Is Outsourcing Evil?

I find the topic of outsourcing incredibly interesting, and I propose the question:

Is Outsourcing Evil? A recent blog post at onstartups got me going about even more about it.

Up until this week I was outsourcing different, bite-sized code samples - using reasonable flat-rate budgets. This week I needed to do some data entry work, so I posted my first hourly-rate job on oDesk.com.

The job title: "Data Entry Experts".

Within 4 hours I had 105 applicants. The average hourly rate? Near $2/hour. The lowest hourly rate? $0.54/hour.

Many contractors on these sites change their sleeping habits to meet the demands of work in the United States. One person I hired starts to work at 12 midnight and works until 7 AM, and furthermore goes on to tell me that she works 24 hours straight if that's what her client asks.

Sure, the cost of living in Bangladesh or the Philippines is lower than in the United States, but $1 or $2/hour? I can't help but think that outsourcing is almost like 21st century slavery.

What do you think?

I live in Bangladesh. Even I think rates as low as $1 or $2 is way too low. I don't work in outsourcing/freelancing sites myself, but I have friends and colleagues who do that (I also write code for a living, but that's a full time job). The going rate for them (for development work, not data entry) is something around $10-$20 or more - which is still quite cheap I think.

As for the kind of people who bid for crazy low rates, I think at least some of them are newcomers who just want to do it for the experience. The lowest rate I have personally witnessed someone willing to work for was $5, and that was from a guy only starting out, doing it mainly for the "points" (or whatever it is they use to track reputation).

For data entry work, which I think requires a lot less skill than development (sorry if this sounds offensive - correct me if I am wrong), the rates are naturally lower. So it stands to reason that people just bidding to get the job - not caring about the pay - would go for even lower rates.

A lot of people I know who work for freelancing/outsourcing sites already have a day job, and only spend a few hours a day moonlighting as a freelancer. I am guessing they don't want clients to know that, so pretend they are doing this full time.

Yes, there are a lot of people who are desperately poor here, and the cost of living is much lower. But even in Bangladesh, a person who can afford to buy a decent computer, a decent broadband connection and was solvent enough to get enough of an education to be able to work with foreign clients over the internet should not be that desperately poor to be working for the trifling sum of $2. For a person like that, having an income more than the national average isn't really saying much. The people making less than $2 a day never make it into the internet. So doing this on humanitarian grounds is pretty much pointless.

And, BTW, you should be wary of people who say things like they are willing to work 24 hours or change their sleeping habits for just the one client. If they can bluff about that, you don't know about what else they are bluffing. Also, for people willing to work for crazy low rates, I would be extra careful. If they actually did good quality work, wouldn't they be charging higher? The rate by itself isn't a good indicator of quality, but it would at least make me think again.

My comments are from the perspective of someone in Bangladesh. I don't know how it is in the Phillipines or India or Pakistan or anywhere else. But I am guessing the story is similar.

Virtuosi Media makes some good points, but there's something worth remembering here -- according to the CIA world factbook, the GNP of Bangladesh is $94.6Bn at the official exchange rate, which is the exchange rate an outsourced worker would hope to get. With a population of about 156m, that's about $600/year GNP/capita, or less than $2 a day. Now, the people you'd be outsourcing to are probably earning more than average, but their options beyond working for you clearly pay less than a dollar an hour, as otherwise they'd not be bidding for the jobs. To put it another way -- taking an outsourced job like this is the only way some people have of joining the local middle class.

The real disgrace is that Bangladesh is so terribly poor, and it behooves us all to try to change that. But choosing not to employ the people there out of moral qualms is a counterproductive way of doing that. Better, perhaps, to employ them (putting money into the economy directly by way of wages) and then to use your profits to help out -- investing in micro-credit institutions, giving to carefully-chosen charities, etc.

You bring up some very good points about the moral aspects of outsourcing. However, outsourcing doesn't necessarily mean that you need to ignore those aspects. Consider:

• You can be flexible with hours. In many cases, it really isn't necessary to have the outsourced workers work the same hours. By having a detailed project description and scope and a few good planning meetings up front, you can help alleviate the need for constant live contact.
• You can have a realistic project budget. A Facebook clone for $500 is ridiculous, no matter what country you live in.
• You need to set realistic deadlines. Again, asking for a Facebook clone to be completed in 1 week is ridiculous.
• You don't have to pay only what they've bid. You can award bonuses for good work and completed projects. You can also pay them fair rates, which can be determined by researching average wages for their area.
• You can treat outsourced workers with respect and dignity. They are people, not remote factories. They might be willing to work 24 hours straight, but that doesn't mean you should ask.

It's smart business to try to eliminate or reduce costs. Outsourcing can help with that. However, that doesn't mean that you need to be cutthroat with your contract workers. All of the qualities that makes up a good employer also apply when you outsource. The better you treat your workers, employees or contracted, the better work you'll receive. Give them the tools they need to succeed by good planning, realistic budgets and timelines, and flexible and respectful communication.

From the philanthropic standpoint, outsourcing is not only not evil, it's a way to distribute wealth more evenly.

People you hire for IT outsourcing jobs are middle-class in their country and hardly starving. Cost of living is lower as well (their lunch costs $1, yours $5).

Most importantly, if they didn't do outsourcing, they'd be doing an even less lucrative / more demeaning job. An average wage for a 7-11 clerk in Thailand is $7 per day (that's 8+ hrs on their feet), and in factories it's worse.

Treating people with respect is essential. Also, if they do a good job, a small (by your standards) bonus goes a long way.

Since my answer "SCREW CHINA" was so disliked, and eventually removed by the too sensitive community here, i figured i would write a few lines and explain why you should Avoid CHINA, INDIA, and other LOP SIDED COUNTRIES.

China's culture, politics, and legal system place no value on IP. The same is very true in India and Pakistan. So, say your company thinks you can save costs and sell to a potential 4billion plus consumers in china.

here is what usually happens (examples like Matel toys). You take your operation offshore, teach the Chinese how to build your product exactly how you want it. Usually, and since getting a business licence from scratch is next to impossible (catch 22 where you are required to have a location before you can start a business, and to lease a location you are require to have a business), you align your company with a contract manufacturer.

Problem 1. Contract manufacturers make money by cutting corners. They do this by using sweatshop labor, lower quality than what you have approved. This affect your existing USA or European consumer base that unlike chinese or indians have a culture that values brands and quality.

Problem 2. Your Chinese or Indian manufacturer will rip off your idea, ripp off your brand, (or re brand it if they really must) and sell your product in china, to chinese, for far lower than you ever could. Therefore you will never be competitive in china unless if you are Chinese. You could file a lawsuit, but that takes 7-10 years. And although the Chinese will ACT like they care, the whole political system rewards this type of activity.

Problem 3. Your new chinese friends will sell your product, in the USA, and undercut you. They do this because they can. They do this to attract price shoppers, not caring about quality. They dilute the marketplace and make it more expensive because now you have to educate customers about quality.

Problem 4. When you ship your operation to countries like China and India, you are not doing their countries a favor either. These countries still have the highest poverty rates among developed countries. Say i manufacturer sunglasses or even software. When i take my project to India, my "friends" in india promise they can deliver my product for 20% of the cost of what it would cost to make it in the USA. Thats attractive, but what really happens is that if I were in india, I could probably do it for around 3%. The other 17% stays with the middle man. So in these countries you have huge gaps in Poverty and poor. The rich are just those who speak English and nurture relationships with Europe and USA.

Problem 5. Since I moved my company to china, or india, i no longer hire USA workers. This is a big problem if you are large, (say Chevrolet or Ford). In america we value american brands, without the american culture built into your product, its essence soon fades. With that you also are pumping money out of the USA economy into a closed economy that doesn't reinvest back in the USA.

So, if every company in the USA (which many are) chose to move their operations to a dirt cheap country, to try to save on labor, environmental and other compliance costs, eventually there would be no american consumers. As stated before, american consumers are your number one shot at making money. With a weak american consumer, it doesn't matter how cheap you created your product, nobody will be able to afford it.

When nike and Adidas started making shoes in 3rd world coutnries to save money, they still could rely on a strong american consumer. With more and more countries shifting offshore, there are not many people who can afford american products.

So... you need to evaluate why you are looking at China or India.
Chances are you need to cut costs? Well there are better alternatives for cutting costs, in countries that dont have such low poverty rates. Countries that dont hate us, countries where their citizens love to vacation (and at lease pump some money back in) in the united states, and countries who's culture is more centered around quality and pride rather than cheap knock offs.

If you do your homework, as have I (after having offices in Chengdu China, Bangaloru India) you quickly find that Latin America is a lot more business friendly for manufacturing, and nothing beats Eastern Europe for high quality software. These cultures value relationships, honor, and most of all respect Americans and do not see them as an opponent that they have to deal with only when they get the upper hand.

You can offshore, if you have to, but you also have to carefully calculated that a distributed team will cost you more than the actual labor costs in time, delays, communication and general overhead.

So, SCREW CHINA, AND SCREW INDIA. They are not good deals for your business, or the american consumer. Eventually, we are going to have a political system that doesn't reward offshore work, in the form of Tariffs for imported goods, and no tax write offs outside of the united states. Politicians usually wake up to the fact that our current unemployment situation is mainly caused not by a lack of jobs, but a lack of jobs in the USA.

Each company is different, but I strongly suggest you evaluate your situation and see how much of a blow you are willing to personally deliver to the USA economy. And remember that money is power, so give your power to countries that deserve it rather than companies that exploit their currencies, population and environment so that a few smart morons can can gain wealth from the sweat of many.

FOCK CHINA!!! FOCK INDIA. AND FOCK YOU IF you are too sensitive hear it said.

Why would this be evil? Someone can buy some bread with that money and make a living. Would you rather not give them an option to make a living?? Change hats: if you were there and this helped you feed your family would you see it as a good thing or a bad thing? If you can afford award them by paying more if the work is well done. You can both win.

My 2 cents ...

A few observations:

• Grunt work like data entry can be done very cheaply such that it is disproportionately cheaper offshore. Educated work has a lower discrepancy if you want to obtain quality work.
• I think that some of the positive comments on outsourcing come from people who wouldn't know good from not-so-good. (Mediocre is easier to point out.) I have seen more below-average code than good in outsourcing scenarios when you pay low.
• A lot of "positivity" on the net is planted by the same grunts who do data entry for you for $2/hr.
• The ethics of "money drain" to other countries really bothers me. Paying for work locally means networking locally. When you are the one who needs, it's nice to have that network.
• I've blogged about where it makes sense for software projects here.

Outsourcing works really well to supplement a local team, or for access to niche capabilities, at the cost adding communication and relational hazards.

Outsourcing is a business decision.

I don't have a big budget and once in a while have to outsource some tasks. I use websites that allow me to post my projects and others to bid on them. Honestly, I do not care where developers come from, India, Russia, US or elsewhere, as long as they can do what I need and withing my budget. In the end it benefits members of the site that I run, 98% of which is US-based and I'm sure they do not care about where it was don either.

Internet opened the borders and allowed for more collaboration.

I'm not sure this is a fair example, but I do think there is plenty of exploitation to go around.

For all we know, you just found 100+ people around the world who are willing to send a low bid to build a reputation? Happens all the time.

Outsourcing is a relative good - that is, it improves fairness, transparency and access to markets.

Platforms such as oDesk allow people to trade time and skills for income - but they don't force anyone to participate. As a buyer of services, I get far more visibility of cost than in the past. As a seller of skills, I get access to a global market and infrastructure that solves most of the historic problems.

Of course, if as an individual or a business I have been successfully selling my services at a premium, the success of these platforms will tend to reduce my opportunity over time. That's a local evil from my narrow perspective, but part of a general good. My choices are to concentrate on customers who don't trust, don't have the skills to use or aren't aware of these systems, to create new value, or to see my margins erode.

This is pretty much analogous to eBay - an amazing window into the world of cost. eBay reduces the barriers to entry for people wanting to make or trade in physical goods - and as a result any consumer can work out for themselves what goods are available and what prices prevail. So I may still buy a $50 cable at a local retailer - only now I know that I paid a $40 premium for convenience.

I've skirted round one issue, though. Outsourcing has an inbuilt, short to medium-term bias toward the poor and to people in low (relative) cost of living locations. To put that another way, if I live in a G20 nation, I probably need to make 5-25 times the income my competitor in a less developed economy needs to put a roof over my head and food on the table.

Such inequities will tend to reduce over time. For instance, housing prices are driven by demand, and demand is driven by factors including the need to be located with good access to sources of income. If all I need to achieve that is access to broadband networks, over time other factors will take over, such as quality of life, and prices will rebalance. And in the long run, levelling out tends historically to be a levelling upwards.

So in the short-run, we should learn to accept - and even find it in our hearts to rejoice - at this bias that benefits the poor.

Well I strongly feel that outsourcing is NOT Evil and it is relative to your situation. Since this is a site for Startups, my answer will be focused on the perspective of the Entrepreneur trying to get their business off the ground.

Outsourcing can be a true Win-Win for all parties involved, if you have the money to afford outsourcing inshore, there is nothing wrong with that either. On the other hand if you can't afford outsourcing inshore or hiring an Employee and need a more affordable option then you can outsource to countries like the Philippines, India, China and so on depending on the type of work you need done.

Also because of the Power of the Dollar it becomes a win for the person you hire in those countries because you will be paying them way more than their average salary and also its a win for you because you will be able to grow your startup quickly and more affordably. Hence freeing up your time to focus on Why you Love your business!