What they failed to realize is what they outsourced were their bottom tier workers, the unproductive people. They got excited by the reduced cost with minimal reduction in effectiveness.
When they try to outsource their better talent that’s where they failed to recognize good talent is costly everywhere. You might save some salary but it’s offset by lots of other things from time shift to organizational culture.
That might be true to some extent, but I think there's a problem with that line of thought.
People are a "moving target". What may be a bottom-tier worker now, could very well be a valuable employee in 5-10 years. Many folks have built their career by starting at a low level and then getting promoted and upskilled over time through hard work and commitment. Starting at a low position and advancing is becoming, sadly, a rare thing.
The "first wave" and subsequent waves of outsourcing have to a large extent eliminated paths of career advancement for many workers. At first it was unskilled laborers and now it has been creeping up to virtually all technical job descriptions. The wet-dream of MBA's who promote this stuff is corporations consisting of a few C-level people and their board, and then a layer of fab-less product and operations people who just manage supply-chain and services stuff with external vendors. It's an ugly picture but that's what the global supply chain people want.
I was thinking more along the lines of companies that are little more than a layer of product managers and operations folks just managing vendors and service providers that do ALL the work.
This is going to happen faster than other times when offshoring has occurred in various industries historically too. Just think about it. You can bet contract work is going to be commonplace, and you can kiss your benefits goodbye. If you do not think this will happen to you, well, you’re next on the chopping block.
Work will become hyper competitive for benefits and for full time status. A good employee will be someone who answers emails 24/7 and within minutes of it being sent, night or day. The work will never end. Surveillance technologies for remote work will remove any semblance of freedom when you work from home. This is all very unlikely to be made illegal in the US in the foreseeable future. Also. populism uprisings that occur in a respective country last on average for 30 years, so you better be thinking in the very long-term for how bad this could actually be.
My personal experience with remote work is that it allows me to be present as a father in my children's lives and also to be more productive. I'm not saying everyone will have that experience, but for me it's an excellent fit.
As far as productivity, if we look at productivity increases since 1950, we should be working half as much for the same productivity/pay (https://news.ycombinator.com/item?id=20766443). With voices like Andrew Yang trying to shift social values to valuing the underappreciated like stay-at-home mothers through a UBI, this seems like a positive path forward.
I know things seem dark right now, but in my powerless position, I choose to believe there is a better, more positive path forward, and I put my energy into pursuing it.
Frankly, I've never met a rich guy whose nose I couldn't bloody. I've rarely met one whose spirit I couldn't cut deeply in less than 15 minutes of conversation.
They have their hands on the levers. The have the resources to arbitrage or withhold or defect or take hostages (economic!) until they get what they think they can get.
Same thing will happen with self-driving cars.
The peons will capture just enough value so the new life seems a bit better than the old life.
(Long long time remote worker, since before my 17 year-old was born. Love being at home with my kids, love the efficiency and flexibility.
Doesn't change the ultimate macro outcome.)
I'm hardly an abused slave ready for violent revolution. My life is pretty good if it's just meaningless. Naval gazing at some rich person doesn't help me at all. However, I do believe that guns in the hands of America's peaceful fathers are the best deterrent to the tyranny that everyone here just seems to accept as unavoidable.
Look what happened to G.E. They outsourced everything they possibly could and had a decade or two of unparalleled profitability. But, over time the well of ideas and competencies for products and services dried up and they went from being a powerhouse to a cautionary tale.
Don't export knowledge or know-how to save a few bucks. It always comes back to bite you.
Institutional knowledge informs why a solution works better than a shiny. The contract org will push through what works best for them, more than what’s best for your org long term. Contract orgs like checking off Hundreds of NIST or CIS controls as if that in and of itself means anything substantive.
The same logic could be used to justify duct tape software across the enterprise. There is some point where the cost-benefit leans in favor of outsourcing. Institutional knowledge may be under-priced by today's business execs, that is certainly possible. But we also shouldn't build a homegrown solution for every problem.
This. I have seen consulting companies keeping consulting contract only because the only guy that knew their system inside out was this single consultan that had been there so long that he became the effective sysadmin with the last word on everything related on the subsystem that he had been managing for years.
I think the validity of this point depends on how you understand "bottom tier". When I read "bottom tier"[1] I tend to read that as a combination of "people who suck at their jobs" and "people who are doing things that are highly commoditized or commoditizable". The former interpretation in particular has nothing to do with seniority.
[1] And I'm reading it this way probably because I'm back-projecting based on experience of working with some outsourced/offshored workers who sucked at their jobs.
Furthermore, the interviewer spent the entire interview complaining about how she mostly couldn't even get people who would show up, let alone act maturely. We discussed the starting date, but within a day or two she reneged, presumably because I had dressed formally for a minimum wage job and was overqualified.
Another thing that comes to mind is the janitorial duties were outsourced in the building I used to work in.
This sort of thing is why I think it's dumb whenever I read something about a progressive company having a minimum wage of whatever for their employees - it's purely a statement about who they keep on their books and who they use indirectly.
Then they can't understand why projects fall behind.
This is how Microsoft operated for a while. Entire support ecosystems were built around Redmond, from non-core competency support (design, boutique marketing, food services, maintenance) to core competency augmentation (vendor, off shore, near shore, local). They still employ that model but to a lesser extent. They've moved away from it based on labor market trends and local competition (more companies have moved to the greater Seattle competing for resources). So I don't know if its a universal doctrine or model that will be employed, but it does seem to have a time and a place.
The earlier waves of outsourcing were about shifting things like management responsibility out of the company, and I think that was shown to have unintended negative consequences for a lot of firms. I don't think there's much reason why an employer wouldn't be excited about hiring good, talented people from cheaper labor markets now.
Someone in the Philippines learning Python on Khan Academy today could very well be competitive for a senior engineering job in 10 years if the career path were possible.
I've met countless skilled technical people who could not a get job at XYZ company simply due to visas, not qualifications. Now working for these companies can be a real possibility.
Of course there are tradeoffs. A programmer who is much better than me has advantages in quality (assuming you are much better, in my biased opinion I'm great)
It's already happening to a degree. There a number of what you might call "reluctant Trump voters" where I work. The most frequent (and often only) argument you'll hear from them in favor Trump is around immigration and H1-B visas. You'll also notice that the Democrats in the U.S. who are surprisingly quit around Trumps efforts to reduce H1-B issuance.
I'd be willing to bet that unrestricted competition for a limited number of high-paying jobs in the developed world would fuel the Nationalist parties and movements that we've been seeing more of in the U.S. and Europe.
But having classes of people who live in the country but have special restricted rights and never become full citizens worries me.
I wish we could move away from the idea that citizenship is a reward for following the rules and instead consider that making people citizens is a benefit for (maybe even vital to preserving) society.
Why should a company A pay more to train a bottom tier worker into a high tier worker, when said worker will then be able to move to company B who offshore's its low tier workers. In effect, company A is subsidizing company B's training program.
They’re the same human being before and after graduation day. Just as talented the day before as the day after. It’s the pedigree variable that explains the vast majority of the salary.
You’re saying something similar, it’s just that you’re getting distracted by the red herring of the out sourced worker. You should be analyzing the difference between a Harvard and a UC Irvine student, whose average salary difference is as large as the difference between an average US programmer and Accenture contract off shore programmer. It’s got nothing to do with time shifts and organizational culture. You’re looking at this way too logically, along with many other commenters. Indeed I think hardly anyone, including the people who actually say work for Facebook, understand really why one person is paid more or less than another, at their own companies or elsewhere.
That aside you’re onto something with low skilled workers being replaced. The net result of hoovering up low paying programming jobs and sending them to another statistical group (not in this country) is that programming salaries appear to rise. Which is exactly what happened. So if you are of the opinion that programming salaries rising reflects increase in demand, so you should get into programming boot camp, you’d be like 200% wrong. You’re chasing a low salary programming job that doesn’t exist. Which again, is sort of exactly what happened.
Like you are implying: status signaling from degree mills is pretty useless compared to actual competency.
Whether or not that’s due to differences in education or purely signaling behavior is something I have yet to fully make up my mind about.
On one side you have people that managed to claw their way through the boot camp but didn't actually pick up any of the skills; they memorized enough to get through instead of actually learning stuff. On the other side, you have people that did learn but aren't confident in their skills and so flub the interview when their confidence gives out.
I've watched the latter happen on more than one occasion and I really wish I knew how to handle it as an interviewer.
...but it's really just a comfortable lie we tell ourselves.
Presumably he means that he can't hire them for the amount he's willing to pay.
I don't think that's correct. They outsourced lower-skill jobs that could be done remotely to regions with lower labor costs.
With companies being forced to modify their internal processes to be remote-first, what they will realize is that remote does work once they align to it. And once they realize that, there is no stopping them. Since the benefits of having a remote first company well aligned to working efficiently far out-weigh the benefits of a co-located team.
For example a few years ago I worked with a programmer from India who was part of a "remote consulting company" based in the Netherlands. The experience of working with her was identical to working with the larger offshore companies based in India. As in, time zone, cultural and communication barriers were substantial and disruptive to our productivity.
In my -South American- country the trend is to look outwards if you're hiring remotely; European countries seem to fit this description too.
Some industries are heavily regulated in the US and having non-US based employees can become a real headache for US companies. A lot of US companies have background check as part of their hiring process, pretty hard to do for someone not US-based.
Also, if you target only the continental US you're already talking about companies that may be spread across 4 major timezones. If you start including Europe you're now dealing with people that are gonna be more than 6 hours removed from your HQ's timezone.
The employer needs to pay social contributions in the employee's residence country. And more often than not, the employee cannot just become a freelancer or incorporate a single-person company and bill only one customer, as this is considered disguised employment. So no, it's not necessarily trivial for an EU company to hire a remote worker somewhere else in the EU, unless they have a local presence already.
Every state has their own tax scheme. Every new employee in a new state is a big set up cost and ongoing maintenance.
Then there's the potential for each employee's address to be considered a nexus, since each of their homes becomes a de-facto company presence. Potentially subject to local registration, licensing and taxation by local municipal authorities, in addition to just the state level requirements. If you have a presence in the state, and your employee's official work location is that location, then you only have to deal with that local registration once wherever the presence is located. But if you don't have a location the state, or you have employees who are officially designated as work from home (rather than unofficially working from home while being designated as assigned to an office), then this quickly scale into a giant mess of regulation to navigate[2].
[1] https://taxfoundation.org/local-income-taxes-city-and-county...
[2] https://smallbiztrends.com/2018/04/remote-employee-complianc...
[1] https://smallbiztrends.com/2018/04/remote-employee-complianc...
-- Yes, you can outsource most of the payroll-related headaches to someone like ADP but
-- There are still a lot of other state by state details that can't just be handed off to a third party and told "Make it so." It's not a particularly big deal for a larger company, but it can be a fair bit of overhead for a small employer adding a new remote employee in a state with lots of paperwork.
No I don't think so. They look with within EU.
With respect to R&D, for example, the US no longer allows foreign R&D activities to qualify for the R&D tax credit.
Also, some states, like CA, are very unfriendly which regard to the extra costs required for employees in terms of benefits, wages (salary exempt) and classification of employees with the ABC test [1], so the wins that states make for employees incentivizes many employers to look elsewhere instead.
In a more remote work culture, even ignoring offshoring/nearshoring, this is going to be really bad for people in certain states. And it will be bad for those states themselves.
The increased competition among states to attract higher income workers will be interesting. States like Tennessee, North Carolina, etc have a massive opportunity in front of them as they were already pretty well poised to attract younger professionals.
This explains why so much R&D happens in CA. Because it's too expensive to do it in this state...
The reason R&D happens in CA is because any company that wants to sell to CA is already going to be subject to CA taxation anyway, however they try to apportion their state income. If you develop R&D in another state and use that to sell to CA, you've just added an additional state to your tax compliance burden. Moreover, if you generate the R&D in say, Nevada, but the overwhelming majority of your income is CA sales, CA can (edit: changed from will) simply disregard your chosen allocation as fraudulent.
I did the R&D tax credit this last year and it seems to me the savings for offshoring would drastically make up for the loss in R&D tax credits in most cases.
This was true...before GILTI and BEAT were passed in the TCJA in 2017. It's no longer true. And as a downside, you must also contend with transfer pricing requiring your offshored entity to show a profit, and thus pay foreign taxes which likely would not be recoverable in the US under the GILTI regime.
I do know that certain countries limit what you can send them as far as $ each month as part of anti-money laundering regulations. And it's a pain.
What other implications are there? Is it because some of the offshoring countries force you to register there to conduct business?
Or is it because they want to create a separate P&L for tax and/or liability purposes? Or to park IP?
You don't need an entity to contract offshore, but if you're doing foreign R&D you're savings generally would be less than you would get back with the R&D credit. If for some reason your savings are greater with fully-offshored R&D, you need to ask yourself serious questions about why it's so much cheaper--including the likelihood that your R&D is being shared with the contractors' other clients if you're using an Indian or Chinese contractor.
You're also going to have IP valuation issues due to those risks, meaning that the IP simply won't be worth much, if anything, to a US or EU buyer, compared to the same IP generated anywhere by a subsidiary.
From a GILTI perspective, your IP is now foreign-generated IP, so you're looking at potentially paying the GILTI tax if you sell resulting products outside of the US.
There are additional legal considerations that apply to outsourced R&D development as well.
This is exactly right.
People seem to think all these regulations are doing them a favor and increasing their freedom but what's actually happening in reality is pretty much the opposite.
It's now literally cheaper even after accounting for delivery risks to hire people from Tennessee, North Carolina, etc.
From what I've seen, many companies will shoehorn regular product development into the R&D category. I'm not sure if it's supposed to cover next iteration of existing products that most company should be doing anyway.
R&D doesn't require something to be socially innovative; it's evaluated at a per-company level. It's intended to incentivize companies to recreate wheels in-house (if it is otherwise financially reasonable to do so).
It does not create a barrier to small companies. If you're not big enough to handle the paperwork for the R&D credit, you're not spending enough to derive meaningful benefit from the credit anyways. And generally, there exist plenty of accounting firms that will prepare the R&D documentation on a % basis (of the allowable R&D credit identified).
It also subsidises product development engineers - a profession that is doing well already
In the software world, sure. There are plenty of industries where product development staff (many of whom aren't engineers) don't make anywhere close to 6 figures.
Additionally, the US company would have to abide by any local labor laws / tax laws in the country they are hiring in.
Depends on what legal structure they've established within the country where the employee resides (and the laws regarding such things).
If you're in Estonia and looking to hire a software engineer for remote work, maybe you end up hiring someone from Poland or Spain. That's still EU hiring in the EU, more akin to what you're referring to with the US. On average the smaller the country, it probably increases the odds that more of the labor you're looking for is going to be outside of your own borders.
It’s also hard to build an engineering culture when you don’t engage with your coworkers often. You have to build credibility so you can work through difficult issues - that’s hard to do when your primary medium of communication is Slack.
My last company ended up outsourcing from Mexico, Colombia, Uruguay and Argentina with good results. We often didn't tell clients they were offshore and billed US rates for them and pocketed the difference. Over the course of about 5 years we had let go our US-based teams because they were just too difficult to hire and retain for the marginal increase in quality.
If companies want to relocate work to India, or China, or Eastern Europe, they can already do it.
For higher end companies, it wasn’t outsourcing. It was remote offices. The expertise still does move to those countries.
Agreed.
> What you actually see if you look at remote work job boards is many (if not most) companies in say, the USA, want remote people from the USA (or at least the same timezone as the USA). I think this is what will happen in other countries too.
Which realistically they cannot enforce, merely incentivize; I'm pro-remote work, mainly because it can free up roads and reduce emissions for more critical infrastructure and needs in the Market, all while offering people the ability to re-locate to less populated areas and ideally help under development, and boost there local economies there. That includes International/Non-US based countries.
Seems like a win-win to me.
Do you have any examples? I dont see this at all.
You can sell each additional software product at very high margins so it makes sense to spend a bit more on the worker for a slightly better product that will result in many more high margin sales.
Sometimes they found that it was more effective to do low cost work in cheaper US locations (American South, etc...) than India.
I've encountered some of these nearshore companies in E. Europe multiple times over the last decade, business is booming for them.
Useful for CERTAIN types of jobs, especially recurring ones
What you actually see if you look at remote work job boards is many (if not most) companies in say, the USA, want remote people from the USA (or at least the same timezone as the USA). I think this is what will happen in other countries too.