Software
Programming jobs are heading overseas by the
thousands. Is there a way for the U.S. to stay on top?
Stephen Haberman was one of a handful of folks in all of Chase
County, Neb., who knew how to program a computer. In the spring of 1999, at
the height of the Internet boom, the 17-year-old whiz wanted to strut his
stuff outside of his windswept patch of prairie. He was too young for a
nationwide programming competition sponsored by Microsoft Corp. (MSFT
), so an older friend registered for him. Haberman wowed the judges with a
flashy Web page design and finished second in the country. Emboldened,
Stephen came up with a radical idea: Maybe he would skip college altogether
and mine a quick fortune in dot-com gold. His mother, Cindy, put the kibosh
on his plan. She steered him to a full scholarship at the University of
Nebraska at Omaha.
Half a world away, in the western Indian city of Nagpur, a 19-year-old named
Deepa Paranjpe was having an argument with her father. Sure, computer
science was heating up, he told her. Western companies were frantically
hiring Indians to scour millions of software programs and eradicate the
much-feared millennium bug. But this craze would pass. The former railroad
employee urged his daughter to pursue traditional engineering, a much safer
course. Deepa had always respected her father's opinions. When he demanded
perfection at school, she delivered nothing less. But she turned a deaf ear
to his career advice and plunged into software. After all, this was the
industry poised to change the world.
As Stephen and Deepa emerge this summer from graduate school -- one in
Pittsburgh, the other in Bombay -- they'll find that their decisions of a
half-decade ago placed their dreams on a collision course. The Internet
links that were being pieced together at the turn of the century now provide
broadband connections between multinational companies and brainy programmers
the world over. For Deepa and tens of thousands of other Indian students,
the globalization of technology offers the promise of power and riches in a
blossoming local tech industry. But for Stephen and his classmates in the
U.S., the sudden need to compete with workers across the world ushers in an
era of uncertainty. Will good jobs be waiting for them when they graduate?
"I might have been better served getting an MBA," Stephen says.
U.S. software programmers' career prospects, once dazzling, are now in
doubt. Just look at global giants, from IBM (IBM
) and Electronic Data Systems (EDS
) to Lehman Brothers (LEH )
and Merrill Lynch (MER ).
They're rushing to hire tech workers offshore while liquidating thousands of
jobs in America. In the past three years, offshore programming jobs have
nearly tripled, from 27,000 to an estimated 80,000, according to Forrester
Research Inc. (FORR ). And
Gartner Inc. figures that by yearend, 1 of every 10 jobs in U.S. tech
companies will move to emerging markets. In other words, recruiters who look
at Stephen will also consider someone like Deepa -- who's willing to do the
same job for one-fifth the pay. U.S. software developers "are competing with
everyone else in the world who has a PC," says Robert R. Bishop, chief
executive of computer maker Silicon Graphics Inc. (SGI
).
For many of America's 3 million software programmers, it's paradise lost.
Just a few years back, they held the keys to the Information Age. Their
profession not only lavished many with stock options and six-figure salaries
but also gave them the means to start companies that could change the world
-- the next Microsoft, Netscape (AOL
), or Google. Now, these veterans of Silicon Valley and Boston's Route 128
exchange heart-rending job-loss stories on Web sites such as
yourjobisgoingtoindia.com. Suddenly, the programmers share the fate of
millions of industrial workers, in textiles, autos, and steel, whose jobs
have marched to Mexico and China.
"Leap of Faith"
This exodus throws the future of America's tech economy into question. For
decades, the U.S. has been the world's technology leader -- thanks in large
part to its dominance of software, now a $200 billion-a-year U.S. industry.
Sure, foreigners have made their share of the machines. But the U.S. has
held on to control of much of the innovative brainwork and reaped rich
dividends, from Microsoft to the entrepreneurial hotbed of Silicon Valley.
The question now is whether the U.S. can continue to lead the industry as
programming spreads around the globe from India to Bulgaria. Politicians are
jumping on the issue in the election season. And it will probably rage on
for years, affecting everything from global trade to elementary-school math
and science curriculums.
Countering the doomsayers, optimists from San Jose, Calif., to Bangalore see
the offshore wave as a godsend, the latest productivity miracle of the
Internet. Companies that manage it well -- no easy task -- can build virtual
workforces spread around the world, not only soaking up low-cost talent but
also tapping the biggest brains on earth to collaborate on complex projects.
Marc Andreessen, Netscape Communications Corp.'s co-founder and now chairman
of Opsware Inc. (OPSW ), a
Sunnyvale (Calif.) startup, sees this reshuffling of brainpower leading to
bold new applications and sparking growth in other industries, from
bioengineering to energy. This could mean a wealth of good new jobs, even
more than U.S. companies could fill. "It requires a leap of faith,"
Andreessen admits. But "in 500 years of Western history, there has always
been something new. Always always always always always."
This time, though, there's no guarantee that the next earth-shaking
innovations will pop up in America. Deepa, for example, has high-speed
Internet, a world-class university, and a venture-capital industry that's
starting to take shape in Bombay. What's more, her home country is luring
back entrepreneurs and technologists who lived in Silicon Valley during the
bubble years. Many came home to India after the crash and now are sowing the
seeds of California's startup culture throughout the subcontinent. What's to
stop Deepa from mixing the same magic that Andreessen conjured a decade ago
when he co-founded Netscape? It's clear that in a networked world, U.S.
leadership in innovation will find itself under siege.
The fallout from this painful process could be toxic. One danger is that
high-tech horror stories -- the pink slips and falling wages -- will scare
the coming generation of American math whizzes away from software careers,
starving the tech economy of brainpower. While the number of students in
computer-science programs is holding steady -- for now -- the elite schools
have seen applications fall by as much as 30% in two years. If that trend
continues, the U.S. will be relying more than ever on foreign-born graduates
for software innovation. And as more foreigners decide to start careers and
companies back in their home countries, the U.S. could find itself lacking a
vital resource. Microsoft CEO Steven A. Ballmer says the shortfall of U.S.
tech students worries him more than any other issue. "The U.S. is No. 3 now
in the world and falling behind quickly No. 1 [India] and No. 2 [China] in
terms of computer-science graduates," he said in late 2003 at a forum in New
York.
Fear in the industry is palpable. Some of it recalls the scares of years
past: OPEC buying up the world in the '70s and Japan Inc. taking charge a
decade later. The lesson from those episodes is to resist quick fixes and
trust in the long-term adaptability of the U.S. economy. Job-protection
laws, for example, may be tempting. But they could hobble American companies
in the global marketplace. Flexibility is precisely what has allowed the
U.S. tech industry to adapt to competition from overseas. In 1985, under
pressure from Japanese rivals, Intel Corp. exited the memory-chip business
to concentrate all its resources in microprocessors. The result: Intel
stands unrivaled in the business today.
While the departure of programming jobs is a major concern, it's not a
national crisis yet. Unemployment in the industry is 7%. So far, the
less-creative software jobs are the ones being moved offshore: bug-fixing,
updating antiquated code, and routine programming tasks that require many
hands. And some software companies are demonstrating that they can compete
against lower-cost rivals with improved programming methods, more
automation, and innovative business models.
For the rest of the decade, the U.S. will probably maintain a strong hold on
its software leadership, even as competition grows. The vast U.S. economy
remains the richest market for software and the best laboratory for new
ideas. The country's universities are packed with global all-stars. And the
U. S. capital markets remain second to none. But time is running short for
Americans to address this looming challenge. John Parkinson, chief
technologist at Cap Gemini Ernst & Young, estimates that U.S. companies,
students, and universities have five years to come up with responses to
global shifts. "Scenarios start to look wild and wacky after 2010," he says.
And within a decade, "the new consumer base in India and China will be
moving the world."
People Skills
To thrive in that wacky world, programmers like Stephen must undergo the
career equivalent of an extreme makeover. Traditionally, the profession has
attracted brainy introverts who are content to code away in isolation. With
so much of that work going overseas, though, the most successful American
programmers will be those who master people skills. The industry is hungry
for liaisons between customers and basic programmers and for managers who
can run teams of programmers scattered around the world. While pay for basic
application development has plummeted 17.5% in the past two years, according
to Foote Partners, a consultant in New Canaan, Conn., U.S. project managers
have seen their pay rise an average of 14.3% since 2002.
Finding those high-status jobs won't be easy. Last summer, 34-year-old Hal
Reed was so hungry for a programming job that he answered an ad in the
Boston Globe for contract work at cMarket, a Cambridge (Mass.) startup.
The pay was $45,000 -- barely more than an outsourcing company charges for
Indian labor. But he took it. Fortunately for him, he was able to convince
his new boss quickly that he was much more than a programmer. He could lead
a team. Within weeks, his boss nearly doubled Reed's pay and made him the
chief software architect. "He had great strategic thinking skills," says Jon
Carson, cMarket' chief executive. "You can't outsource that."
To prepare students for the hot jobs, universities may need to revamp their
computer-science programs. Carnegie Mellon University, where Stephen now
studies, has already begun that process. His one-year master's program
focuses on giving students the skills needed to manage teams and to play the
role of software architect. Such workers are the visionaries who design
massive projects or products that hundreds or even thousands of programmers
flesh out.
The key players in the drama, including these two master's students, Stephen
and Deepa, don't have the luxury to wait and see how it turns out. Their
time is now. Deepa graduates in May from the Bombay campus of the Indian
Institute of Technology, a top university nestled between two lakes. Stephen
emerges three months later from the Pittsburgh campus of CMU.
The options they're eyeing illustrate the unfolding map of an industry in
full mutation. A software career is no refuge for the faint of heart. Deepa,
for example, could suffer if the U.S. government moves to block offshore
development or if rocky experiences in foreign lands spark an industry
backlash. And Stephen, if he misplays his hand, could find himself competing
with lowballing Filipinos or Uruguayans.
For now, their stories reflect the moods in their two countries -- one with
lots to lose, the other with a world to win. Deepa is brimming with optimism
about the future, convinced that her opportunities are limited by nothing
more than her imagination. She is thinking not only about the next job but
about the startup that she'll found after that. Stephen, by contrast, is
cautious. Even at 22, he's attuned to the risks of a global market for
software talent. While confident he'll make a good living, he's plotting out
a career that sacrifices opportunities for a measure of safety.
Self-protection, an afterthought five years ago, is a pillar of his
strategy.
Seeking a Niche
It's midday in the windowless basement labs at CMU's Wean Hall. Stephen,
tall and lanky, wearing a white T-shirt tucked into jeans, leans back in his
chair and ponders his future. He signed up for the master's program at CMU
on the advice of a professor in Omaha who told him that graduates with an MS
could land more interesting jobs and make more money. But now the big
recruiters coming onto the snowy Pittsburgh campus -- companies such as
Microsoft and Amazon.com Inc. (AMZN
) -- are hiring cheaper undergrads, he says, and barely giving the masters a
look. Sure, other recruiters come knocking. Banks, he says with a grimace.
Insurance companies. But the idea of working in a finance-industry tech shop
leaves him cold. "I'm not even interviewing," he says.
The 17-year-old hotshot who was ready to skip college and make a mint has
undergone quite a change. He's married, has witnessed the bumps in the world
of software, and plans to establish "an upper-middle-class lifestyle, and
maybe more" as a businessman. His plan is to carve out a niche for himself
back in Omaha. He'll gather three or four colleagues and produce custom
software for businesses in town, from hospitals and steakhouses to law
firms. Omaha is plenty big, he says, for a good business, but it's remote
enough to insulate his startup from offshore competition -- and even from
the bigger competitors in Chicago.
Stephen understands the threat posed by smart and hungry programmers in
distant lands. He was once such a programmer himself. From his senior year
in high school all the way through college, he worked as a freelancer for a
New York software-development company, Beachead Technologies Inc. Geoff
Brookins, Beachead's young founder, spotted Stephen's prize-winning entry in
the 1999 Microsoft Web-site design contest. He called Nebraska, sent Stephen
some work, and was blown away. "He did two months of work in three days," he
recalls. Brookins quickly signed him on at $15 an hour, ultimately paying
him $45 an hour. Like the Indians, Stephen provided a low-cost alternative
to big-city programmers -- but he had an advantage because he spoke American
English and was only one time zone away from New York.
The job let Stephen work on projects that normally would have been far
beyond the reach of a student. One was to create IBM's (IBM
) Web page for its Linux operating-system technology -- a crucial arm of Big
Blue's business. "Stephen was lead engineer on that project," Brookins says.
The student also got to spend much of the summer of 2001 working at
Beachead's office in New York City. It was a fun contrast to Nebraska, he
recalls. But he stopped working for Beachead after he moved to Pittsburgh
last summer.
It was there that Stephen got a strong signal that the prospects were
dimming for programmers. When his wife, Amy, a fellow computer-science
student from Nebraska, began looking for programming work, she came back to
their suburban apartment disheartened. The only available jobs, she says,
"would have paid me interns' rates." She ditched the profession and is now
writing a Christian-themed novel.
Then, Stephen's old boss hammered home the dangers of coding for a living in
a wired world. Beachead's competitors were finding cheaper labor offshore,
and Brookins, to win contracts, had to match them. Last fall, he logged on
to a Web site, RentACoder, a matchmaking service between employers and some
30,000 programmers around the world. There, Brookins found a 27-year-old
Romanian named Florentin Badea, a star from Bucharest's Polytechnic
University and the 11th-ranked programmer on the whole site. Badea was
willing to charge just $250 for a project that would have cost $2,000,
Brookins estimates, if Stephen had done it.
Those same global forces, Stephen admits, could eventually hollow out his
business in Omaha. Already, Indian tech-services outfits such as Infosys and
Wipro are competing head-to-head with U.S. companies in this country. But
Stephen is betting that by working closely with customers, he can whip
bigger firms on quality and service. He says he'll give the venture six
months to a year and then see what happens.
Ultrafast Track
Deepa sees a reverse image of Stephen's worldview. Where the prospects for
U.S. tech grads seem to narrow as they peer into the future, she's looking
down an eight-lane highway. Yet she faces her own set of challenges, she
acknowledges, while sipping tea with her classmates in a breezy open-air
cafeteria on the Indian Institute of Technology's Bombay campus. They don't
want to be cogs in a software-programming factory -- India's role to date.
Instead, they want India to be a tech powerhouse in its own right. "Good
Indian engineers can do good design work, but we need a venture industry" so
Indians can start their own companies, says Deepa. Her pals nod in
agreement.
Deepa is positioned on India's ultrafast track. The country pins high hopes
on the 3,000 students in the six Institutes of Technology. Their alumni are
stars locally and worldwide -- including Yogen Dalal, a top venture
capitalist at Mayfield, and Desh Deshpande, founder of Sycamore Networks and
Cascade Communications. Within this elite, Deepa and her friends are a
rarified breed. They aced the grueling national exams, ranking in the top
0.2% and winning places in the school of computer science. They're known as
"toppers." The challenge for Deepa's small crowd is to move beyond the
achievements of Dalal and Deshpande, who notched their successes for U.S.
companies, and to make their mark with new Indian companies.
That means bypassing the bread-and-butter service giants, such as Tata,
Infosys, and Wipro, that dominate the Indian stage. The jobs they offer,
says Deepa, sound boring. To get their hands on exciting research and more
creative programming, she and her friends are banking mostly on U.S.
companies in India, including Intel, Texas Instruments, and Veritas. This
summer, when Deepa graduates, she'll be a software engineer at the Pune
operations of Veritas Software Corp. (VRTS
), a Silicon Valley storage-software maker. Her pay will start at $10,620 a
year -- plenty for a comfortable middle-class life in India. "I'm living my
dream," she says.
And thrilling her family. Her father, Arun Paranjpe, who grew up in Mhow, a
tiny army-base town in central India, could afford only a bachelor's degree,
which prepared him for work as an officer in India's railways. He regretted
not advancing further and along with Deepa's homemaker mother, he pushed his
two daughters toward advanced professional degrees. So while she studied
Indian classical vocal music for nine years and escaped, when she could, to
the cricket field, Deepa always finished at the top of her class in
mathematics. That helped her land a plum spot in the computer-science
program at Nagpur University.
Now Deepa is ITT-Bombay's star in search technology -- and she's hoping that
this specialty will be her ticket to a rip-roaring career. She routinely
works till 3 a.m. in the department's new 20-pod computer lab, doing
research on search engines. She admits the work at Veritas, at least
initially, will involve more routine database tasks than the cutting-edge
work she's hoping for. But if Veritas disappoints, a topper like Deepa will
have plenty of other options. Both the search giant Google Inc. and the Web
portal Yahoo! are setting up research and development centers in India this
year. Deepa hopes to manage a research lab some day, and ultimately, she
says, "I'd like to be an entrepreneur."
But she's an entrepreneurial revolutionary and family traditionalist at the
same time. It's part of her balancing act. Consider her eventual marriage.
As an attractive, professional woman, she'll make a prize catch in India's
conservative marriage market. Deepa expects she will have an arranged
marriage: Her parents will chose a suitable husband for her from within her
own caste. But she is firm: Her husband would have to be an entrepreneur, or
a tech whiz, and preferably in the same field, "so we can have a common
platform and he can understand my work," she says.
Maybe one day the couple will be able to raise venture money together. While
venture-capital investing didn't exist in India until a few years ago, the
industry is starting to take root. In 2003, India's 85 venture-capital firms
invested about $162 million in tech companies, according to estimates from
the India trade group National Association of Software & Services Cos.
That's up from zero in 1998. Still, it's miles short of the financial
support available to Stephen and his classmates. The 700 U.S. venture firms
poured $9.2 billion into tech startups last year, according to market
researcher VentureOne.
Multicultural Edge
Diversity is another advantage the U.S. has over India. Take a stroll with
Deepa through the leafy ITT campus, and practically everyone is Indian.
Stephen's scene at CMU, by contrast, feels like the U.N. Classmates joke in
Asian and European languages, and a strong smell of microwaved curry floats
in the air. This atmosphere extends to American tech companies. With their
diverse workforces, American companies can field teams that speak Mandarin,
Hindi, French, Russian -- you name it. As global software projects take
shape, with development ceaselessly following the path of daylight around
the globe, multicultural teams have a big edge. Who better than U.S.-based
workers to stitch together these projects and manage them? "These people can
act as bridges to the global economy," says Amar Gupta, a technology
professor at Massachusetts Institute of Technology's Sloan School of
Management.
The question is whether the technology industry can respond quickly enough
to a revolution that's racing ahead on Internet time. Stephen's former boss,
Brookins, frets that the pace could overwhelm the coming generation of U.S.
programmers, including his former Nebraska star. "He's a genius. He's the
future of the country. [But] if the question is whether there's going to be
a happy ending for Stephen, there's a big question mark there," Brookins
says. Stephen is betting that quality and customer service will offset the
cost advantage of having computer programmers 10 time zones away. He still
sees software in the U. S. as a path to wealth -- "though I won't really
know until I get out there," he says.
While Stephen is busy mounting his defenses, Deepa is setting out on the
hard climb to build Silicon India. Much like their two countries, the leader
is looking cautiously over his shoulder while the challenger is chugging
single-mindedly ahead. No matter which way they may zig or zag, both of them
are prepared to encounter rough competition from every corner of the globe.
There's no such thing as a safe distance in software anymore.
By Stephen Baker and Manjeet Kripalani
With Robert D. Hof and Jim Kerstetter in San Mateo, Calif.
Copyright 2004, by The McGraw-Hill Companies
Inc. All rights reserved.
