Outsourcing As a Sign of Strength
April 24 2005 by Chief Executive
THE positive aspects of outsourcing technology work to India are often overlooked in the United States, says Shirish Netke, who was known for his work in developing the Java computing language while at Sun Microsystems. He is now chief strategy officer of American operations for Aztec Software, based in Bangalore, a company with $30 million a year in sales that provides software engineering services. Here are excerpts from a conversation:
Q. How can the outsourcing of skilled American jobs to India be healthy for the United States economy?
A. The simple answer is that it makes American corporations more profitable and in the process does benefit the country. Outsourcing is just one step in the natural evolution of the economic system. If there is a lower-cost producer of goods somewhere else, it is the responsibility of any corporation to follow that path and to provide as much value as they can to their customers and profit to their shareholders.
Q. Which companies does your firm work for?
A. We don’t talk about who our customers are, but they include very large multinational companies, very large Fortune 500 companies, as well as aggressive start-up companies in the San Francisco Bay Area. It’s pretty much around the country.
Q. The general view here is that if an American company loses its ability to innovate, that’s bad. Do you disagree with that?
A. I wouldn’t say I wouldn’t agree. But there are two aspects of the ability to innovate. One is knowing the customer. I don’t think that can be taken away from the Americans. But creating a process by which they can cater to customer requirements — the systems, the engineering and the thinking — that can be outsourced to somebody else. It’s almost like saying that when you’re building a house, the architecture is something you have to take care of yourself. But the plumbing is something you can have somebody else do. They can do it more efficiently than you can.
Q. If I were a customer turning over significant parts of my design work to you, I’d worry that one day I’d become irrelevant. I could be cut out.
A. The in-market knowledge of what the customer wants is hard to take out of the country. The way most of our customers think about it is that they have to get to a higher level of value addition. You go back to the Darwinian economic principles: anybody who adds value does not get “obsoleted” or taken out. That’s one of the beauties of the American system. This whole concept of outsourcing is actually a symbol of American strength, not of weakness.
Q. What’s an example of how outsourcing shows strength?
A. A friend of mine is the C.E.O. of JadooWorks in India. Tom Friedman of The Times actually wrote about it in a column. He visited them. Here is an animation company producing animated cartoons. The drawings are done by somebody in India, the voice-overs are done by actors from Hollywood and the music is provided by British musicians. It’s a classic example of sourcing from the world’s best, wherever they are.
Q. Even very high-value tasks can be outsourced. What’s an American business owner to do?
A. A friend of mine and his family once had a dominant position in making plastic heels for ladies’ shoes. Their company was called Ripley Industries. Over the past 40 or 50 years, the shoe manufacturing industry went to East Asia, to China and Taiwan and those countries. So the third generation of the family has gone into the software business. That’s how they survived.
Q. Haven’t companies in Silicon Valley been coping with these issues for many years?
A. Silicon Valley went through this thought process 10 or 15 years ago. I used to work at Sun, where the amount of time required to build a work station was about 15 minutes. We spent the rest of our time trying to make sure that we got absolutely the best subassemblies from different parts of the world. We just put it all together and sold it to the customer. We provided the certification of quality, the Good Housekeeping seal of approval. That is still in the hands of the person who is facing the customer.
Q. Will outsourcing fade at some point?
A. It’s an irreversible trend. It’s a one-way street in terms of global interdependency. I wouldn’t say it’s just the U.S. and India. It also touches China and Romania and other places. Every country has to be competitive. If you take advantage, it can make America and us very rich. If you don’t take advantage, it can make us very poor.
Q. How do we prevent engineers and other skilled technology people from being rendered uncompetitive?
A. In the 21st century, the half-life of an engineer is four or five years. What I learned in my final year of engineering school, my daughter learned in the seventh or eighth grade. It’s amazing. So it’s very important not to look at engineers as a commodity. They are resources who have to exercise themselves regularly. They need to be challenged to constantly do bigger and better things.
Q. Does the United States have the proper educational infrastructure in place?
A. Higher education in the United States is the best in the world. The ability to harness what you do very well and channel it to your advantage is what will build success. American business is as competitive as it ever has been. Something like outsourcing will only make it stronger.