BusinessWeeks Online
December 2, 2003 

      DECEMBER 2, 2003 

      GROWING CONCERNS 
      By David E. Gumpert 


            U.S. Programmers at Overseas Salaries
            Rather than send IT work to India, a Boston startup sought locals at 
            the same money. The result: plenty of applicants -- and a lot of 
            questions

      It's the great unanswered business-economic question of our day: How do we 
      replace the hundreds of thousands of information-technology, call-center, 
      paralegal, and other jobs rapidly exiting the U.S. for India, Russia, and 
      other low-wage countries? The main answer that the so-called experts put 
      forth, without a lot of conviction, is that we'll create new "high-value" 
      jobs to replace those leaving the U.S. What are those jobs? No one seems 
      to know. 

      In the meantime, the matter of overseas subcontracting appears to have 
      become open-and-shut. If you're an executive with half a brain, you can 
      come to only one conclusion when tallying the differences in costs between 
      hiring computer programmers in the U.S., vs. India or Russia. These days, 
      the jobs are going to Indians and Russians. 

      OFFSHORE BARGAINS.  But what if there was another way to skin this 
      particular cat. That's what Jon Carson wondered a few months back, when 
      confronted with the need to complete a major programming project in a 
      hurry, and at the lowest possible cost. Jon is a serial entrepreneur whose 
      latest venture, cMarket, helps nonprofit organizations increase their 
      revenues by putting fund-raising auctions online. I have known Jon for 
      years, and -- full disclosure -- have invested in several of his ventures. 
      I only learned about his computer-programming dilemma after the fact, 
      though. 

      cMarket had been pursued, as many business owners are these days, by an 
      intermediary who promised he could cut cMarket's programming costs 
      significantly by outsourcing his needs to India. So last spring, when 
      cMarket signed an agreement with the national Parent Teachers Assn. (PTA) 
      to handle online auctions for its 20,000-plus local chapters and, 
      simultaneously, began taking on charity auctions from Boston to Miami, Jon 
      knew he had to rapidly expand cMarket's capabilities. He had his IT 
      director call the intermediary and tell him that cMarket needed four 
      programmers, pronto. Jon knew the numbers for experienced American 
      programmers doing the specialty work he required: $80,000 a year, with 
      benefits adding an additional $5,000 to $10,000 per programmer. The 
      intermediary came back with the number for the services from India: 
      $40,000 per programmer. 

      It seemed like a cut-and-dried decision, the kind U.S. executives are 
      making every day without hesitating, but for some reason Jon hesitated. 
      Much as he likes the idea of having projects completed at the lowest 
      possible cost, and as responsible as he feels to investors, he didn't like 
      the feeling of becoming someone who callously pushes jobs to other 
      countries. "I'm in the entrepreneurial economy," where competition around 
      both costs and revenues is very intense, he says. "But I was personally 
      very uncomfortable. This situation brought me face-to-face with how easy 
      global disintermediation is being made for folks, to the point where it is 
      almost inevitable." 

      TOUGH CALL.  As he thought more about his decision, Jon realized he had a 
      valid business reason to hesitate: As the head of a startup that had been 
      going for less than a year, he wasn't at all certain he should take the 
      risk of having essential work done at a far-off location by people he 
      didn't know, and with whom he could communicate only via e-mail and phone. 
      Still, there was that matter of nearly $200,000 in annual savings. Each 
      time he hesitated about making his decision, various confidantes reminded 
      him about the big money at stake. 

      And then Jon had a brainstorm. What if he offered Americans the jobs at 
      the same rate he would be paying for Indian programmers? It seemed like a 
      long shot. But it also seemed worth the gamble. So Jon placed some ads in 
      The Boston Globe, offering full-time contract programming work for $45,000 
      annually. (He had decided that it was worth adding a $5,000 premium to 
      what he'd pay the Indian workers in exchange for having the programmers on 
      site.) 

      The result? "We got flooded" with resumes, about 90 in total, many from 
      highly qualified programmers having trouble finding work in the down 
      economy, Jon says. His decision: "For $5,000 it was no contest." Jon went 
      American. And the outcome? "I think I got the best of both worlds. I got 
      local people who came in for 10% more (than Indians). And I found really 
      good ones." 

      HERE AND NOW.  In the interim, Jon has promoted two of the programmers to 
      full-time employees, at standard American programming salaries, rather 
      than risk losing them to the marketplace. And he is convinced that having 
      people working onsite gives him control over quality and timing that he 
      wouldn't have enjoyed if he had subcontracted overseas. 

      While cMarket has solved its immediate challenge, the implications of 
      Jon's approach are potentially mind-bending. What if other companies begin 
      taking the same approach -- offering Indian-style wages to American 
      workers? On the positive site, we could begin to solve our job-creation 
      problems. But on the negative side, America's standard of living would 
      inevitably decline. There's only one way to find out for sure how it all 
      might shake out, and that is for other executives to replicate Jon's 
      experiment. The results could be quite interesting. 

      David E. Gumpert is the author of Burn Your Business Plan: What Investors 
      Really Want from Entrepreneurs and How to Really Start Your Own Business. 
      Readers can e-mail him at david@davidgumpert.com 



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