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Chip Design Authors: Jason Bloomberg, Trevor Bradley, David Strom

Related Topics: Chip Design, Outsourcing on Ulitzer

Chip Design: Article

Is IT Outsourcing Worth It?

Is IT Outsourcing Worth It?

Over the past 20 years the economy has lost over four million jobs. Although some of these jobs have disappeared because of increased productivity, most of them have been exported overseas to countries with low-cost labor such as China and Pakistan. As the world becomes smaller, high-tech services have soon followed. Forrester Research, in a much-quoted study issued late last year, estimated that 3.3 million jobs representing $136 billion in wages would move overseas from the United States by 2015. Everything from computer programming to chip design to support will be affected, moving to countries like India, Poland, China, and the Philippines, according to the study.

Think about it - $136 billion, roughly the entire GNP of Indonesia.

In only 20 years America has gone from being the mother of invention to the world leader in high-tech job exports. Not long ago, "high-tech" corridors in major cities bustled with the business of creating software and the hardware it travels on. Now, only empty buildings remain. With continued bloodletting in the forecast, expect more empty technology parks. Yep. Over the next 12 years Silicon Valley will become the 21st-century version of the rust belt. Downtown San Jose will resemble a high-tech version of the forlorn industrial downtowns of Milwaukee and Detroit.

How did this all start? Only 10 years ago, most enterprise software systems were custom-tailored packages that suited only the organization that commissioned them. Not surprising that got expensive. To make software cheaper, canned packages started to replace their custom-written counterparts. When this occurred, it became less important for programmers to understand the intimacies of how a particular company does business, as long as they understood the industry as a whole. Who cares how company A handles their inventory? What has become important is how the industry that company A competes with handles inventory as a whole.

What does this generalization mean to programmers? It means you no longer have to spend time at company A learning how they do business. As long as you understand inventory concepts as a whole, you're able to write software to manage it. Sounds good, right? That means you can bill your client $80 an hour and work from home. It also means that a programmer in India can write the same software for about $5,000 a year. Which will your client choose?

To stay competitive, most companies will choose to cut costs. Software consulting companies are responding to customer demand for lower-cost services. Because even highly skilled programmers in India make only about $5,000 a year, consulting companies can offer their customers a billing rate of just $22 to $37 an hour for work done in India, compared with $150 an hour for comparable work done in the United States. Certainly there are well-paying jobs disappearing from the U.S. economy. Companies insist that IT cost cutting is helping them survive right now. They claim the extra money bolsters the bottom line, therefore saving jobs in other "critical" portions of the organization.

Not surprisingly, the downturn in IT and the exportation of American jobs has adversely affected billing rates - big time. Contract rates are dropping fast. Even organizations that have good long-standing relationships with their IT consultants are tightening their belts. A colleague of mine was approached by her management, who told her that her $70 an hour billing rate was "outmoded." It's hard charging $4.00 for a gallon of gas when you can buy a gallon next door for one-tenth of that. Programmers have become a commodity. Like a gallon of gas or a pound of butter, it's easy to put a price on our efforts. I know many software professionals who are still out of work because they insist on billing their Internet Bubble price, often in excess of $100 an hour. They should reconsider their billing rate - and fast.

All gloom and doom? Well, yes and no. Some will note that even in the 1990s, as manufacturing jobs disappeared, the U.S. economy created a net 26 million new jobs. And many IT jobs can never be shipped overseas because they rely on face-to-face contact or proximity to the vast U.S. market. But that is small comfort to displaced IT workers. No one knows how to slow this job exodus. It may never stop. The truly scary part is what skill is the United States going to be able to create that some other country can't replicate and perform cheaper? The Bureau of Labor Statistics tells us not to panic. According to them, there will be an exponential increased demand for IT workers over the next five years. Let's hope this demand results in jobs that stay right here.

More Stories By Bob Hendry

Bob Hendry is a PowerBuilder instructor for Envision Software Systems and a frequent speaker at national and international PowerBuilder conferences. He specializes in PFC development and has written two books on the subject, including Programming with the PFC 6.0.

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