Globalization and Offshoring of Software:

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Globalization and Offshoring of
Software Examining the Myths
Eric Roberts Stanford Computer Forum April 18,
2006
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Myths about Employment An Example
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Myths about Employment An Example
All this talk about Blue Skies ahead just cant
hide the stark fact that Americans who dont wish
to migrate to India and/or some other off-shore
haven are going to have a difficult career.
Why would any smart American undergrad go into IT
when companies like IBM and HP are talking of
stepping up their off-shoring efforts in the
coming years? They want cheap labor, no matter
the real cost.
I have been very successful in IT, but I
certainly wouldnt recommend it today to anyone
except people who are geeks. . . .
I think the latest figures from the U.S.
Department of Labor are not correct.
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The No Jobs Myth Affects Enrollments
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The Crisis in Computing Education

• The Computing Research Association estimates that
  computing enrollments have fallen between 40 and
  50 percent since 2000.
• A UCLA study of students entering college shows
  that the number of students listing CS as a
  possible major has declined significantly in
  recent years.

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Myths about Offshoring and Globalization
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Myth 1 Software Jobs Have Disappeared

• There was a slight dip in IT-sector employment
  after 2000.
• Recent data show that this trend has reversed,
  and that there are now more jobs in this sector
  than at any time in history.
• Projections from the Bureau of Labor Statistics
  indicate strong growth over the next decade

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IT Salaries Remain High
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Myth 2 Offshoring Will Eliminate All Jobs

• Offshoring of jobs in the IT sector is certainly
  occurring, although good data are hard to find.
  The best available estimates suggest that 2 to 3
  percent of IT jobs move offshore each year.
• At the same time, employment data in the IT
  sector suggest that new jobs are being created
  more quickly than jobs are being moved overseas.
  Thus, offshoring of software seems so far to have
  increased the number of jobs, not only in India
  and China, but in the United States as well.
• This phenomenon of being an economic boon to both
  countries is, of course, the basis of the theory
  of comparative advantage that underlies
  globalization.

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Myth 3 Good Workers Are Easy to Find

• Good workers in the broad IT area are in fact
  very difficult to find. Bill Gates and other
  industry leaders have made this point on several
  occasions. They hire in India and Chinanot
  because labor is cheaperbut because thats where
  the engineers are.
• Individual productivity among individual software
  developers varies enormously.
• There has long been an undersupply of software
  developers relative to what one finds in most
  other fields.

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Microsoft on the IT Worker Shortage
Thursday, April 28, 2005
Gates Cites Hiring Woes, Criticizes Visa
Restrictions
By David A. Vise Washington Post Staff
Writer Microsoft Corp. Chairman Bill Gates said
yesterday the software giant is having enormous
difficulty filling computer jobs in the United
States as a result of tight visa restrictions on
foreign workers and a declining interest among
U.S. students in computer science.
Speaking on a technology panel at the Library of
Congress, Gates said a decline in the number of
U.S. students pursuing careers in science and
technology is hurting Microsoft in the short run,
and could have serious long-term consequences for
the U.S. economy if the problem is not addressed.
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Microsoft on the IT Worker Shortage
Thursday, April 28, 2005
Gates Cites Hiring Woes, Criticizes Visa
Restrictions
Richard F. Rashid, senior vice president of
Microsoft Research, said he recently told his
son, who is an undergraduate studying computer
science, that he would have plenty of jobs to
choose from when he graduates. Were hiring as
many people from college campuses as we can, but
there are just not enough of them available,
Rashid said.
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Variations in Programmer Productivity

• In 1968, a study by Sackman, Erikson, and Grant
  revealed that programmers with the same level of
  experience exhibit variations of more than 20 to
  1 in the time required to solve particular
  programming problems.
• More recent studies Curtis 1981, DeMarco and
  Lister 1985, Brian 1997 confirm this high
  variability.
• Many employers in Silicon Valley argue that this
  productivity variance is even higher today,
  perhaps as much as 100 to 1.

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A Long-Term IT Labor Shortage Exists
Fraction of professionals with degrees in that
discipline
Life Sciences
Chemical and Physical Sciences
Mathematics
Engineering
Computing and Information Science
Source National Science Foundation/Division of
Science Resources Statistics, SESTAT (Scientists
and Engineers Statistical Data System), 1999, as
presented by Caroline Wardle at Snowbird 2002
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Myth 4 Companies Seek to Minimize Cost

• Minimizing cost is not the goal of a corporation
  maximizing return is. This fact has critical
  implications for hiring decisions.
• Suppose that you are Microsoft and that you can
  hire a software developer from Stanford whose
  loaded costs will be 200,000 per year. Over in
  Bangalore, however, you can hire a software
  developer for 50,000 per year. Both are equally
  talented and will create 1,000,000 annually in
  value. What do you do?
• Although the developer in Bangalore has a higher
  return, the optimal strategy is to hire them
  both. After all, why throw away 800,000 a year?
• Any elementary economics textbook will explain
  that one hires as long as the marginal value of
  the new employee is greater than the marginal
  cost.

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Myth 5 Globalization Is Always Good/Bad

• The issue of globalization is controversial and
  tends to divide people according to their
  political perspective. The Right tends to see
  globalization as the inevitable culmination of
  free-market principles the Left regards it as a
  strategy to entrench the power of privileged
  nations and people.
• Globalization is far more complicated than this
  simple analysis suggests, both in theory and in
  practice. Both sides of the debate need to
  recognize the strengths of the other side.

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Talking Past Each Other

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Talking Past Each Other
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Globalization and its Discontents
As his title suggests, Joseph Stiglitz is not an
uncritical supporter of global trade. He does,
however, criticize the one-sided thinking that
both sides of the issue typically bring to the
debate.
Joseph Stiglitz
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Globalization and its Discontents
As his title suggests, Joseph Stiglitz is not an
uncritical supporter of global trade. He does,
however, criticize the one-sided thinking that
both sides of the issue typically bring to the
debate.
Joseph Stiglitz
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Globalization and its Discontents
As his title suggests, Joseph Stiglitz is not an
uncritical supporter of global trade. He does,
however, criticize the one-sided thinking that
both sides of the issue typically bring to the
debate.
Joseph Stiglitz
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George Soros on Market Fundamentalism
Billionaire financier George Soros argues that
the future of free society is threatened as much
by a dogmatic market fundamentalism as it is by
religious fundamentalism.
George Soros
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George Soros on Market Fundamentalism
Billionaire financier George Soros argues that
the future of free society is threatened as much
by a dogmatic market fundamentalism as it is by
religious fundamentalism.
George Soros
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Other Interesting Recent Books
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My Top Two Reading Recommendations
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Conclusions of the ACM Report
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Conclusions of the ACM Report
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The New York Times On the ACM Report
Wednesday, March 1, 2005
Computing Error
The outsourcing of computing work overseas may
not be as bad as you think. In fact, it probably
isnt bad at all. Consider one recent study that
says the problem isnt so much the competition
from high-tech workers in places as far-flung as
India and Romania as it is the discouragement
caused by the doomsayers themselves. The
Association for Computing Machinery, the
professional organization that issued the report,
says that there are more information technology
jobs today than at the height of the dot-com
boom. While 2 to 3 percent of American jobs in
the field migrate to other nations each year, new
jobs have thus far more than made up for the
loss. . . .
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The New York Times On the ACM Report
Wednesday, March 1, 2005
Computing Error
That picture, of course, stands in contrast with
the more familiar gloomy depiction of runaway
outsourcing. Perhaps that explains what the
report says is declining interest in computer
science among American college students. Students
may think, Why bother if all the jobs are in
India? But the computer sector is booming, while
the number of students interested in going into
the field is falling. The industry isnt gone,
but it will be if we dont start generating the
necessary dynamic work force. The association
says that higher-end technology jobslike those
in researchare beginning to go overseas and that
policies to attract, educate and retain the best
I.T. talent are critical to future success. . .
.
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The New York Times On the ACM Report
Wednesday, March 1, 2005
Computing Error
Information technology jobs wont go away unless
we let them. Computing in the past five years has
become, according to the report, a truly global
industry. In the next few years, jobs wont just
land in our laps. We have nothing to fear but the
fear of competing itself.
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The End