Boiled down to its sticky residue, Derek's main point is as follows:
Everyone knows – including the people in Shanghai and Hyderabad – that the difficult, high-level research is still not being done there. [Routine chemistry] is definitely cheaper to do outside the country... on the average, you can bang out compounds for less money by outsourcing. That’s not going to change, either.All of these arguments apply, pretty much one-for-one, to the making of computer software as well. In my experience, a lot of the 'simple' stuff has already gone to Mumbai or Hyderabad. What's left behind, mainly, is the high-end work, things that people really need advanced degrees for; fundamental software design and new product research; marketing; and management.
So what’s left for us here in the US? The hard stuff. The risky stuff. The science that needs well-paid experienced people hovering over it the whole time. We get to take on the stuff that can’t be outsourced.
This is ... a terrible time to be an ordinary chemist in this industry. That goes for the ordinary biologists, too. We’ve all got to demonstrate why we’re worth what we want to earn, and doing something that can be done for half the price somewhere else isn’t going to cut it.
For the most part, it's true that right now this stuff – a lot of it, at least – "can't be outsourced". Aspiring programmers have to come to Western universities just to get trained to do the work, and so there just isn't the critical mass of experienced engineers | programmers | developers | whatever in our offshore locations to enable the bean-counters to send the work over there.
Of course, eventually, as other countries develop large populations of programmers, and those programmers gain experience, it seems pretty reasonable to think that the high-end advantage of the U.S. and other western countries will steadily erode, and the list of things that "can't be outsourced" will steadily shrink along with it. The market for U.S. programmers – or chemists – would necessarily seem to shrink. Not sure what the strategy will be then.
This assumes that along with the increase in experience that the Indians acquire that they won't lose some of their price advantage. It seems to me that the more people want to outsource, the more expensive their services will become and the less the differential between doing something in the US and India or China. Ditto if these countries improve their infrastructure to produce more grade-A engineers and scientists. They won't be going through the trouble of that just so that they can continue to make what they're making now. On top of this, eventually they're going to want to start working on their own thing and I think you'll start seeing even more competition from home-grown companies.
It'll probably always be cheaper to produce something in India or China than in the United States, but there is a threshold of savings that has to be met in order to make it work the drawbacks of outsourcing. I'm not sure that they will meet that threshold forever. Particularly when they start generating the capacity to do a whole lot more than they currently are.
Posted by: trumwill on December 13, 2008 03:22 PM
...eventually they're going to want to start working on their own thing...
...and I think that's the core point. I realize that it is a grievous error to take two datapoints and extrapolate an entire trend from them (and yet I'm going to do it anyway) – but after years of India and China producing low-level workers, who gain experience and become mid-level workers, who then become senior workers and managers – while, at the same time, the U.S. market discourages entry level tech workers, thereby cutting off the stream of "high-end workers" at it very source – well, eventually it seems as though the U.S. will lose the ability to produce those "high-end workers" in any appreciable numbers.
It seems probable to me that the situation you'd see then is Indian/Chinese tech industry saying, "Hey, we've got the entry-level workers, and the mid-level workers, and the experienced high end workers, and we can start our own companies, and the legacy Western companies can go price themselves out of existence". Because what remaining competitive advantage would Western companies have?
Posted by: David Fleck on December 16, 2008 08:06 AM