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Globalization and Offshoring of Software: Examining the Myths Eric Roberts Stanford Computer Forum April 18, 2006.

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Presentation on theme: "Globalization and Offshoring of Software: Examining the Myths Eric Roberts Stanford Computer Forum April 18, 2006."— Presentation transcript:

1 Globalization and Offshoring of Software: Examining the Myths Eric Roberts Stanford Computer Forum April 18, 2006

2 Maria Klawe Dean of Engineering, Princeton Former ACM President Myths about Employment: An Example Contrary to popular belief, career opportunities in computer science are at an all-time high. Weve got to spread that message among students from a rainbow of backgrounds, or risk becoming a technological backwater. Blue Skies Ahead for IT Jobs BY MARIA KLAWE December 1, 2005

3 Myths about Employment: An Example Contrary to popular belief, career opportunities in computer science are at an all-time high. Weve got to spread that message among students from a rainbow of backgrounds, or risk becoming a technological backwater. Blue Skies Ahead for IT Jobs BY MARIA KLAWE December 1, 2005 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.

4 The No Jobs Myth Affects Enrollments

5 The Crisis in Computing Education Source: Higher Education Research Institute at UCLA, 2005 The Computing Research Association estimates that computing enrollments have fallen between 40 and 50 percent since 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.

6 Myths about Offshoring and Globalization Most good software jobs disappeared after the dot-com crash.1. Offshoring will soon eliminate the few jobs that remain.2. Good IT workers will be easy to find in the new flatter world.3. Companies will always seek the lowest-priced labor.4. Globalization is either always good or always bad.5.

7 Myth 1: Software Jobs Have Disappeared There was a slight dip in IT-sector employment after 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: Computer and information systems managers Computer specialists Computer hardware engineers Total, all professional-level IT occupations Total, all occupations % 3,0464, % % 3,4034, % 145,612164, % % change Projected Employment (in thousands) Source: Bureau of Labor Statistics. Monthly Labor Review, November 2005

8 IT Salaries Remain High Continuing a pattern that has been evident for decades, recent bachelors and masters engineering graduates and computer science graduates at the bachelors 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 CIS graduates with bachelors degrees earned a median annual salary of $45,000, and those with masters degrees earned a median annual salary of $60,000. Source: Computing Research Association, December 2005

9 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.

10 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.

11 Microsoft on the IT Worker Shortage 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. Gates Cites Hiring Woes, Criticizes Visa Restrictions Thursday, April 28, 2005 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.

12 Microsoft on the IT Worker Shortage Gates Cites Hiring Woes, Criticizes Visa Restrictions Thursday, April 28, 2005 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.

13 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.

14 A Long-Term IT Labor Shortage Exists Fraction of professionals with degrees in that discipline: 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 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

15 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.

16 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.

17 $ £ ¢ $ £ ¢ Talking Past Each Other

18 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 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 thingas with Grade 10 algebra, I will forever be playing catch-up. Klein, No Logo, page 259 Talking Past Each Other

19 I believe that globalizationthe removal of barriers to free trade and the closer integration of national economiescan 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

20 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

21 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. 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

22 George Soros on Market Fundamentalism George Soros 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. In my student days... open society was threatened by various totalitarian ideologiesfascism, Nazism, and communismwhich 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 dont speak French.

23 George Soros on Market Fundamentalism George Soros 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. 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.

24 Other Interesting Recent Books

25 My Top Two Reading Recommendations

26 Conclusions of the ACM Report 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. 1. Both anecdotal evidence and economic theory indicate that offshoring between developed and developing countries can, as a whole, benefit both, but competition is intensifying. 2. 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. 3.

27 Conclusions of the ACM Report 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. 4. 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. 5. To stay competitive in a global IT environment and industry, countries must adopt policies that foster innovation. To this end, policies that improve a countrys ability to attract, educate, and retain the best IT talent are critical. Educational policy and investment is at the core. 6.

28 The New York Times On the ACM Report Computing Error Wednesday, March 1, 2005 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....

29 The New York Times On the ACM Report Computing Error Wednesday, March 1, 2005 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....

30 The New York Times On the ACM Report Computing Error Wednesday, March 1, 2005 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.

31 The End


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