Relative
"**Running a global monopoly is actually less profitable than you might think it would be."
So we talking Alan Sugar rich as opposed to Ellison rich then?
:)
HL Mencken once told us that in a democracy the electorate should get what they voted for – and good and hard too. So, on that basis, I present to you a piece on outsourcing, as requested by one Gordon 10. The commenter in question wrote: What would be really nice is [an article] on the race to the bottom on labour …
At $8,000 a kg for the metal it would have to be a pretty small statue. And Sc oxidises quickly (ie, minutes and hours) on exposure to atmosphere. Turns a very pretty shade of pink in fact. So it would not only be a very small statue, it would be one extant for a brief period of time, too.
Tim,
I don't see the problem with oxidisation. So your statue turns a nice pink colour. Lovely.
Obviously the price is a bit more of an issue. But if you're going to be the global scandium monopolist, then you need to make a dramatic gesture. Lowering the price might create more demand, so it's up to you to go and find more sources of the stuff. Then turn it into a nice statue, laugh your diabolical laugh... Profit.
...wherein attacks and attempts to pigeonhole your politics played out in the " About that self-professed rational liberalism" thread, you deftly pivoted this week with a " plutocratic bloodsucking capitalist bastards" reference or two...
Well played Mr. Worstall, well played...
Those same companies who have outsourced to cheaper locations are now the ones bleating about a skills shortage in the UK
http://www.theregister.co.uk/2014/09/05/it_engineering_skills_shortage_uk/
To some extent they are reaping the results of outsourcing. The move to offshore entry level coding tasks to cheaper locations reduces vacancies in the UK for the IT grads and others that will become the highly skilled engineers of the future.
With the tightening of visa regulations on temporary workers in the UK, perhaps the realisation will dawn that maintaining at least some development in the UK will provide skilled engineers further down the line.
Or they will carry on regardless. I am currently contracting for a very large bank who are continuing their relentless task of moving all tech work off shore. Apparently its been a huge success and lots of back patting on a good job well done. Let's keep going.
Doesn't explain why I've got a contract with a department doing tech work off radar because of repeatedly failed attempts by the off shore tech boys. So far I've achieved more in a few months than a whole team of offshorians for a year. (Not blowing my own trumpet but its really not a high bar to jump)
Problem is success is measured in money saved not projects delivered or lost opportunity.
As I've said before it costs a lot less to deliver nothing.
It doesn't always cost more to outsource overseas. A small local team on local daily rates can produce a better result faster and cheaper, when the outsource option is going to a larger supplier with a set-in-stone process in place that they don't want to change, and so charge a bomb and a half for development that doesn't fit their development model. A case of the tail wagging the dog.
Problem is success is measured in money saved not projects delivered or lost opportunity.
^^^^ This, so very much this.
My CEO has convinced himself that cost is the battelground for the next decade. The problem with that, of course, is with everyone targetting a higher RoE by eliminating costs, growth is flatlining or going into reverse while we persue efficiency.
Efficiency is good. I like it a lot. But on a macro economic scale, unless someone goes for growth, the whole world stagnates. Someone has to pay for the excess labour that now sit idle, needing housing, feeding etc etc.
This is a common problem in British companies, I refer to it as "board room fairy tales", basically it always go's that there is a magical company in a land far far away where everyone is an IT guru and will work for the same wage as the cleaner.
Problem is most outsourcers are chancers, always have been, in the 90's we had some in the UK, and the staff they would supply appeared to have come from the local labour exchange and knew next to nothing about IT, then the year 2000 bug stuff came up and companies turned to India to take up the slack, thats when they realised you could hire dirt cheap out there so the Indian outsourcing companies grew and prospered.
Every country has a skill pyramid, the guys at the top get poached by the large IT companies who have spotters at Universities, you never see these guys, the brighter ones down the scale are also smart enough to go abroad and get work under there own steam which means the average outsourcer (who is also looking to pay peanuts offshore) gets whats left.
Also meant to say...(sorry got dragged out for a pint) these projects are usually propped up by some hard pressed middle manager using his much reduced UK staff, who will fix or in many cases totally rewite the crap the totally green graduate (or alleged graduate) either on-shored or off-shored outsource staff produced in order to make this stuff work, the CIO genius will then move on with a large bonus for delivering with cost savings to do the same at some other poor unsuspecting company, having only ever heard "Yes sir it's all working perfectly, no problems at all"
Those same companies who have outsourced to cheaper locations are now the ones bleating about a skills shortage in the UK
Agreed. Funny how everyone in IT saw that coming but nobody in accounts or management apparently did.
With the tightening of visa regulations on temporary workers in the UK, perhaps the realisation will dawn that maintaining at least some development in the UK will provide skilled engineers further down the line.
Sadly, it won't. As a colleague of mine (If you're reading this I sit to your left) is fond of saying "If you stand the empire state building next to the grand canyon, both look flat from high enough up". From the point of view of those high enough up the corporate ladder to influence the decision to outsource, it's been a screaming success, because they simply don't see the carnage that ensues on the ground floor, at the coalface.
Ah, the mythical skills shortage in IT
The problem is that a huge number of companies are incredibly AGEIST. Anyone over 40 is unemployable despite the years of experience they have builtup
Anyone over 60 is in the 'You can't be serious' bracket. That includes me and I don't want career progressino and all that crap yet you still have to go through it and tick the little boxes (provided you can get a job that is)
Roll on retirement that what I say.
Anon just in case a have to get another job before I retire.
The problem is that a huge number of companies are incredibly AGEIST. Anyone over 40 is unemployable despite the years of experience they have builtup
I'm just about to join that camp. Still have a job with a large employer, but the simple fact is that I look older than I am, a lot older. And I'm right on the tip of turning 40.
Being able to retrain into new skills or hold my own at a technical test have never really worried me, as I can train / practice / already know how to do those things. What I can't do, is get younger (no thanks - I'm really not starting dying my hair).
Anyone over 60 is in the 'You can't be serious' bracket. That includes me and I don't want career progressino and all that crap yet you still have to go through it and tick the little boxes (provided you can get a job that is)
Just the thought of that fills me with dread. Funny how age of IT staff isn't one of the diversity boxes these corporates insist upon ticking. I had planned to retire by 50, but successive governments have raided my pension and changed the law such that I must now work an extra 7 years, with nobody providing input on how I should be expected to make that happen with all the offshoring and agism that's rife.
I had planned to retire by 50, but successive governments have raided my pension and changed the law such that I must now work an extra 7 years, with nobody providing input on how I should be expected to make that happen with all the offshoring and agism that's rife.
Remember that social change is slow. When I was born in the early 70s, the average bloke was expected to live to about 76. So they'd be retired for 10 years. Now, forty years later, the average bloke from my cohort is expected to reach their mid 90s. That's an extra twenty years of life expectancy just magically appeared. And the expected pension has gone from 10 to 30 years!
Society just isn't good at coping with massively disruptive changes like this. And people don't want politicians who say, "you're going to have to work 10-15 years longer or double your pension savings". They want politicians who are going to pay for the pensions they feel they've earned.
It's going to be very difficult to earn enough in a 45 year career to pay for a pension that's getting increasingly close to the same length of time. But we all grew up with the expectations that our parents' generation had about life. And so we have struggled to change what we grew up "knowing" about when we should retire, and when people get "old". Hence we still seem to be stuck with this bizarre ageism, at the same time that we're all thinking we're going to have to work until we're older, and we've supposedly got shortages of young people to keep the economy running. The obvious answer being employ and train people who are older, as they're going to live, and be healthy, longer.
How long until society catches up? Attitudes have barely changed in my experience. Yet these demographic changes are huge. I guess it's because people don't talk about this sort of long-term stuff much.
Even if it was conclusively proven to everyone's satisfaction that offshoring lower skilled IT work removes the ladder by which local lower skilled IT workers learn on the job and eventually become higher skilled IT workers, it wouldn't stop offshoring.
Every company acting in their own self interest would continue to offshore if they believe it saves them money, because the benefit from a larger pool of higher skilled IT workers in the future don't accrue exclusively to them, but to all companies in their country. In fact, having spent less due to offshoring, their competitors could afford to outbid them for the talents of their (formerly) lower skilled workers when they become higher skilled!
<tin hat>. Why do you think ebola has become popular ? And pensions and health care under bean counter attack while the top yourself now enthusiasts are increasing in stridency and publicity? Somewhere, some think tank decided upping death rate was a good thing. With the OMG, we all gonna die/terrorists are coming/environmental collapse/Carrington event Mk2/FUD of week, a few more people will be scared into dying, or eventually welcome some bureaucratic organisation to arrange it. It all fits the pattern !! Why not just bring back smoking ads for cigarettes with asbestos filters.<\tin hat>
I!Spartacus final para seems right. The expectations about aging have changed in some areas, but not in employment capabilities. I have noticed agism disguised as efficiency in my IT work, but also that those who can handle contracting seem to have bad patches but mostly do OK to very well. There needs to be changes in working life expectations, coupled with a change in expectations. Simplest solution might simply be to mandate all HR staff be over 65.
Those same companies who have outsourced to cheaper locations are now the ones bleating about a skills shortage in the UK
There is not a skills shortage in IT - this is the biggest load of bollocks ever sent up the flagpole. That article asked a bunch of C-levels whether they had problems attracting and retaining staff of sufficient skills, and they all said they did.
This does not mean there is a "skills shortage". They can't attract people of the requisite skill because they don't pay enough, and whenever they hire someone incompetent and make them competent, they aren't paying enough for that competency and so the employee goes somewhere else where they are valued.
There is no problem with finding people with the right skills, you just have to pay them appropriately.
I agree. It ought to be mandatory in a news article when an employers organisation bleats about a skills shortage to point out that what they really mean is "We can't get anyone to do the job for the measly salary we pay".
You'd have thought that companies - who deal with markets and supply and demand and price EVERY DAY - would have made the simple mental leap from 'We can't find anyone who will do X for price Y' to 'Let's pay more than Y'.
Tom 38 wrote:
"There is no problem with finding people with the right skills, you just have to pay them appropriately."
^^^^^^ So very much this.
I jumped ship from my old employer after many years, to go contracting. I've been doing that now for the last four or five years yet still I get almost daily offers of permanent employment doing exactly what I do today for less than 1/3 of the salary I was earning ten years ago.
Needless to say ... I think I'll be contracting for many, many more years at this rate.
'It's obvious that we should split some work with people from outside our household, outside the village... but there's no obvious point short of the entirety of humanity at which we should stop doing so.'
I wouldn't argue that there's an 'obvious point short of the entirety of humanity' but I do think that this issue is modellable in the same way any other macroeconomic problem is (ie. we can try and kid ourselves that we understand before reality shows us different).
Weighed against the measurable benefits of specialisation I think the costs fall into three broad categories:
1) Supply insecurity
whatever you think of the common agriculatural policy and the propping up by most countries of their national defence industries the basic theoretical rationale is to ensure that some capabilities are at hand if a war breaks out or a source of supply (like the glue factory for DRAM) suffers a shock.
2) Transport costs
on an overall level it's somewhat inefficient to get all of our manufactured stuff boated over from China, but the inefficiency is masked by the artificial cost differences caused by national wealth and employment standards legislation. I'd think someone could knock up a model on how the benefits of specialisation are balanced by the costs of transportation using the same kind of model that decides how many airport hubs or fried chicken restaurants we should have.
3) Information assyemetry
Extreme specialisation doesn't just create the risk of a supply shock, it also creates the risk that the specialists might not have your best interest at heart. Having access to enough of the right knowledge/oversight to keep your specialists honest gets more expensive and complicated the more specialised an economy becomes (with exotic derivatives as the most recent and probably the most disruptive example).
I envisage a model in which greater specialisation is countered by increasing costs from the 3 factors above until an inflection point is reached at which more specialisation is an overall cost rather than benefit. I wouldn't have a clue where to start doing that, but it doesn't feel more difficult than trying to predict the weather or the UK's growth next quarter.
Separately, the idea that by 2090 or so (or at any point) wealth differences will balance themselves doesn't seem plausible.
Although our economic growth has got less resource intensive over time and there is genuine growth in the efficiency with which we use fossil fuels and minerals in advanced economies I think the quantity and type of growth which would be required to get countries like Mongolia (for eg.) from where they are even to where China is now (which remain a ways off the western expectation) would put such a strain on those primary resources that prices would trend upwards and act as a drag on living standards that no technological advances could keep pace with.
Obviously that could cause living standards to level out at a standard below the west now enjoys through the above method, but I think we'd see wars and other shocks which stall globalisation before we saw that process progress too far. Bright and energetic people in poor countries doing the work that used to be done by less bright or less energetic people in rich countries has been a big driver for growth, but it's partly been maintained by the fiction Japan and then China created through lending vast sums back to the west to prop up living standards. That's created an imbalance that's gradually starting to be noticed by people whose pay is going up more slowly than their cost of living.
Remember the caveat on equalisation was that it would be more like pre-industrial revolution equality. Where no part of the world was more than say 5 times better off than any other. As opposed to the 50 times that happened over the preceeding couple of centuries.
This rought equality might mean the average wage in every country being no lower than say $5k - $10k, in today's prices. Which is achieveable much more easily than getting every country in the world up to Western standards of living. That's what, Western living standards from the 50s and 60s?
At which point transport and set-up costs come into things at least as much as wage costs. But specialisation is likely to happen, at least in some industries. Take Silicon Valley for example. Wages can be incredibly high there, even compared to just moving down the road within California, or to another state. But there's an infrastructure of universities, lawyers, venture capitalists and specialist services. Plus people who've done it before, and an expectation that you can start your own company. Or London and insurance. Or Malaysia and hard disk manufacture.
It doesn't mean you'll necessarily end up with just one place in the whole world where an industry specialises. But it might be just a few areas, and so everyone else will outsource to one of those.
The biggest (and rather undersung) revolution in the last 50 years of doing stuff by manipulating atoms rather than bits, has been the plummeting cost of bulk transport. You might be amazed (though you really shouldn't be, if you think about it) at the actual cost of shipping a container full of (say) plastic ducks from China to Europe. This also applies to bulk transport of heavier and less costly commodities such as coal - which is essentially why there are no deep mines left in Western Europe (assuming you don't count Poland).
It's true, and if transport costs weren't a small part of the equation then globalisation would be patchier and slower and we'd have fewer plastic ducks.
I am interested, though, to know how far the benefits of specialism between two otherwise equal economies would justify transport costs and how far globalisation is driven by political environment arbitrage. If the latter plays a big role then that feels like an inefficiency at the world economy level (not that anyone who matters would care).
Remember that Germany is the world's second biggest exporter of stuff, and yet has some of the highest environmental and employment standards.
I suspect that economies of scale and the network effects of having an industry in once place, and therefore support services, hit the law of diminishing returns at a certain point. So any reasonably sized industry is able to have more than one base of operations, without much loss in efficiency.
The relevant factors are changing so fast that it's hard to keep track. Cost of dealing with difficult governments, wages, transport, environmental standards, availability of sufficiently educated staff etc.
Remember though that not everything is transported. People always sneer at the services sector. I guess because they think of waiters and call centres. But services can also be incredibly high value. I speak to building design people in the Middle East all the time, even though our company is based in South East England. This is because most of their architecture and building engineering is done by British and American companies. They've even outsoursed the building regulations. I don't think the Saudis or UAE even bother with building regs, they simply specify on the contract that the building conform to US or UK regs, depending on the company that gets the job. To my eternal shame, I did some of the design for one the Eurovision venues...
""that no technological advances could keep pace with.""
70 years is a way too-long period of time to predict what would happen.
I would not bet against human ingenuity.
Plenty of times it was predicted in the past that we would perish or will not be able to produce enough for everybody.
Enough of that old tired argument.
Hmm, I'm certainly not claiming that human ingenuity is done or that everything is downhill from here. You're right that those sentiments are kind of a secular version of the 'end of the world is nigh' thinking and are consistently wrong.
However, another common error is to see short-term and narrow trends and project their general equivalent into the future at a similar rate. Lots of people thought that we'd be colonising mars by now and that the end of the Cold War meant a triumph of liberal democracy as well as the Dow 36000 and 'New economic paradigm' claims made during the first dot com bubble.
Similarly it's worth noting that the dramatic gains in food productivity haven't eliminated hunger but allowed the population to expand until a proportion of the much larger group are still living subsistence lifestyles or worse. The idea that human ingenuity will not only maintain current growth to support a population predicted to peak at 9 billion but also accelerate and even out the proceeds of that growth so that everyone is living a western lifestyle looks too much of a stretch to me.
@Bernard. Possibly, but we are at a unique time in whats left of human history. Assuming the future at least resembles the present (for sake of argument) it seems that natural population increase will level off due to rising living standards, which seem to be the most effective voluntary birth control developed yet. I know this has been disputed, but at no time in history have population increases trended down and become negative in many developed countries without a Maunder Minimum, seasoned with a plague or two and the next round of barbarian invasions. In short, a global good standard of living that is sustainable seems possible if energy costs are not made obscenely expensive.What does this mean for networking and computers ? The 1950s with Jetsons type 3D TV and video phones managed by an Orwellian Staasi ?
The counter argument to this is that it is much more difficult and expensive to build a machine to churn out something new than it is to get a person to build something new. Since the design of our tat has to change constantly in order that we buy the new tat instead of keeping the old tat, it still cheaper to get humans to do it. Even if you say that 3D printing will spit it all out, someone is still going to need to assemble all the pieces together, and that someone will be in the poorest/cheapest place possible.
The counter argument to this is that it is much more difficult and expensive to build a machine to churn out something new than it is to get a person to build something new.
I agree with that, for now. What happens when Google or one of the others cracks AI proper though? No reason it can't churn out ebndless permutations of a concept, or even create new concepts entirely. Best case you need a panel of human clicking voting buttons on an endless product parade of sh*t they might like to buy.
The problem isn't what to do with people when you've replaced them all with machines. The problem is what will the people replaced by machines do when they outnumber those that haven't? A quantum leap forward, skipping over the transition from competition for resources to post-scarcity of everything, might end peacefully, but it is about as likely to happen as me being offered a 3-way with Kylie Minogue and Nicole Kidman.
"...someone is still going to need to assemble all the pieces together...."
We've had assembly line robots for years. The topish google link (no affiliation) gushes about them:
"Assembly is an essential industrial task - one that robots are well-suited to perform. Not only do robots possess the precision, tirelessness, consistency, and speed necessary for work on an assembly line, but used robots are extremely affordable....Assembly line robots save workers from drudgery and repetitive movement injury/fatigue. With used robots working the assembly lines, companies can elevate their workers to more challenging positions. Robots provide a dependable, quick production force that works without wasting product or taking breaks. This saves money and time - generating even greater ROI....Today's assembly lines handle a variety of different products and short runs, requiring a lot of flexibility. Robots meet these challenges with vision technology and quick reprogramming capabilities."
Has anyone here ever known an IT Outsourcing project to go well?
By 'well' I mean the project saves money over a period greater than one financial year, frees up the right people to do the right work, and provides an obvious increase in quality and delivery rate. I don't mean 'well' as in managers getting big bonuses and indulging in mutual back-slapping whilst the company slides into oblivion.
No AC, I haven't heard of one, but then the problem is your definitions. The people like you or I that share your first definition don't get to influence the offshoring. The people that do get to influence it use your second definition of success.
Given the government told my generation that IT was the future, that we should study it, we should work in it, and all would be well. Forget about ships, or coal. Forget about welding cars together. Do this instead.... Well, yeah, I did. So where's the backstop? How much longer can things decay before the government and regulators enforce a certain amount of onshore hiring for critical industries - I'm looking at you RBS, we all know the computer that snafu'd was in the UK, but the offshorian fecking it up wasn't, which is why you, and by extension we, had a problem.
It depends how narrowly you cast your net.
I've seen lots of smaller organisations outsource non-core IT stuff like desktop and server management, email and application support pretty successfully. The owner is usually the business manager and he knows exactly how much hassle he's prepared to put up with to keep costs down and so hires and monitors his IT firm accordingly.
I've also seen lots of larger organisations outsource single applications or straightforward measurable tasks like desktop support. The success here usually depends on how well responsibility is aligned with power. If the manager who decides on the scope of works and the vendor bears no responsibility for the results then things usually go badly. If things are well aligned then divesting non-core tasks usually yields modest benefits.
If you're just talking about the big bang 'let's ship the whole IT back office to IBM' type outsource then the risks are much higher, though the principle is the same. Companies and executives that want outsourcing to yield immediate and giant cost savings are more or less setting themselves up for failure. Clever and cynical executives take the big bonus then run before things go bad. Stupid ones bask in the short-term glory and then throw mud at the staff they still have. Companies that go in with their eyes open and seek realistic gains with a sensible balancing of risk and reward with the outsourcer frequently see a sensible relationship build, and a lot of firms for whom IT isn't core have been effectively outsourcing for years without disaster striking or rivals overtaking them (the regulated utilities, large retailers etc.).
If the bad or poorly incentivised executives who screw up their firms by outsourcing weren't able to do that, they'd be screwing up the firm by hiring and promoting the wrong employees and setting up the wrong processes internally, so outsourcing per se is neither a panacea to cut costs nor a monster that always screws up organisations.
The ones I've done have involved small businesses and small networks and the replacement of an in-house server with a managed solution. After the cost of all the hardware and software and licences etc etc, it was cheaper for the employees to get their managed email and data remotely (and backed up remotely and automatically) than to run it in-house.
The upside was that it made it much easier for me to support since instead of having to remote in and fix the server every X hours, I simply told them to raise a support ticket once I'd established it wasn't an in-house problem. The downside of this was that I was actually de-skilling myself.