop India and China. You would be foolish ( and naive ) if you thought so.

    IT jobs is going the same place where manufacturing and agriculture - where its cheaper.

    Seems to me that, when 'mericans play "hardball" its ok and the rest of the world has to just bear it, but when it comes to some serious competition, well 'yer all go singing like pansies. And that is what is happening here.

    Asia is coming up so fast and so hard, its sending chills down your spine. Living in Australia, i feel it too. But I embrace it because its inevitable. Perhaps you lot should spend some of the free time to hunt for some missing WMDs ;-)
    anonymous
  • I remember in the 80's when Japan was going to eat our lunch and we were going to become a second class nation ... well I'm still waiting. Let the companies who want to outsource do so, I believe those companies so will lose in the long run.
    anonymous
  • Defence IT outsourcing

    There are casualties of outsourcing and it is always the customers on the ground. Defence IT outsourcing is nothing other than a hope to deliver a better quality service at a lower price. Observers will note that it just doesn't happen and the person on the ground suffers the most. In house IT staff work for Defence as it offers job security but most also have a passion for Defence. That passion negates the abuse given by customers to all IT staff (regardless of your employer) and drives them to work diligently and often after hours without pay. An outsourcer is only concerned with profit motive which is inherited by the staff. The end result is a short service and more complaints. Ironically, in Australia at least, the entity where complaints are reported is also outsource, guess how many complaints go upstairs.
    anonymous