This totally shocked me. How can this be when wages there are so high? Why isn't this more of an issue? Weird.......
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Just recently it dawned on me that, quite without intending to, I've acquired a fair amount of 'ground level' information about what outsourcing -- both domestic and offshored -- really means.
Corporate execs and economists of a certain bend of mind -- as well as conventional wisdom -- will tell you that offshoring is a hit because it's cheaper to employ skilled IT labor in India than in the US. Comparative pay charts for Indian and American workers seem to bear this opinion out.
But as you point out Mike, the wage differential between Canada and the US cannot be so great that offshoring work there creates savings exceeding the inevitable costs of relocating complex tasks. Yet, Canada is a very popular destination for offshored work.
And I'll add something else for you to consider...I've seen a major outsourcer with both foreign and domestic labor pools available to it not reduce but significantly increase a company's IT costs -- I'm referring to IBM Global Services. There are other examples (many others) .
No, the cost savings often touted scarcely exist for many firms. Smaller businesses do sometimes see savings by employing lower cost, contracted developers or call center workers abroad but for larger businesses the hype of millions saved is often really just that -- hype.
So what's going on?
Here's my observation.
The game now is for customers (corporations) to demand lower rates from contracting firms. Domestic firms, 'burdened' (from the typical capitalists' point of view) with the relatively high salaries of domestic skilled labor, seek arrangements with foreign firms -- or, domestic firms with sub-contracting partnerships with foreign firms. These offshore competitors sign for lower rates, thus satisfying the executives' demands for savings which help boost profitability. But in the end, the lower rates mean little as the costs of re-directing workflow, adding personnel and associated expenditures mount. There's also the cost of lost productivity as once reliable services (such as helpdesk) become nearly useless due to the inevitable problems associated with distance.
Canadian firms, like their Indian counterparts, promise lower rates to appear competitive and the relative physical and cultural closeness of Canada to the US makes it an attractive site -- hence its popularity. But there are few real cost savings to be found. Of course, there's a mountain of charts, graphs and spreadsheets available to prove me wrong but this is what I've seen at the fortune 500s I've contracted with.
I believe offshoring has a band-wagon element to it at this point -- although many believe capitalists to be very rational when it comes to maximizing profit there is a lemming component to executive behavior which should be taken into account.
Everyone believes that offshoring creates a channel for cost savings -- projects to offshore are launched to take advantage of these supposed savings -- the reputations of the execs who recommended one firm or the other are on the line -- given the pressure involved, even a failure (that is, an offshoring project which fails to actually be a cost saving move) is interpreted for internal consumption and the biz press as a success.
I've seen this happen again and again.
DRM
For an industry observer's take on this, I suggest the following...
<http://www.pbs.org/cringely/pulpit/pulpit20030807.html>