IITeur

In the last decade there has been a vast expansion of the IT sector in the United States. Due to the ever increasing competition in this sector and the burst of the IT bubble, the need to save costs for IT companies has become an essential element for survival. Labour is a major cost component in the IT service sector. This makes it attractive for companies in the United States, incurring high costs for labour, to seek alternative and cheaper sources of labour elsewhere.

Recent developments in the education and welfare levels in countries such as India, China and South Korea have created an attractive workforce for American IT companies, seeking to save costs. The quality of labour in these countries is ever increasing and has reached comparable levels to that of the United States. The establishment of areas like Bangalore in India, where IT thrives, is a direct consequence of this development. Another consequence of these developments in education and welfare is that there is a very large supply of IT specialists entering in to the job market every year. “The currently just over 5,000 IT graduates in Germany and the 25,000 in the USA that enter the labour market each year contrasts with 120,000 in India and as many as 250,000 in China.” Partly because of this high supply of labour in India and China, next to the lower income per capita, the wages are considerably lower compared to the United States. “The hourly rate for a software developer in Germany is € 54 and in the United States € 44. This compares with significantly lower costs of just € 14 in China. In the Czech Republic and India labour costs, at € 8 and € 7 an hour respectively, are half less again.”1

The combination of high quality labour and relatively low wages results in a net outflow of jobs going to countries such as India, China and South Korea. “The pro-outsourcing consulting firm Global Insight estimates [the United States] lost 104,000 information technology jobs to offshore outsourcing between 2000 and 2003, more than a quarter of the 372,000 jobs lost in the sector overall during the period. The Economic Policy Institute found employment in U.S. software-producing industries fell by 128,000 jobs from 2000 to early 2004, while about 100,000 new jobs producing software for export to the U.S. were created in India over the same period of time.”

The above mentioned leads us to believe that the number of IT jobs in the United States will diminish even further in the coming years, eventually leading to the demise of the US IT sector.

dalem

So we'll invent something else.

-dale

Rahul

Exactly Dale!! That's been our spirit from the steamboat to the telegraph to the Internet and if we give up that spirit now because we are too hooked on IT to realize that the next big thing is waiting, we deserve whatever comes our way because of our irrational fixation on IT. Besides, it isn't as if IT will dissappear in America or American companies will dissappear. They'll simply move up the value chain.

__________________
Am out of town for a while and then have tons of work coming up at school. Will be back once that's all done.

jon_j_rambo

Agreed, the day I'm scared of an Indian dude taking my job, is a day that will never happen "Does not the birds eat.....how much greater are you than them?"

Jay

Wrong, not all the IT jobs can be offshored. Other than support, Offshoring will never work with out an onshore team presence. So this dooms day theory will not happen in next 20,50 even 100 years.

__________________
A grain of wheat eclipsed the sun of Adam !!

IITeur

I think you are partly right about that. Indeed not all IT jobs can be offshored. However, an extremely large proportion can and will eventually be moved abroad. This proportion is of such significance that the US IT sector compared with its counterparts in Asia will become of little importance. Not all jobs will disappear but the sector as a whole will demise.

IITeur

dalem

Only in the sense that it will decline as a feeder industry into the job market. Those of us that used it as such will need to think about how we can use our experience and higher positions to devise or support the next big hi-tech feeder industry.

-dale

IITeur

Of course, time will pass by and new things get invented. I am confident that there is life after the burst of the IT bubble. However, there is an ongoing trend we can not ignore. Due to the ever opening world market and the cost advantages to be gained abroad, companies shift their operations to lower labour cost areas. The development of new products does not interfere with this trend. You are pointing at an uppersegment of jobs. I do not think that the higher ranking jobs in the future will still be in the hands of american workers. What is a high ranking job today is not a high ranking job tomorrow. 10 years ago, an IT specialist in the USA had a great job. Now his job has moved to India. With companies like TCS, Infosys and Wipro India is creating its own uppersegment. The harsh reality for US companies is that they have to move to countries like India to compete with TCS, infosys and Wipro. This is a battle they can not win. Who can operate a business better in India than an Indian company?

dalem

Well yeah, but how is any of this bad?

-dale

IITeur

From the perspective of an Indian resident employed in the IT sector or any other sector attracting work formerly performed in the USA it is not bad at all. The USA however will be severely affected by all of this. Eventually big US companies will go bankrupt and many thousands of US workers will lose their jobs. This is not a bright picture at all.

dalem

Why will big US companies go bankrupt?

(I mean other than the normal clever methods enacted by my formER -woops, edited there - employer, Worldcom. )

-dale

Jay

Well, may be you ought to check out who started offshoring model. It was TI, they've been successful all along. Motorola, GE, IBM, Cisco, HP all are American companies and they do extremely well when compared to the Indian IT companies.

You cannot have a pie and eat it too. For eg, if an Indian company buys a computer for their office it has an Intel chip, their voice/data operations are supplied by HP/Cisco, software by Microsoft, shoes from Nike, jeans from Levis, trousers from Dockers, boxers and vests from CK and food from McD's and Subway. Even though these products are manufactured else where, they are marketed as American and the profits reach America. So as I said its not the end of the world for the American companies. You just need to adjust your services based on market sentiments...much like a stock market index. It may has its ups and downs but it'll prevail.

Khalsa_starr

Interesting comment, i myself will be outsourcing my own job when i move to India to work there as a 3D artist and design producer. May not be IT, but some people here are doing before the carpet gets lifted beneath them.

IITeur

Bankruptcy may be an ultimate consequence. Of course huge companies have a lot of funds available which enables them to do acquisitions in the lower labour cost regions. This will certainly delay their demise. However, because the Indian firms know India better than their American rivals do, they can grow (and that is what they are doing now) more quickly and more cheaply in India than anyone else. This will lower their costs even further. Companies like IBM can't fight this change and will eventually have to throw the towell.
The only way US IT companies can survive is by moving as much of their activities abroad as IT companies in lower labour cost areas already deploy. So either way many thousands of jobs in the domestic US IT sector will disappear.

dalem

Hm. Sounds pretty "doomsday". I don't respect Doomsday predictions - they are almost always based on incomplete data and anecdotal modeling.

-dale