Transcript No Slide Title

Globalization and Offshoring of Software:
Examining the Myths
Eric Roberts
Stanford Computer Forum
April 18, 2006
Myths about Employment: An Example
December 1, 2005
Blue Skies Ahead for IT Jobs
BY MARIA KLAWE
Contrary to popular belief, career
opportunities in computer science
are at an all-time high. We’ve got to
spread that message among students
from a rainbow of backgrounds, or
risk becoming a technological
backwater.
Maria Klawe
Dean of Engineering, Princeton
Former ACM President
Myths about Employment: An Example
December 1, 2005
Blue Skies Ahead for IT Jobs
BY MARIA KLAWE
Contrary to popular belief, career
opportunities in computer science
are at an all-time high. We’ve got to
spread that message among students
from a rainbow of backgrounds, or
risk becoming a technological
backwater.
All this talk about “Blue Skies” ahead just
can’t hide the stark fact that Americans
who don’t 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 offshoring efforts in the coming years? They
want cheap labor, no matter the real cost.
I have been very successful in IT, but I
certainly wouldn’t 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.
The “No Jobs” Myth Affects Enrollments
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.
Source: Higher Education Research Institute at UCLA, 2005
Myths about Offshoring and Globalization
1. Most good software jobs disappeared after the dot-com crash.
2. Offshoring will soon eliminate the few jobs that remain.
3. Good IT workers will be easy to find in the new “flatter” world.
4. Companies will always seek the lowest-priced labor.
5. Globalization is either always good or always bad.
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:
Projected Employment 2004-2014 (in thousands)
2004
Computer and information systems managers
Computer specialists
Computer hardware engineers
Total, all professional-level IT occupations
Total, all occupations
2014
% change
280
353
+26.1%
3,046
4,003
+31.4%
77
84
+10.1%
3,403
4,440
+30.5%
145,612
164,540
+13.0%
Source: Bureau of Labor Statistics. Monthly Labor Review, November 2005
IT Salaries Remain High
Continuing a pattern that has been evident for decades,
recent bachelor’s and master’s engineering graduates and
computer science graduates at the bachelor’s level are
more likely than graduates in other fields to be employed
full time after graduation, and upon entering the
workforce, they are rewarded with higher salaries.
Source: National Science Foundation. InfoBrief, December 2005
Among science graduates, the median annual salaries of
computer and information sciences (CIS) graduates were
the highest as of October 2003. CIS graduates with
bachelor’s degrees earned a median annual salary of
$45,000, and those with master’s degrees earned a median
annual salary of $60,000.
Source: Computing Research Association, December 2005
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.
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 China—not
because labor is cheaper—but because that’s 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.
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.
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.
“We’re hiring as many people from college campuses as we can, but there
are just not enough of them available,” Rashid said.
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.
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
Fraction of disciplinary graduates employed in that profession:
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
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.
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.
Talking Past Each Other
$£¢ $£¢ $£¢ $£¢
Talking Past Each Other
“The shift from the recession to the cutthroat
global economy happened so suddenly I feel as
if I was sick that day and missed the whole
thing—as with Grade 10 algebra, I will forever
be playing catch-up.”
—Klein, No Logo, page 259
“The economic globalization discussed here has
cultural, social and political consequences (and
preconditions). But those consequences and
preconditions are neither part of its definition or
a focus for our attention.”
—Wolf, Why Globalization Works, page 19
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
I believe that globalization—the removal of barriers to free
trade and the closer integration of national economies—can
be a force for good and that it has the potential to enrich
everyone in the world, particularly the poor.
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
But I also believe that if this is to be the case, the way globalization
has been managed, including the international trade agreements that
have played such a large role in removing those barriers and the
policies that have been imposed on developing countries in the
process of globalization need to be radically rethought.
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
Those who vilify globalization too often overlook its benefits. But
the proponents of globalization have been, if anything, even more
unbalanced. To them, globalization (which typically is associated
with accepting triumphant capitalism, American style) is progress;
developing countries must accept it, if they are to grow and to fight
poverty effectively.
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
In my student days . . . open society was threatened by various
totalitarian ideologies—fascism, Nazism, and communism—which
used the power of the state to impose their final solutions. Open
society is now also threatened from the opposite direction, from
what I call market fundamentalism. I used to call it laissez faire but
I prefer market fundamentalism because laissez faire is a French
expression and most market fundamentalists don’t speak French.
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
My contention that market fundamentalism endangers the open
society may sound rather shocking because private property and a
market economy are indispensable elements of an open society. But
the market fundamentalists believe that markets are perfect and
governments should stay out of the economy. They base their
arguments on economic theory, which claims that markets tend
towards equilibrium. It so happens that that claim is false with
regard to financial markets.
Other Interesting Recent Books
My Top Two Reading Recommendations
Conclusions of the ACM Report
1. Globalization of, and offshoring within, the software industry are
deeply connected and both will continue to grow. Key enablers of
this growth are information technology itself, the evolution of work
and business processes, education, and national policies.
2. Both anecdotal evidence and economic theory indicate that
offshoring between developed and developing countries can, as a
whole, benefit both, but competition is intensifying.
3. While offshoring will increase, determining the specifics of this
increase is difficult given the current quantity, quality, and
objectivity of data available. Skepticism is warranted regarding
claims about the number of jobs to be offshored and the projected
growth of software industries in developing nations.
Conclusions of the ACM Report
4. Standardized jobs are more easily moved from developed to
developing countries than are higher-skill jobs. These standardized
jobs were the initial focus of offshoring. Today, global competition
in higher-end skills, such as research, is increasing. These trends
have implications for individuals, companies, and countries.
5. Offshoring magnifies existing risks and creates new and often
poorly understood or addressed threats to national security,
business property and processes, and individuals’ privacy. While it
is unlikely these risks will deter the growth of offshoring,
businesses and nations should employ strategies to mitigate them.
6. To stay competitive in a global IT environment and industry,
countries must adopt policies that foster innovation. To this end,
policies that improve a country’s ability to attract, educate, and
retain the best IT talent are critical. Educational policy and
investment is at the core.
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 isn’t bad at all. Consider one recent
study that says the problem isn’t 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 dotcom 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. . . .
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 isn’t gone, but it will be if we don’t start generating
the necessary dynamic work force. The association says that
higher-end technology jobs—like those in research—are beginning
to go overseas and that policies to “attract, educate and retain the
best I.T. talent are critical” to future success. . . .
The New York Times On the ACM Report
Wednesday, March 1, 2005
Computing Error
Information technology jobs won’t 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 won’t
just land in our laps. We have nothing to fear but the fear of
competing itself.
The End