Elroy said:
Are you saying none of these save money for the companies that use outsourcing....
No Elroy,
I'm NOT saying that. I thought we were discussing outsourcing of Engineering Development, that is to say, development of new products, that's what we typically do here in Silicon Valley.
Outsourcing payroll, or even bug-fixing engineering effort, makes *perfect* sense.
What hurts both the US and the corporations that do it, is when we outsource new development. It ends up taking longer time than expected.
At Cisco, I was involved in several projects where the development was done in India, and several where it was done in San Jose.
Here is my experience:
What would have taken 5 months to do in SJ, took 9 months in Chennai.
The engineering rate was one third in India, thus what was supposed to save you 66% of development cost, ended up saving you only 40%, BUT at a time to market that was 4 months later (about 80% time overrun).
This resulted in loss of sale. Typically a funded project has an expected revenue of at least $10 M / year, average $20M - Margin is 70%, thus contribution of that 20M is approx $12M/year
4 month sales loss is a loss of 4 time 1M = $4M
(plus the effects of poorer user interface is probably hurting sales also, so that the 20M revenu now becomes 15M/year, but this can NEVER be proven in retrospect)
So, net, net, In order to save 600,000 (60% of the typical 1M development cost), you only saved 400,000 and lost 4 million in earnings.
This is NOT wise, it does hurt the company as well as the economy of the US. To this should be added the "cost" of the increased risk of IP theft, and the increased risk that you are helping competitors gain a foothold (remember you are 4 month late).
The big problem when we are discussing outsourcing is that we don't define the terms, everybody are actually talking about different things, that's why it's so hard to get agreement.
Peter |
