The labour costs are rising and those that have survived by expanding market share on the back of the offshoring wave are finding that the other transaction costs are beginning to dominate.
In manufacturing, the economic conditions are such that retailers are holding even less inventory meaning that the order size required to make purchasing in China viable is no longer optimal, especially with such a long lead time.
Having local control is proving to be more valuable than cheap labour.
Agreed. That promise of something for nothing has led many a team down the garden path. In the end, its harder to clean up after, than to have done it yourself.
Care to explain why? This is may be true for manufacturing where in US more and more non science student are coming out[dont have data but based what i read on US news web sites].What i see happenning in India is that there is not reverse outsourcing or insourcing but more of captive i.e. large companies setting up thier own office in India than outsource to Infosys/Wipro/TCS. I think the wages are not the primary focus now even though it is still a key component but the flexibility it provides with follow the sun and other models. On personal note out of my 16 years experience i have been working outsourced environment for 3 years and rest 10 in captives. I get paid roughly $60k which includes my salary, benefits and network other facility charges including computer and building charges. The same job in US just the salary alone is US$125K+ and you need to add other charges. Outputwise we provide the same level to the company.
This is especially egregious in the tech industry. Profitable tech companies can afford to pay more than even Bay Area wages to their tech employees. The most profitable ones (e.g. Google) could bump their engineers' already relatively greater salaries by 10-20% and still be very profitable (six-figures, net profit, per employee).
People writing software in "lower cost" areas for "lower cost of living salaries" are being taken advantage of even more than Bay Area workers. Paying a good software engineer less than a Bay Area wage ought to be viewed as insulting at best, regardless of where they live.
Absolutely. There are many parts of the USA/Canada that have enough population density and local universities to have a decent talent pool but aren't SF or NYC.
I'm a big urbanist so my immediate thought is smaller post-industrial cities with lots of cheap building stock and old universities around like Buffalo and Pittsburgh, but you could do the same thing in well-gridded suburban sprawl areas, as long as they haven't hit full-bore gridlock yet (Boston or Toronto suburbs are right out).
I think it's partly a result of there being more EU countries with good technical education, than with a strong technical employment sector. Something like ~15, maybe more, EU countries are doing a fairly good job training engineers, computer scientists, etc., but only about 7-8 are doing a good job employing them. Hence a tech company in Copenhagen has as a "feeder" not only Danish schools but also to a significant extent Spanish schools, Greek schools, Romanian schools, etc.
(If not rectified in some way that will produce other problems, since countries like Greece and Romania are spending a bunch of money to train engineers, many of whom emigrate immediately, going to contribute to the economies of places like Denmark, Germany, or the UK rather than finding a role in the local economy. Some remittances do get sent home, but overall, training another country's workforce probably ends up as a net loss for the training-side countries.)
I'll stick to India. Indians have a better work ethic ("36 hours/week? sacreu blue!"), cost less, and the regulatory environment is vastly better. Someone isn't working out or demand has gone done? Pay them a month or two of transition, they move on, and everything is finished. No real risk of lawsuits or regulators coming to bother you.
(The same is not true in the UK, for example, which I'm told is one of the most relaxed Euro nations. I know someone who managed the RBS shrinkage process, I couldn't deal with that sort of stress.)
Additionally, your competition for work is reduced since a lot of Indian shops are simply terrible places to work. If you pay people well and treat your employees well, they will love you forever.
Eastern Europe might be better - I'm mainly familiar with Britain, Spain, France and Italy. Can anyone with firsthand knowledge offer any info?
I'm not proposing one emulate the Infosys model, which I think is what you are criticizing. I'm proposing going to India and hiring developers the same way you would if you were in the US. There is no shortage of excellent developers here - I've had great success in hiring myself.
Estonia is particularly switched-on, and there are small but determined communities in Romania and the Czech republic.
Italy is badly underestimated; the big Italian contribution people will know is the Arduino. Long engineering tradition in the north especially around Milan.
Spain is something of a disaster area after the property boom, but Barcelona seems to have the trendy/techie atmosphere that people admire.
France is probably closest to the stereotype. I knew someone who had to deal with ST Microelectronics (Nice) and they were as bureaucratic and ossified as you'd imagine. Somehow they still manage to ship stuff.
I think you're painting things with an awfully broad brush. What is true for people who have worked for a unionized car factory in France for the past 30 years may not be true for a 25 year old guy who's a Javascript expert in Helsinki or Vienna.
I've found the work ethic within the computer industry to be quite good here in Italy. The wages are also low, by rich country standards. I think it'd be a great place to send work if they were able to lower the taxes and bureaucracy some.
You can make people redundant in Europe, you just need to be genuinely making them redundant; if there's no more work for them to do and you can't afford them and they're selected in a fair process, then yes it's a month or two of transition and move on. This is true almost everywhere outside of the few remaining heavily unionised workplaces, of which the public sector is often one.
What you can't easily do is fire people for BS or discriminatory reasons. Oh, and everyone has healthcare so you can't use the threat of taking that away as a stick to corral them with.
Everybody plays the 'racism' card when talking culture, for some reason. Clearly there is a norm when talking about large populations; behaviors are not the same everywhere in the world. So its appropriate in a discussion to bring that up when talking practices across the globe.
It's true. It's been my experience that Indians, the few hundred I've worked with, are willing to put in long hours. Many of which were spent playing ping pong, talking, getting coffees. They also were working, but, the long hours in the office weren't all work.
They also held the belief that they were harder workers than non-Indians, and preferred greatly to talk in native languages, likely unintentionally excluding non-Indians.
I think more likely, culture. For instance, even across India practices may differ. That would map more closely to culture than race (genetics), right? In fact a child of Argentina raised in that culture could be expected to behave as raised, not according to some genetic plan.
We're kind of talking about two different, but very similar, topics.
One is that Indian work culture is long hours, 6 day weeks, get it done and do it inexpensively. This is true, it's cultural. Some of their practices prefer manual and repetitive work over a style which requires a drawn out preparation involving planning and automation. If you're paying $15/hr for highly skilled labor, that can make sense.
The other is racial, the belief that can become a part of that work culture, where people who do not work like that are inferior workers. Given the rarity of Indian work culture and cultures similar to it, it's still cultural, but more racially limited. Someone of Asian descent, used to working in sweatshop style conditions, sees someone who doesn't look like they're used to it, and they assume the non Asian is an inferior worker, then it's racial. It's anecdotal, but I've been on the receiving end of both unspoken and spoken racism, veiled as cultural differences, about how North Americans are lazy and cheat their employers.
That said, I'm typing this out well aware of how this looks. It's important to note that I know not all Indians are like that. It's just a hard habit for people who spent 5, 10 years working long hours like that to break, and it's not always easy for them to look at a worker creating equivalent output with different methods in less time and say "yeah, that person works as hard as I do."
Indian employers and bosses often raise their status by disrespecting and imposing onerous work requirements on their underlings.
A few years ago I worked at a place with a lot of mechanical turks - ladies tagging pictures day in and day out. The expectation they had, and which took me a while to break, was that they were to be subservient. Make me tea, not speak up when I make a mistake, etc. They all considered it unusual that I would engage with them socially, share lunch, or laugh when they played pranks on me.
In software the situation is certainly getting better. In the past few years, I've run into considerably more places that seem like good places to work. Some foreign shops with a local presence, and a number of startups. But being a good place to work and treating employees with respect is still a big competitive advantage in hiring.
One thing people seem to forget is that every worker is a consumer. Every programmer is also going to be a consumer of goods as well. Programmers in India or H1s will buy cars, buy mcdonalds burgers, buy computers, use software, etc.
You know that the auto industry went through something similar a generation ago? They thought moving off-shore would work, but it didn't for various reasons, so they returned, albeit to different locations in the US.
I guess some vehicles sold in the U.S. are made in Mexico/Canada, but the combined manufacturing workforce in those two countries is ~20% of the US workforce. I guess that list also doesn't do much to capture where subsystems are being made.
They have people working as game testers. That's a job that's usually outsourced to low-paid people, but not offshored. As a job, it sucks. Read "The Trenches" - http://trenchescomic.com
The number of game testers isn't that large.
Manufacturing jobs are coming back to the US, though. It turns out that there has to be about a 4:1 labor cost advantage to justify outsourcing to Asia. US vs. Shentzen is now about 5:1. The headaches of controlling the work, quality control, and shipping delays add up. General Electric brought washing machine manufacturing back to the US.
It only added 200 jobs, though; the new plant is highly automated. The peak year for US manufacturing employment was 1979. Production is way up since then. Employment is not.
It's hard to think of anything that really needs a large number of low-wage employees in a single location any more. Even Foxconn is planning to automate phone production and cut their workforce way down.
It only added 200 jobs, though; the new plant is highly automated. The peak year for US manufacturing employment was 1979. Production is way up since then. Employment is not.
This. This is the point that people frustratingly ignore when they say "the US doesn't have manufacturing." We are cranking out stuff like no tomorrow. We're just doing it with far fewer people.
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[ 2.8 ms ] story [ 62.6 ms ] threadThe labour costs are rising and those that have survived by expanding market share on the back of the offshoring wave are finding that the other transaction costs are beginning to dominate.
In manufacturing, the economic conditions are such that retailers are holding even less inventory meaning that the order size required to make purchasing in China viable is no longer optimal, especially with such a long lead time.
Having local control is proving to be more valuable than cheap labour.
http://www.sciencedirect.com/science/article/pii/S1478409214...
People writing software in "lower cost" areas for "lower cost of living salaries" are being taken advantage of even more than Bay Area workers. Paying a good software engineer less than a Bay Area wage ought to be viewed as insulting at best, regardless of where they live.
I'm a big urbanist so my immediate thought is smaller post-industrial cities with lots of cheap building stock and old universities around like Buffalo and Pittsburgh, but you could do the same thing in well-gridded suburban sprawl areas, as long as they haven't hit full-bore gridlock yet (Boston or Toronto suburbs are right out).
Waterloo seems to have done alright for itself. Well, until RIM imploded.
This will force companies to create value and capture value inside India. Initially that would be tough but over long term this can be game changing.
(If not rectified in some way that will produce other problems, since countries like Greece and Romania are spending a bunch of money to train engineers, many of whom emigrate immediately, going to contribute to the economies of places like Denmark, Germany, or the UK rather than finding a role in the local economy. Some remittances do get sent home, but overall, training another country's workforce probably ends up as a net loss for the training-side countries.)
Everyone with a degree with a slight chance to work abroad, just leaves.
I did it back in the first .com crash back in the early 00's, and seldom saw anyone returning.
(The same is not true in the UK, for example, which I'm told is one of the most relaxed Euro nations. I know someone who managed the RBS shrinkage process, I couldn't deal with that sort of stress.)
Additionally, your competition for work is reduced since a lot of Indian shops are simply terrible places to work. If you pay people well and treat your employees well, they will love you forever.
eastern europe is chock full of awesome talent, talent that can actually get shit done without constant supervision.
outside of the most braindead tasks i have not seen anything productive coming out of indian it shops.
I'm not proposing one emulate the Infosys model, which I think is what you are criticizing. I'm proposing going to India and hiring developers the same way you would if you were in the US. There is no shortage of excellent developers here - I've had great success in hiring myself.
Italy is badly underestimated; the big Italian contribution people will know is the Arduino. Long engineering tradition in the north especially around Milan.
Spain is something of a disaster area after the property boom, but Barcelona seems to have the trendy/techie atmosphere that people admire.
France is probably closest to the stereotype. I knew someone who had to deal with ST Microelectronics (Nice) and they were as bureaucratic and ossified as you'd imagine. Somehow they still manage to ship stuff.
I've found the work ethic within the computer industry to be quite good here in Italy. The wages are also low, by rich country standards. I think it'd be a great place to send work if they were able to lower the taxes and bureaucracy some.
If work ethic is the right of being exploited, then I need to check my dictionary
What you can't easily do is fire people for BS or discriminatory reasons. Oh, and everyone has healthcare so you can't use the threat of taking that away as a stick to corral them with.
They also held the belief that they were harder workers than non-Indians, and preferred greatly to talk in native languages, likely unintentionally excluding non-Indians.
At some level, race is a factor.
Again, its all about culture, not race.
One is that Indian work culture is long hours, 6 day weeks, get it done and do it inexpensively. This is true, it's cultural. Some of their practices prefer manual and repetitive work over a style which requires a drawn out preparation involving planning and automation. If you're paying $15/hr for highly skilled labor, that can make sense.
The other is racial, the belief that can become a part of that work culture, where people who do not work like that are inferior workers. Given the rarity of Indian work culture and cultures similar to it, it's still cultural, but more racially limited. Someone of Asian descent, used to working in sweatshop style conditions, sees someone who doesn't look like they're used to it, and they assume the non Asian is an inferior worker, then it's racial. It's anecdotal, but I've been on the receiving end of both unspoken and spoken racism, veiled as cultural differences, about how North Americans are lazy and cheat their employers.
That said, I'm typing this out well aware of how this looks. It's important to note that I know not all Indians are like that. It's just a hard habit for people who spent 5, 10 years working long hours like that to break, and it's not always easy for them to look at a worker creating equivalent output with different methods in less time and say "yeah, that person works as hard as I do."
A few years ago I worked at a place with a lot of mechanical turks - ladies tagging pictures day in and day out. The expectation they had, and which took me a while to break, was that they were to be subservient. Make me tea, not speak up when I make a mistake, etc. They all considered it unusual that I would engage with them socially, share lunch, or laugh when they played pranks on me.
In software the situation is certainly getting better. In the past few years, I've run into considerably more places that seem like good places to work. Some foreign shops with a local presence, and a number of startups. But being a good place to work and treating employees with respect is still a big competitive advantage in hiring.
http://corporate.ford.com/our-company/operations-worldwide/g...
I guess some vehicles sold in the U.S. are made in Mexico/Canada, but the combined manufacturing workforce in those two countries is ~20% of the US workforce. I guess that list also doesn't do much to capture where subsystems are being made.
Manufacturing jobs are coming back to the US, though. It turns out that there has to be about a 4:1 labor cost advantage to justify outsourcing to Asia. US vs. Shentzen is now about 5:1. The headaches of controlling the work, quality control, and shipping delays add up. General Electric brought washing machine manufacturing back to the US.
It only added 200 jobs, though; the new plant is highly automated. The peak year for US manufacturing employment was 1979. Production is way up since then. Employment is not.
It's hard to think of anything that really needs a large number of low-wage employees in a single location any more. Even Foxconn is planning to automate phone production and cut their workforce way down.
This. This is the point that people frustratingly ignore when they say "the US doesn't have manufacturing." We are cranking out stuff like no tomorrow. We're just doing it with far fewer people.