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Off-Base on Off-Shore
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
February 6th, 2004


By Brent Holliday
Greenstone Venture Partners

“You're always putting off

what we could do today…
Who's right, who's wrong?

What have you done for me lately
Ooh ooh ooh yeah” – Janet Jackson, What Have You Done For Me Lately?

On January 22nd, the U.S. Senate passed a bill, still requiring presidential approval that would prohibit government contractors from shifting work overseas.  While not meaningful to the overall IT economy (less than 2% of IT outsourcing would be affected), it is a very clear statement to both the beleaguered technology workers in the US and the growing IT middle class in India , China and Eastern Europe .

And it is very, very myopic and stupid from a global perspective.

Obviously in an election year, when the only thing not roaring back in the economy is jobs, this bill is a political maneuver.  To me it is fascinating how we fail to learn from recent history that the loss of “the bottom 20% of software programmers jobs” (Charles Simonyi in October) to overseas competition will be good for all of us in the long run.  If you look at the steel industry, the auto industry and the textile industry as examples in the last half of the 20th century, menial, repetitive jobs left the leading economies, re-vamping old sunset industries through innovation and entrepreneurship.  The cycle comes around and new jobs needing higher skills and more pay abound in the economies that allow for this Shumpeterian “creative destruction”.

Let’s use the software programmer as our example.  The US Bureau of Labour Statistics says that 2000 was the best year ever for the programmer (the vast majority of which were in-house or consulting type programmers, not application/ISV or embedded/firmware programmers) as 700,000 Americans called it their full time occupation.  Now the number is below 1994 levels as almost 100,000 of them have left the career.  The largest single sector unemployment rate is the programmer, currently at 7.1%.  Most other sectors have seen some jobs come back, but it seems to be getting worse for the programmer.  The reason?  Is it just off-shore outsourcing?

India now sports a $10B a year export business in out-sourced software programming worldwide.  Other Southeast Asian countries are scrambling aboard this gravy train.  Eastern Europe and Russia are also making inroads.  Locally, we have at least three firms that I know of that do a great business in outsourcing.  Are they evil job stealers? Do we need to pass some laws quickly to prevent that revenue and those jobs from leaving BC?  Maybe just call Tony Soprano and offer them some “protection”? Ba-da bing Ba-da boom.  Thankfully, there hasn’t been a big deal made of this locally.

This week at a conference in Mumbai ( Bombay ), the UK took the opposite stance from the US and said that they will not ban outsourcing because the tough competition from India will stimulate innovation and productivity gains that will be good for the UK economy.  They also explained that the burgeoning middle class in India and elsewhere will fuel exports for other goods in other industries.  This is where the myopic US policy makes no sense at all.  If 1,000,000 Indian families can now buy discretionary items because they have decent jobs, the US should benefit on the whole.  Re-training 100,000 US programmers to work in other industries supplying the growing economies outside the US (which the much weaker US dollar helps!!!) makes a bit of sense, doesn’t it?

In the examples of other industries earlier last century, the move to outsourcing always preceded some great innovation that changed an industry.  In an Information Week e-mail exchange, Charles Simonyi (employee number 40 or so at Microsoft), said that high-value mechanization has followed big outsourcing trends.  His spin on this is that software is due for a major change in automation and performance, making modifications and bug fixing less likely as a means of employment.  Local firm, Make Technologies is one of a few companies looking to make software coding easier and more automated.  IBM has made it a corporate mantra to create self-healing software and systems.  So there will be less programming jobs going forward, but not due to outsourcing alone.  It will require less labour to make software going forward.  The repetitive task programming can and should go off-shore if people are willing to do it. 

From the individual micro perspective, the protectionist attitude of the US makes sense.  The $80,000 a year job supporting a family disappearing to a few $20,000 a year workers in India makes the individual here un-happy.  Such is the pain of policy making… the good of the whole is not good for everyone.  And in an election year, pandering for votes is inevitable.  But India is just a useful target for the anger today.  The reality is that, as always, technology is changing and people in leading economies have to re-tool.

The pain is not just in software programming.  China , Taiwan and Korea are leaping ahead in contract manufacturing of hardware and semiconductors.  From cell phones to LCD panels to X-boxes, thousands of jobs have left North America never to return. And sheer economics make it hard to compete (which is why there is a lot of screaming about China de-coupling their currency from the dollar so that their exports get more expensive in the US ).  I might be a bit biased, but from where I sit, the investment in R&D, both public and within private companies and the commercialization of those innovations, largely supported by angels and venture capitalists, is where the future of technology jobs lay.  The world’s manufacturing floor can be elsewhere.  But as long as we drive the design and implementation, we can reap the profits that allow us to pay the higher wages. 

Some countries, like India , will adopt a more entrepreneurial attitude and set of policies for driving innovation in their countries.  US and European VCs have been investing in companies that are not just out-sourcers in India , but rather innovators.  But India has a long way to go and a huge glut of educated workers that can fill the role of outsourcers for now.  Countries like Canada , with its more liberal immigration policies, can add talented and innovative people from India and China that thirst for more opportunity and better paying jobs, in the meantime (See… the brain drain works two ways!).

What I find fascinating to think and read about is what happens as India , China , Russia and other countries like Brazil grow their middle class of consumers.  These economies could become enormous because of the sheer size of their populations.  The workers there will demand higher wages as their lot in life improves. This will force those nations to either emulate the North American style of funding innovation and encouraging entrepreneurship or stay as the “blue collar” workforce for other innovative nations, losing their top talent to countries like Canada .  Goldman Sachs has a great look forward at the next 50 years of the so-called BRIC economies (The initials of the aforementioned populous countries) and the possible impacts to nations in the current G7.  www.gs.com/insight/research/reports/99.pdf 

It is inevitable that these countries will get to be a part of the IT economy more and more.  Wrapping yourself in the flag in the name of protecting a few jobs is completely and utterly futile.  The smart entrepreneurs embrace the inevitable trends and look for ways to exploit new opportunities.  The dumb ones make excuses and look for handouts.

Letters From Last Time -

Brent:

Good column about asking for what we want. I enjoyed your perspective. I'd like to direct your attention to a book a read recently which deals with this very timely topic: The Aladdin Factor. By Jack Canfield and Mark Victor Hansen. Their premise is that anything is possible if you dare to ask. And since these guys come from the US , I would think that this is more than a Canadian dilemma - I believe most people have a problem asking for what they want.

At any rate, I've begun putting their advice into practice and it's amazing what happens when we just ask.

Best regards,

Andrea

I wonder if Canfield and Hansen will give you some royalties, Andrea.  Thanks for the tip, I’ll have a look.

Hi Brent,

I had no idea that this went on in business.  I spent about five years inconsistently learning how to ask questions on a personal level.  Mostly because I read a lot of stuff, which usually answers the questions through context instead of directly.  Another factor is that I'm English and was conditioned as such to not ask potentially painful or embarrassing questions....usually the kind around money or feelings.

Another way to look at asking questions, besides 'this is business', is of collecting information.  I've heard of situations where asking a question was the same as accusing someone of something....or it was taken as such.  Asking for information in that context works a lot better because there's no emotional charge around the question.

There's another issue connected with doing business that might be important: that of the practical person and the dreamer.  Dreamers think up the projects for the dreamer to build.  Dreamers like to work in 'maybes', because ideas aren't concrete until they're finished. 

Practical people only want to deal with facts, finished thoughts.  For a dreamer to walk into a room filled with practical people and pitch an idea that will work, but cannot really be imagined by everyone else, is really frightening.....and when the questions start, not being able to answer them satisfactorily (which means with certainty) is going to result in disaster.

Practical people need dreamers and dreamers need practical people.  We just don't speak the same language.  No and yes are very much a part of that language.

I still enjoy the column, particularly ones like this.

Roger

I agree, Roger, that some people are just not emotionally constructed to “ask”.  They should realize their own capabilities and hand off important “ask” situations to the more practical and adept workers who are not afraid to ask.

Thanks for your support all the way from the jolly UK .

 

What Do You Think? Talk Back To Brent Holliday

 



Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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