US Programmers at Overseas Salaries

Date: Thursday, December 04, 2003 6:12 PM

JOB DESTRUCTION NEWSLETTER

www.ZaZona.com

This article is a perfect illustration of Alan Tonnelson's book
entitled "The Race to the Bottom: Why a Worldwide Worker Surplus and
Uncontrolled Free Trade are Sinking American Living Standards".

In this case, American computer/IT workers desperate for a job have
agreed to work for salaries that are comparable to those made in India
in order to make themselves competitive.

This free-market approach to getting jobs back is a losing strategy
that will backfire. That's because India and China have huge
populations that will continue to bid the wages lower than anything
U.S. workers can accept. These countries can promise more profits to
low wage employers because they have almost no benefits, OSCHA, FICA,
environmental laws, or labor protections.

The American technical workers mentioned in the article would rather
accept 3rd World salaries than to spend time fighting the politicians
that have forced them into this race-to-the-bottom. Do they realize
that their next pay cuts will occur when another 3rd World country
underbids the pittance they are getting for their work? It's a zero sum
game for American workers.

American citizens should think twice about fighting globalization by
accepting low salaries with no benefits because the only thing that
they will get in the long run is lower incomes that continually spiral
downward.

http://www.businessweek.com/smallbiz/content/dec2003/sb2003122_8887.htm

DECEMBER 2, 2003

GROWING CONCERNS
By David E. Gumpert

U.S. Programmers at Overseas Salaries

Rather than send IT work to India, a Boston startup sought locals at
the same money. The result: plenty of applicants -- and a lot of
questions
It's the great unanswered business-economic question of our day: How do
we replace the hundreds of thousands of information-technology,
call-center, paralegal, and other jobs rapidly exiting the U.S. for
India, Russia, and other low-wage countries? The main answer that the
so-called experts put forth, without a lot of conviction, is that we'll
create new "high-value" jobs to replace those leaving the U.S. What are
those jobs? No one seems to know.

In the meantime, the matter of overseas subcontracting appears to have
become open-and-shut. If you're an executive with half a brain, you can
come to only one conclusion when tallying the differences in costs
between hiring computer programmers in the U.S., vs. India or Russia.
These days, the jobs are going to Indians and Russians.

OFFSHORE BARGAINS. But what if there was another way to skin this
particular cat. That's what Jon Carson wondered a few months back, when
confronted with the need to complete a major programming project in a
hurry, and at the lowest possible cost. Jon is a serial entrepreneur
whose latest venture, cMarket, helps nonprofit organizations increase
their revenues by putting fund-raising auctions online. I have known
Jon for years, and -- full disclosure -- have invested in several of
his ventures. I only learned about his computer-programming dilemma
after the fact, though.

cMarket had been pursued, as many business owners are these days, by an
intermediary who promised he could cut cMarket's programming costs
significantly by outsourcing his needs to India. So last spring, when
cMarket signed an agreement with the national Parent Teachers Assn.
(PTA) to handle online auctions for its 20,000-plus local chapters and,
simultaneously, began taking on charity auctions from Boston to Miami,
Jon knew he had to rapidly expand cMarket's capabilities. He had his IT
director call the intermediary and tell him that cMarket needed four
programmers, pronto. Jon knew the numbers for experienced American
programmers doing the specialty work he required: $80,000 a year, with
benefits adding an additional $5,000 to $10,000 per programmer. The
intermediary came back with the number for the services from India:
$40,000 per programmer.

It seemed like a cut-and-dried decision, the kind U.S. executives are
making every day without hesitating, but for some reason Jon hesitated.
Much as he likes the idea of having projects completed at the lowest
possible cost, and as responsible as he feels to investors, he didn't
like the feeling of becoming someone who callously pushes jobs to other
countries. "I'm in the entrepreneurial economy," where competition
around both costs and revenues is very intense, he says. "But I was
personally very uncomfortable. This situation brought me face-to-face
with how easy global disintermediation is being made for folks, to the
point where it is almost inevitable."

TOUGH CALL. As he thought more about his decision, Jon realized he had
a valid business reason to hesitate: As the head of a startup that had
been going for less than a year, he wasn't at all certain he should
take the risk of having essential work done at a far-off location by
people he didn't know, and with whom he could communicate only via
e-mail and phone. Still, there was that matter of nearly $200,000 in
annual savings. Each time he hesitated about making his decision,
various confidantes reminded him about the big money at stake.

And then Jon had a brainstorm. What if he offered Americans the jobs at
the same rate he would be paying for Indian programmers? It seemed like
a long shot. But it also seemed worth the gamble. So Jon placed some
ads in The Boston Globe, offering full-time contract programming work
for $45,000 annually. (He had decided that it was worth adding a $5,000
premium to what he'd pay the Indian workers in exchange for having the
programmers on site.)

The result? "We got flooded" with resumes, about 90 in total, many from
highly qualified programmers having trouble finding work in the down
economy, Jon says. His decision: "For $5,000 it was no contest." Jon
went American. And the outcome? "I think I got the best of both worlds.
I got local people who came in for 10% more (than Indians). And I found
really good ones."

HERE AND NOW. In the interim, Jon has promoted two of the programmers
to full-time employees, at standard American programming salaries,
rather than risk losing them to the marketplace. And he is convinced
that having people working onsite gives him control over quality and
timing that he wouldn't have enjoyed if he had subcontracted overseas.

While cMarket has solved its immediate challenge, the implications of
Jon's approach are potentially mind-bending. What if other companies
begin taking the same approach -- offering Indian-style wages to
American workers? On the positive site, we could begin to solve our
job-creation problems. But on the negative side, America's standard of
living would inevitably decline. There's only one way to find out for
sure how it all might shake out, and that is for other executives to
replicate Jon's experiment. The results could be quite interesting.

David E. Gumpert is the author of Burn Your Business Plan: What
Investors Really Want from Entrepreneurs and How to Really Start Your
Own Business. Readers can e-mail him at david@davidgumpert.com

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