Comments on: The Outsourcing Low Cost Lie

By: Sean

Sean — Tue, 31 Aug 2010 13:06:35 +0000

I agree that outsourcing is proving problematic for many Companies, and also very hard to pin down accurate numbers. No CIO or CEO is going to publish abject failure in a process they championed and even if they move on no one is going to tell the investors.

I believe you are missing some of the biggest losses that aren’t tracked well though. Lets say that a large firm outsources development of support and ongoing development of 150 internal applications, 10-20% of the people who know how those apps work and were developed and why are retained (80-90% are gone), 4-5 years down the road what are a companies options when the outsourcing is not working out? From my experience most if not all of the people, that did stay, have moved on, due to frustration, and there is nobody left who even remembers why an app was created. The turnover in outsource staff is perpetual, and there is no project ownership, and almost no offshore developer will question anything, even if it becomes apparent that there are problems.

I am fine with this trend continuing though, I come in at a very high hourly rate and pick up the pieces, to take the 60-80% of the requirements that were delivered and make the app work for the client, I really laugh when I think that I was driven into contracting by being outsourced, I billed the same company 3 times my previous salary rate to come in on a 3 month contract, to finish a project delivered a year late, by an offshore contractor, that I had estimated 2 months from locked requirements to production delivery, on this same project before I left. I could have done the work in about of month or less but the first month was almost entirely meetings, the second month trying to figure out how they had accomplished the tasks they had, which by the way came no where near the very stringent coding standards that had been in place and in force at the company before outsourcing, then two weeks of coding and two weeks of testing and QA.

A vast amount of knowledge was lost when these companies outsourced, they kept their most senior knowledgeable people, who are now preparing to retire, what now? How much will it cost a company to get back to where they started? Knowledge and information is power, no one who works for these companies can access the information anymore and the knowledge has moved on, how long do you thing these companies will glide?

Sorry I started this just hoping to agree and point out a few places where there are additional costs and risks that didn’t get into the mix; it kind of grew out of control.

By: terry

terry — Tue, 31 Aug 2010 10:17:39 +0000

I agree with lowlyworker. My company is trying outsourcing thinking if they outsource low level tasks and extra projects that our US team can’t get to they’ll save money, but I noticed that I didn’t get my annual review this year and no pay raise and I’m convinced that anytime I ask for any long overdue cost of living increase, I’ll be reminded that I’m in competition with third world software developers for my wage.
Management believes that the core competency of the company is management not their high performing employees. So everything besides management is on the table as a outsourcing candidate. So when my middle management boss asks for a pay increase from the CTO he won’t be competing with a manager overseas because outsourcing a management position is unthinkable to them. I’ll probably be leaving this BS job soon enough if things don’t turn around.

By: lowlyworker

lowlyworker — Mon, 30 Aug 2010 13:31:30 +0000

One observation that bears correcting. Upper management doesn’t keep outsourcing because they believe it’s more cost effective, they keep outsourcing because it applies wage pressure on the rest of thew work force.

By: Jade

Jade — Wed, 18 Aug 2010 12:28:46 +0000

Agile methodologies with short sprints should be used to make sure that initial scopes and estimates match outputs at each step.

If the client is diligent enough and is part of the process, warning signs in each stage can be spotted and addressed by both sides.

Word of advice for those wanting to ‘offshore’. Inquire about the methodology and measure your comfort level based on that. Cheap rates are irrelevant if the methodology (or lack of it) fails you scrutiny.

On another note, ALL our clients are stateside and have come to us at $50/hr from failed projects from local devs at $80/hr-$100/hr. That’s for RoR.

They’re very happy with us…

By: Dave

Dave — Tue, 10 Aug 2010 13:10:24 +0000

Hi Parag,

I think you missed the point of the article: managers believe offshoring will save them tons of money, and the reality is far different than that. Rates are no guarantee, but your own admission is that the quality of work is higher in the US. Thanks for your comments.

By: Parag

Parag — Tue, 10 Aug 2010 11:40:07 +0000

Your logic is flawed. You seem to think that if someone bill $100/hour, it will be flawless ?? Don’t equate rates with quality. 50% of projects fail regardless of whether outsourced or not. Though I agree the rate goes higher if outsourced.

Still your equation is based on rates. If someone works at $30/hour from his own country doesn’t make him inferior to your $100/hour candidates. In the end all depends on the individual. Basically due to flawed assumptions, this article is merely a place for whining developers who lost their job due to off shoring.

By: AnAmericanWhoWentToIndia

AnAmericanWhoWentToIndia — Mon, 19 Jul 2010 13:42:18 +0000

On a side note…look what offshoring does to the USA

Back when H1-Bs were popular to bring technical folk here, those people stayed in the USA, rented apartments in the USA, bought cars in the USA, bought groceries in the USA, were good, law abiding smart folk that would stay in the USA.

Offshoring – allllllll that money sent overseas stays there. And it’s noticeable. That’s why China and India are building 6 story malls, new dams, there’s a chinese equivalaent for wal-mart, heck they’re even building new cities in the middle of nowhere to accomodate the boom and need 10 years from now.

So instead of keeping that money in the USA – and benefiting everyone – it’s just sent away to no one’s local benefit but to where you sent the $$$. Trickle-down effect.

Can you imagine if we kept H1-Bs and never outsourced? Maybe we wouldn’t have this real estate fiasco so hard, because there would be more people here to buy the 20 year supply of condos in Las Vegas?

By: Frank

Frank — Wed, 14 Jul 2010 14:11:41 +0000

I have not read all the comments above so my apologies if this comment is redundant. I work at a company that outsources most of its work to Indian firms and I’ve often wondered about the impact of such practice on the bottom line. What I don’t hear too much about is the impact outsourcing has on the economy of a town, city, region, etc. Even if we assume that outsourcing benefits the company, however great or slight such benefit may be, the fact is wages are being earned and spent outside the U.S. From an economic point of view, outsourcing tends to depress wages at best, and eliminate jobs at worst. Either way, the purchasing power of the American consumer decreases. When this happens people buy less, vacation less, save less, and on and on. In the final analysis, the market for the goods and services that now come from abroad becomes smaller and the very companies that believed outsourcing was good for business end up hurting themselves.

By: MarutanRay

MarutanRay — Tue, 22 Jun 2010 07:01:46 +0000

one more point, most of the reports on outsourcing are written by companies that are involved in outsourcing, i.e. they have an economic benefit in increased outsourcing, not by companies that are outsourcing. there is an incentive for the people writing these reports to skew the data so that they can make outsourcing look like it is a big cost saver. hence a large part of the content written on this topic is biased.

By: MarutanRay

MarutanRay — Tue, 22 Jun 2010 06:28:05 +0000

I agree with the general content of the argument. I am not in a position to comment on the actual costs of outsourcing / off-shoring.
But i would like to add that in the 80s when off-shoring started, there was an abundance of talent in India. You could hire Ivy League equivalent university graduates for less than 10% (approx 5%) of the pay that a corresponding US person. Over the last 20 years wages in India have increased tremendously, about 10-15% compounded per year increase. In the past when comparisons of offshoring were done they were comparing the top cream of indian employees to the average of the US – obviously there was a noticeable difference. This has led to the perception that off-shore talent is good / better – which was valid a decade back but hasnt been tested over time for validity recently.
Today, I suspect that the pay of a graduate of a top school in india is about 50-75% of a similar person in the US. Outsourcing / off-shoring companies are not able to hire the top employees because they cant pay these people and make their margins. I am using university graduates as an index because data are more readily available and easier to compare.
Finally i would argue that if i were a manager i wouldnt offshore to India. My reasons, western europe is going through a tough reform process. Labour reforms in europe, resulting from the debt crisis, will lead to productivity improvements. UK for e.g. is talking of freezing public sector pay. Germany is laying off 15,000 federal government employees. But at the same time wages in China are increasing – recent stories of Honda, Foxconn, where employees got 30% or mare pay increases. A mercer report (if i remember correctly) pointed out that salaries in india rose by 10-15% in india in 2009 – the same year when we saw massive lay offs and wage decline in the west. People laid off in the west will, in my opinion, reduce their asking wage, offer themselves at a lower pay over time as a result of the situation. Productivity increase in the west and productivity decrease in the east is the result. Hence i wouldnt offshore now.