Anti-Offshore
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It appears that the US has a number of states introducing bills to limit off shoring for contracts given out by the US government. This article mentions that most states have introduced such bills, although many have not passed, including one in my own Colorado. The $24 million savings was enough to have the sponsor withdraw the bill.
I think having this legislation is a good thing. Not that I like government interfering with private enterprise too much, some interference is needed, but government contracts are different. Asking our government to spend it's money, which is mainly citizen's money, inside the US and use companies that do the work in the US, is a good thing. I think forcing lawmakers to support local business is good policy in a country where we change leaders so often.
Other governments limit the work that non-citizens can do. Heck, quite a few even limit the ability of foreigners to even invest or own property or enterprises in their country. Asking those that bid on government contracts, even if it costs a bit more, to keep the work in the US is something I'd like to see more of in the future.
My native Virginia awarded a contract to upgrade it's IT systems, but required investment inside the state with a new operations center and backup data center. Asking a company that's performing the work for an entity to reside or use that money within the state makes good sense. It's providing a dual benefit to the state's economy and it's citizens.
Now I don't want to see any laws passed to prevent a company from moving some of it's work to another country. I don't think that would be something that promotes growth and enables US companies to better compete in a global economy. But a government isn't a profit driven enterprise.
Something besides the total cost of the project should be considered.
Steve Jones
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I think this works like any other tariff. I only have first year university economics, but the simplified stuff they tell you at that level is that tariffs end up being bad for everyone, but mostly for the people who buy the protected goods. Free trade rocks (as you won't see scrawled on any walls).
If the government protects local businesses in this way, those businesses are allowed to be less efficient because the taxpayer props them up. Eventually, the protection goes and so do the jobs. If Maryland is better at IT than Virginia, but Virginia is better at telecoms, then let each concentrate on what it's good at. To take this to the limit, should your lowest level of local administration buy its PCs from the local assembler of bits or from Dell?
British industrial history is littered with the failure of state interference. Google "Hillman Imp" and "Linwood" for a disastrous example, where we helped pull Chrysler to the brink. The state should be very careful when it tilts the playing field.
Bill.
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There are several other benefits when work and control is in USA or for me in UK.
The controlling office is available within USA or UK. Its people can come to site. There are less language and culture difficulties.
The specialists employed may have been unemployed and as such not contributing to the local economy.
Unemployed IT or other professionals also draw money in state benefits. Due to no income, they do not pay income tax and hopefully are able to get stste benefits, for the unemployed.
Depression may set in and lead to extra load on doctors and hospitals. In UK NHS hospitals are free.
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In general, I agree that government work should stay within the country. What does it say about us, if we can't afford to take care of our own business?
However, it does seem that legislation of this type, meant to protect and help, could also be troublesome in the long run. We've seen this before - as Bill Geake illustrates.
What about sensitive data? or system information? or just the fact that someone else in another country with different laws and living conditions (and therefore subject to motivations many of us could not imagine) decides to do harm or sell information that could do harm?
I think we have enough trouble with white collar crime at home - why run the risk?
Cindy
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The simple truth is: there's no free lunch. Every economic endeavor is a trade and balance happens because the universe operates the way it does.
I've never heard of a state which taxed it's way to success - or even achieved the desired protection the tariff sought.
It's "pay me now or pay me later"... with interest, of course. Exhibit A: the US automotive industry.
:{| Andy
Andy Leonard, Chief Data Engineer, Enterprise Data & Analytics
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I guess I'd have to say I'm Anti-Offshore... Let me bore you with two personal experiences.
1 - I worked as a contractor for a company that decided that in order to be compete in the
local economy of India it would have to build a production facility in that country. The US plant I worked in had production lines that were identical to the ones needed in the Indian plant.
We supplied drawings, development engineers, and all the help we could muster from the US to make this work with our foreign partner. The engineering design work was being done by an Indian firm with our assistance to help short cut the design curve and get the plant into production more quickly.
The lists of problems is long, but I will mention a few. Technical documents from the US were not allowed into the country by the Indian government. All documents sent were held in customs. Not to be deterred, we sent data into the country in brief cases of engineers and purchasing personnel. I'm not sure what the prison sentences would have been if they had been caught, but fortunately tape and diskette content was not monitored closely by customs.
The Indian partner, it was a joint venture, and the big (more like huge) German/American corporation were not able to break ground at the site after more than 3 years of effort. It was finally decided that project was a bust and the plant construction was canceled. It was estimated that the plant could have been completed in less than 2.5 years in the US, but we had plenty of production capacity so there was no need to build one in the first place.
2 - Another time I contracted into a company to help with a global ERP system. The contract was for 90 days, but lasted for 1 1/2 years. The project was very successful at consolidating orders and reducing the cost of components for the production lines in the US and Canadian plants.
We were a small team, 2 programmers, 1 project manager, and an ERP interface person. During IT budget cutting, it was decided that all IT contractors would be removed, and this project would be moved to Mexico. The business unit that was paying the bills objected. Their success was well documented and they wanted to continue with the current team. The board of well paid executives decided that in order to be competitive in the world economy, they had to follow a mantra and not let success stand in the way of possible savings.
Currently I'm waiting for a credit card offer from the Bank of India, or China, or some other country that has figured out how we do business in this country and wants to attack our financial institutions.
We've let them have the manufacturing, why not let them have the money as well... 🙂
Bill
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I'm not anti offshore, just anti-offshore government contracting
Or at least for basic work.It's a form of welfare rather than a tariff. It isn't on goods and services in the private sector, but rather just for contracted work by the government. The IT systems in use in government, and forget the secure stuff for now, are a boost to the economy, especially at the state level. Why shouldn't that work be given to local companies in a state?
If you outsource that to India from Virginia, then the payments go to India and are recirculated in the state for the most part. The same applies if you outsource to Maryland (neighboring state). If you award the contract to Virginia based companies, then not only to you show support for your constituents, but you also then get that money respent in Virginia for goods and services, at least more of it. It's a double boost to the economy.
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This debate will go on forever. I see two problems really. The first is the current generation of executive management. Gone are the days when the officers of a company would bust their collective behinds to make a company work. Now when a slump happens, its just cut, cut, cut, save, save, save. Better to just fire a few thousand than to actually figure out whats wrong with the way you're doing business. I pray for the day that the executives are first on the chopping block. Enough said on that.
The second issue with this Anti-Offshore sentiment is in regards to this statement:
"Now I don't want to see any laws passed to prevent a company from moving some of it's work to another country. I don't think that would be something that promotes growth and enables US companies to better compete in a global economy. But a government isn't a profit driven enterprise. "
Don't think for one second that our government is not in place to turn a profit or at the very least, the elected officials that make it up. Call me cynical but reality is far different from what it seemes is being said here.
I agree that the US government should be limited to using domestic companies for every one of its contracts. It promotes employment, and more importantly it serves as an example of the trust our government has in its own people.
Concerning private enterprise and big businesses in the U.S. a small amount of off-shore contracts is fair. What that amount is exactly I don't know but perhaps create a baseline by which every company must abide, say 20% of total effort on a project or development only. The remaining 80% must come from gainfully employed US citizens.
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How far are we supposed to take this? You are talking specifically about the services in IT. Should we also require them to use computers that are made in the USA? And monitors? And cell phones? Global trade is globally good. The more that the US puts up tariff and non-tariff-barriers to trade the more other countries will justfiy doing it for themselves. Does anyone remember what happened after the Smoot-Hawley tariffs were enacted? It was this little thing called the Great Depression.
Maybe you write things like this to stoke conversation. If you right them because you believe them...so sad, so sad.
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I'm not sure how far to take them. I'd like to see contracts for contruction work, the food services, etc. handled by companies within the state. There are any number of things.
For the federal government, it's harder. And honestly I don't have an answer.
Again, this isn't a tariff. That's a tax. This is limiting the bidding for goods and services to companies locally. There's a huge difference. Taxing goods from other countries is a problem. But that's a separate issue and it also needs to be free back into countries. The US allows many countries to send goods here tariff free and other countries don't allow our goods in there. Less so now, but this has been a hisotrical problem.
I'm not isolationist. Nor do I think that nothing should be purchased by governments that is made overseas. But there should be some preference for goods from the US and certainly services. IT is an easy example since it's easy to send elsewhere. Harder to move food service.
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To use an extreme example, would it be the same situation if the U.S. contractor charged 10 times the amount as the offshore contractor? Would that still be benefiting the U.S. economy? Many people look at the number of U.S. jobs created and maintained and use that as their sole measurement. They completely ignore the cost in taxes to Americans. Tell me, would you pay 10 times what something is worth, just so that you could keep the money spent in your own community?
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A few responses:
Cynthia Fenska:
"In general, I agree that government work should stay within the country. What does it say about us, if we can't afford to take care of our own business?"
The same thing it says about every other country in the world. Trade between nations is beneficial to everyone. There is nothing wrong with a country saying, "Hey you do this better and cheaper than I do. You're hired."
Dr Oded Szpiro:
"The controlling office is available within USA or UK. Its people can come to site. There are less language and culture difficulties."
These are certainly issues to examine on a case-by-case basis. I doubt, however, that we can use this as a blanket justification for always keeping USA (or UK) contracts at home.
"The specialists employed may have been unemployed and as such not contributing to the local economy."
Then again, the cost of paying those same specialists may have been much greater than outsourcing. Remember, their pay is coming from our tax dollars. Whatever gain we see from providing jobs at home is going to be offset by the cost to our economy of the taxes needed to pay them.
"Unemployed IT or other professionals also draw money in state benefits. Due to no income, they do not pay income tax and hopefully are able to get stste benefits, for the unemployed.
Depression may set in and lead to extra load on doctors and hospitals. In UK NHS hospitals are free."
This is a rather weak argument in my opinion. You assume that somebody who is out of a job is just going to sit on the curb and cry until his government provides one? And he's going to work himself into such a lather about it that he will have to draw on the services of state-funded hospitals? Neither the USA nor the UK became economic powers by means of government intervention. They became so because the citizens of these countries work hard, are free to enjoy the fruits of their labors, and bounce back from setbacks.
The best your argument demonstrates is the folly of depending on government for welfare, health-care, etc.
William Plummer:
I guess I'm confused as to the point you are trying to make. Are you opposed to government outsourcing because unexpected setbacks made the whole prospect unviable economically? If so, I would add that you run into the same kinds of problems domestically every time you cross paths with some federal agency (EPA, etc.). Now while the US government isn't going to have as much problem facing down these agencies, it is also going to have much more clout than private contractors with foreign governments.
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I am not opposed to government outsourcing contracts, at least for non-security-risks.
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"Would you pay 10x something is worth just to keep the money spent in your own community?"
So you're telling me that if I hire ten US developers for a project, sit them in the same building with the rest of the project team and pay them $50/hour each vs. hiring ten Bangalore developers, sit them 8000 miles away and pay them $5/hour each that I will get the exact same result? I reject that assertion. You are confusing 10x worth with 10x price. And no, I am not saying that
Our local NBA team (Sacramento Kings) plays in a 15 y.o. arena. For ten of those years, the team and local politicos have been saying they need a new arena, one with lots of skyboxes they can rent and new concession stands where they can sell more $6 hot dogs. There is stiff opposition to using tax dollars to build the millionaire players and billionaire owners a new arena. They keep doing surveys that show if we (the public) pays $500M for a new arena, this will generate $X billion in local business and tax revenue for the community. In the Kings' case, we ain't buying it. But I do think it is a useful metric to determine the net effect of doing it local vs. offshoring. How much property taxes are generated by a developer earning $50/hr? How much sales taxes when he buys a car, coffee, pizza, electricity, etc. (all developer staples)? Once you arrive at a number I can believe, now you can compare Sacramento codes with Bangalore coders.
There is no "i" in team, but idiot has two. -
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"Would you pay 10x something is worth just to keep the money spent in your own community?"
So you're telling me that if I hire ten US developers for a project, sit them in the same building with the rest of the project team and pay them $50/hour each vs. hiring ten Bangalore developers, sit them 8000 miles away and pay them $5/hour each that I will get the exact same result? I reject that assertion. You are confusing 10x worth with 10x price. And no, I am not saying that"
I believe you misinterpreted my statement. I asked if you would pay 10x what something is worth? I made no assertion that $5/hour Bangalore developers would provide the same result as $50/hour US developers, or some such. I agree that one needs to factor in the costs and benefits of each option. My point is that sometimes it will make more economic sense to go the Bangalore route, even factoring in the loss of local economic benefit. To pass a law blanketly denying contracts to any offshore companies is foolish.
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Friends of mine have been on the losing side of the off-shoring debate, but I am still not an isolationist. I think there are some areas where we cannot effectively compete with near-slave labor. However, like Steve, I do believe that government programs/projects should be sourced within the United States.
There are many multi-national companies that have no problem off-shoring their work. They have a global presence and sell their products/services in those markets as well as selling to the world at-large. They should be allowed to off-shore their services to countries where they have a POP.
The US government, although having a global presence, does not provide products or services in the local market except as a conducement to better relations which, in essence, is for the benefit of the US tax-payer. By off-shoring projects, they will not lessen the tax burden on US tax-payers, but will increase it if said project could be staffed by un-employed US citizens. My first year economics tells me that money spent in the local economy turns over within that economy from 3-5 times. If our taxes were that much, we would already have had another revolution.
Joe Johnson
NETDIO,LLC. -
Nor do I think of myself as an isolationist. But shouldn't we take care of our own first, before we go spreading freedom (and US tax dollars) around the globe?
Multi-national (i.e., large) corporations have no problem offshoring their work because they are primarily focused on the short term bottom line. It is splashy "headlines" on the quarterly report (increased shareholder value by downsizing IT staff, thereby saving $XX through offshoring) that get bigger bonuses for corporate executives at the expense of guys like me.
There is no "i" in team, but idiot has two.
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