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Opinion Piece: The Outsourcing Question


June 4, 2004

There is an undercurrent of panic out here in the trenches. Many employees are worried that their jobs are being shipped overseas; with good reason, they are. In this article, I would like to offer some straightforward discussion and insights on this current trend, including some historical perspective, where we are now, possible outcomes, ways to protect yourself, and how international outsourcing might unfold.

Adam Smith and Clarence Darrow

No kidding. Have lunch with a bunch of Indians and bring up the subject of outsourcing. Their giddiness is palpable. Clearly, I haven't met every H1B Visa holder, but I have traveled backed and forth across the US working for a wide variety of customers and have seen and experienced firsthand an overwhelming aspect that can only be described as giddiness. I say: more power to them.

When asked my bill rate, a middleman once said, "You seemed to be real concerned about your bill rate." Well, duh! Then, he said you had better read Adam Smith's The Wealth of Nations. Having two copies that I hadn't gotten around to reading, I fudged a bit and said that I had. Having spun the small fabrication, I decided that day to pull it off the shelf and read it. In the opening sections, Smith talks about pin makers and compares the productivity of generalists to specialists. (I began to suspect that Henry Ford read this very book too.) Smith further went on to talk about supply and demand and the constant downward pressure on labor. Businesses incur huge costs in labor and are always motivated to reduce these costs. This makes senses, and things haven't changed that much since Smith's time (19th century).

Contrariwise, I was born in Flint and raised in blue collar Lansing. Smith represents business and many years earlier I had read much about Clarence Darrow—famous labor lawyer before such things as labor lawyers existed—for labor's side. Maybe you remember Clarence Darrow. Darrow is associated with defending labor, protecting employees against 'company stores' and 'company housing,' zero rights and zero benefits, and promoting the right to collectively bargain rather than getting your head bashed in by a Pinkerton agent, limits on child labor, and a reduction in the number of hours worked per week. (Perhaps I give Darrow more than his due, but these things he personifies.) What do these two men who lived and affected thinking and practice a century or more ago have to do with the 21st century? The answer is that these same: Battles are still being fought; Smith and Darrow just defined the war.

For more than 50 years, manufacturing jobs have been being shipped overseas. As fast as competitive, non-US, manufactories can be found, jobs have been shipped out of the US. In Michigan, this has been happening for as long as I can remember (almost 40 years now), and I know it has been happening for decades in the rest of the country. (Just drive across the US coast to coast and look at all of the burned-out, broken-windowed factory buildings and talk to people. I have.) That's right, fellow digerati, your parents and grandparents—and mine—have had to cope with lost jobs in the industrial age, and now you and I and our children have to cope with lost jobs in the information age.

This trend of outsourcing can be devastating to communities and individuals, but I am going to tell you why it is both absolutely essential and in the present context will fail in the foreseeable future.

World Calamity or Global Prosperity?

Keep in mind that I am an amateur historian and economist at best, but you are welcome to check individual facts and tell me if I got any particular one wrong.

After World War I, Germany was devastated economically and spiritually but most importantly, economically. (Remember the Clinton-Gore slogan of 1992: "It's the economy, stupid." Well, James Carville stole it from the 1936 National Socialist party.) Western sanctions and penalties from the Allies created an environment whereby a proud people lived in want and desperation. Only in such an environment can a nutter like Adolf Hitler—or Saddam Hussein in our time—rise to power. Why did Hitler rise to power? Jobs. The German economy. Hitler put people to work, period, and that is what many people out of necessity care about. Even though Hitler did it building tanks, bombs, and rockets, he did it, and people have got to work. Maybe Adolf understood the exigency of the paycheck or maybe he got lucky in a dangerously perverse way, but we do know that building the Wermacht employed so many people that émigrés from Czechslovakia, Hungary, and Austria came to Germany for jobs. Unfortunately, Hitler used this tremendous power to almost disastrous effect. The lesson the world should have learned, though, is that great disparity can lead to great calamity.

Great disparity is the environment we have now. The west and, significantly the US, hold most of the world's wealth. There is a greater chasm between rich and poor than ever before. The world is ripe for a global meltdown. Possibly the poorest choice left is to find an alternative for crude oil, plunging oil countries into complete financial ruin and all of us into World War III.

When I read what I have written, it sounds like a rallying call for socialism, but I am not a socialist, although I do understand where socialists might come from. Our current paradox is where capitalism and a global economy come into play.

A Global Economy and Prosperity Are Essential

Many of you have homes. Almost everyone has TVs, VCRs, more than one car, and the list goes on. The US consumer is saturated with goods, services, and general prosperity. (If you don't think so, visit Chad in Africa or Gaza in Israel.) US businesses need fuel—that is, consumers—to continue to grow, but US-only citizens cannot sustain-through-consumption our current level of prosperity and growth. We have to sell cars, computers, and whatever else to much huger markets, like China and India, to continue to grow. To do that, these regions must prosper also. To prosper, they need jobs; unfortunately, sometimes the job they get can be yours.

To put it bluntly, you and I can't live in the lap of luxury while the rest of the world lives in a festering stink hole of tyranny, poverty, and desperation. The world needs consumers for those at the top to prosper to ever-greater degrees. This means poorer countries need to become less poor for us to become richer. There is no present, viable alternative to increasing prosperity. (The world is dangerous now; imagine what it would be like if the US were to lose its financial footing.) An added dividend to global prosperity is that people with good jobs, healthy children, engaging pursuits and nice shiny Beamers or Hummers (without the .50 caliber machine gun) are highly unlikely to strap bombs to themselves.

The question really isn't whether a global economy is good. It is imperative that we have a global economy. The question that affects you and I is whether your job will go global or not.

Will IT Outsourcing Succeed or Fail?

It outsourcing will fail, at least in the foreseeable future. Right now, it is a trend. Some crackpot CEOs cooked up IT outsourcing while playing golf and drinking $700 bottles of Krystal.

If you really stretch it, the Information Age was born in the 1940s with ENIAC. (Charles Babbage doesn't really count.) This makes our industry about 60 years old this year, and the micro-computing industry is even younger at about 25 years. The fact is that, for now, the US is the center of the technological universe and we still don't build software very well. Let me be clear: The US on average has access to and produces the most widely consumed software in the world, and we still have a long way to go before just anyone can do it well. This is exhibited by questions to Bill Gates and his responses after his now infamous think week. In essence, Bill Gates thinks modeling is important but tools fall short. This is kind of funny; here we are sixty years in and we are talking about architecture and modeling while the building industry wouldn't build a doghouse without selling you a blueprint or a pre-fabbed kit from Home Depot.

The reality is that writing computer programs is the hardest thing people have tried to do and we still don't do it very well. The percentage of projects that fail is still huge. The amount of specialization is way too low, and small clusters of programmers hacking away without a project plan or architecture are still way too prevalent.

Why IT Outsourcing Will Fail

There are several reasons IT outsourcing will fail miserably in the next ten or twenty years. The first is that industrial labor outsourcing works because industries in this group produce the same product over and over, resulting in years or decades of optimization and specialization. Software is built just once. We build it once and then build something completely new. Try outsourcing car manufacturing if everyone got a completely customized car with features never seen before, like hovering or flying, or death rays.

The second reason outsourcing will fail is that building software is hard. The software industry builds almost everything from scratch. For example, almost every project I have worked on at every company and sometimes within the same company, programmers are building their own data access layer. In the automobile industry, some companies stamp fenders and others make tires. In the home building industry, masons lay brick, carpenters build cabinets, and electricians run wire. As is true in many staid industries, specialization is everywhere. Contrarily, in software many times one programmer does everything, and it is impossible to be a master at everything.

The third reason outsourcing will fail is because companies are going to get ripped off. Recently, a huge part of Microsoft's proprietary OS source code hit the Internet. This is not the first such episode and won't be the last.

Consequently, IT outsourcing will fail until best practices are ubiquitous, specialization is the rule rather than the exception, and a whole generation or two of professional IT managers, not accountants running software projects, grow up and mature under these practices. However, eventually software development will become easier and specialization will make it possible for low-paid, moderately skilled people willing to work for peanuts to build software. (By then, I hope I am long retired. Programming just won't be any fun if it is easy.)

Does the Government Have Any Responsibility Here?

The government doesn't have a big role here. Jennifer Granholm in Michigan is being goofy if she thinks she can prevent IT outsourcing in Michigan by fiat. All that will happen is that Michigan's short-term costs will be comparatively higher and paranoid programmers will think she is doing them a favor. She isn't.

The only role government has is to ensure that there is a modicum of fairness and parity. Limit the number of Visas, make sure countries getting our labor jobs have reasonably level playing fields for our products and services, and then get out of the way. Capitalism finds its own norms, although it can be a devastating process for the unprepared.

What Is My Responsibility?

The real responsibility is with the individual. The obvious reason is because you are the only one that you can control. The government is just too big and constipated for you and me to bother with. Here a few guiding principles that help me sleep at night:

  • Remember that there is no corporate loyalty; your job is always at risk.
  • Consider yourself an independent businessman and act accordingly; make sure you always have something extra to offer. However, working extra hours for free will not guarantee your job because someone from India is still cheaper.
  • Innovate. Find new ways to do what you do better, and find new products and services to sell.
  • Always increase your skills, training, education, and consider specializing. Find your niche. Accept the inevitable: If your skills stagnate, you are at risk.
  • Reduce debt and accumulate wealth. The only way you will benefit from capital growth is if you have assets other than your paycheck. Forget lottery tickets, but if you own a lot of stock even in a company that recently down-sized, right-sized, or out-sourced your job, vote for a new board or reap the reward of cheaper labor costs too.
  • Eliminate your own labor costs.
  • Be a wise consumer and businessperson. (I encourage you to get a copy of Herb Cohen's book You Can Negotiate Anything.)
  • Get a new hobby. Learn to fly, ride a motorcycle, play an instrument, take ballroom dancing, or learn Karate. The balance is healthy and the people you meet might inspire you to create or do something new and clever.

Summary

If you just lost your job of ten or twenty years, I am truly sorry because I do know how devastating this can be, especially if you were happy, adjusted, and unprepared. I have seen it happen before. I was working at a company with 126 employees and all but six were laid off with very short notice, and I just left a huge East Coast contract that is outsourcing left and right. However, with a slight re-emphasis in your thinking, your can thrive in the current business climate.

The first thing to do is update your current job skills, even if it means turning off the TV a few extra nights a week. Join a users group. Read a trade magazine. Take an extension course at your local community college or finish your post-graduate degree. Make sure the last class or seminar you attended was not your last day of college. Consider rewarding yourself with a 'Think Week'; your ideas are valuable too. Remember, Bill Gates is the richest man in the universe, so maybe he is on to something here.

Finally, to survive in the current business climate, remember what Senator James Watson said: "If you can't lick 'em, jine 'em." Consider yourself the sole proprietor of "You, Inc." and grow your business and treat your customers with respect, courtesy, and honesty but as a businessperson who works to earn a profit, make a living, and contribute to the broader community.

Finally, I am not picking on Indians or brown-skinned people in general. I have worked with many non-US citizens of all nationalities and as a whole they have been conscientious, educated, considerate, and affable. And, yes, many are very excited about their newfound prosperity and opportunity in the West, but I always thought that was what America was about anyway.

Biography

Paul Kimmel is the VB Today columnist for codeguru.com and Developer.com and has written several books on object-oriented programming, including the recently released Visual Basic .NET Power Coding from Addison-Wesley and the upcoming Excel VBA 2003: Programmer's Reference from Wrox Press.

Paul is the chief architect for Software Conceptions and is available to help design and build your next application. He has also helped start the Lansing, Michigan area .NET Users Group. A well-run group offers great learning and networking opportunities and occasionally some free pizza and door prizes. Contact Paul at pkimmel@softconcepts.com if you live in mid-Michigan and are interested in participating.

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