This is great news. Maybe now stores will actually focus on really providing added value through having people who are knowledgable about their products? Could that actually happen?
Goldman Sachs sees commodities, in particular oil, going up and the price to be paid apparently will be famine in places, already there are shortages in China
These graphs are more and more breathtaking. I can't believe that that's the zero line, and that expansion has continued on such a frenetic pace that is just finally beginning to suck wind.
Anecdotally, I can tell you that here, in the center of Denver, there's ample commercial real estate available. Virtually every other tenant of my nice loft building is a CRE broker or a student living on debt checks. I hope they get by all right.
What does a return to trend here mean for service sector employment?
I hate to be critical of the GraphMeister (because his graphs are that good), but why not say "Construction Spending, Billions, SAAR" on the axis and just list 5, 10, 15, etc.?
The zeros are obviously superfluous since they appear on every line.
"The actual amount of money pulled out of home equity, however, declined more sharply between the third and fourth quarters. In the former $58.3 billion was cashed out while in the October-December period in 2007 $37.8 million was pocketed by homeowners refinancing their homes. This was less than half the amount cashed out in the fourth quarter of 2006"
"Amy Crews Cutts, Freddie Mac deputy chief economist said, "This is real evidence of the upset in the mortgage credit markets as well as the impact of the decline in home values that occurred late in the year. The total effect on home equity withdrawal is deeper than we document with our Cash-Out Refinance Report because at the same time that lenders tightened standards on their prime first mortgages, which is what we have recorded, many of them withdrew from the home-equity lending market or greatly tightened their criteria for new home equity loans. The Federal Reserve's Senior Loan Officer Survey reported that more than 67 percent of large banks tightened lending standards for revolving home equity loans of credit.""
This article was interesting. As was the fact that Freddie Mac had an economist named Amy Crew Cutts. Kind of sounds like her mob nickname like Franky Two Times or Freddy No Nose.
The only thing keeping Sears above the $60-70 range right now is the moronic belief they can make $150 selling off their real estate. Right, selling off retail real estate in old malls and strips during a consumer recession while there's a credit crunch....
"In the former $58.3 billion was cashed out while in the October-December period in 2007 $37.8 million was pocketed by homeowners refinancing their homes."
They mean billion for the latter period as well. If it were million, we'd all be even more worried right now.
This is one of many reasons why the "stimulus" isn't going to make any difference. It just doesn't address any of the specific situations that are going to reduce employment and activity. Adding a few percent to the money flowing through the system might mean Walmart sees an equivalent increase in same-store sales for the period in question, but it isn't going to lead Walmart to sign a new lease and employ a couple hundred people at the big planned shopping center in a half-empty exurb.
My mother walks the same mall everyday in Grapevine Texas. When she first started two years ago she could hardly walk for people in her way. Yesterday she said she was the only person as far as she could see in either direction. If the shoppers in DFW are pulling back we are in trouble. If shopping were an Olympic event Dallas/Fort Worth would take the gold medal hands down.
Bob_in_MA: Any other retailer own their real estate besides Sears, to your knowledge? I am with you on SHLD, Eddie can't unlock value if he has not takeout bid. So it is a twofer.
dk, it really is amazing looking at that graph. Multi-retail construction spending was at $15 billion per year rate in '03, and now it's at a $35 billion rate. Amazing. I wouldn't be surprised to see it fall back to $15 billion (at least in real terms).
sportsfan, I probably should have labeled / plotted it as billions, but the data is in millions - so I kept it that way. I agree that it is confusing. The hockey stick would look the same!
Loved the point about getting rid if all the same old same old chain stores - this has been my biggest complaint about shopping for a long time now - there is no variety in what we are offered; it is all the same cheap crap everywhere.
Retailers, if you want my money right now, it better be quality, made to last, and preferably locally made or sourced. Get a clue.
Shopping is so boring. I've hated it ever since I was a little kid and my mother would drag me out when she went to look at dresses. I'd rather go to the dentist.
Go get'em, Donna. Shoppers of America unite. Meanwhile, I'll worry about other things like how to avoid shopping at all costs. What a miserable hobby/addiction.
This is a easy-money short at $98 right now.
Bob_in_MA
If you can get stock to short ! Ameritrade had no stock for me to short sell when SHLD was at $115 and again at $106. Long dated puts is the only option(pun intended ) available to me.
My mother hates the new styles to and the fact we are buying from Vietnam. We lost 3 people in that war one 15 minutes after he arrived. Flew in and out on the same copter. She flat won't buy it. However nothing made here anymore.
As for architecture we have had a lack of design skill the last 2 decades. Welcome to the world of giant empty boxes.
What other companies has Lampert bought besides KMart?
Asset sales only work if you have potential buyers, and I don't think Home Depot, Lowe's or Dick's sporting goods is gonna be buying anytime soon.
If Lampert was smart he'd use that free cash to buy WMG (Warner Music Group) for the publishing so he can have even more free cash to buy up more distressed assets that have free cash.
We really have an illusion of an economy when MEW is treated as disposable income. It's absurd. Should have been treated like 401k hardship withdrawls, with severe tax consequences. Instead, it got preferential tax treatment allowing the amounts to be tax deductible. I blame the government for this entire debacle.
Not just the CRE total expenditures but there really has been a revolution in construction and construction costs. Concrete tilt-ups and pre-engineered steel and gluelams and more. Construction time has fallen, price per sq ft (sans land acquisition) has fallen. $35b buys a lot more CRE construction in 2008 than it did in even 1998.
G7 are opening the candy store for the wealthy to get in on one more serving of gold... and further divorce CBs from anything tangible behind currency.
in the press release from the tokyo meeting last night BIG BEN (ask not for whom the bell tolls...) and Paulson and other luminaries reached an agreement to sell gobs of gold to provide cash flow to their countries balance sheets.
a spit in the ocean...but enuf to drive prices down for a while and create a buying opportunity.
I don't actually short, I use puts. In Sears case, since the premiums are so high, I've been doing put spreads. So say you buy a JUN 100 and sell a JUN 75, it would cost you net $11.60, if SHLD goes to 75 or lower, you net $13.40, or 115% (25-11.60, it will be closer to 100% because of costs, premiums, etc.)
Clyde, its not a question of others owning real estate, I'm sure others do. But the only thing holding up SHLD right now is this idiotic belief that the real estate is worth $150/share. No one argues that the stores themselves aren't screwed. Once people realize that valuation is nonsense, the shares will fall like a rock.
barely, there is a lot of policy and regulation that we got wrong in the run-up to this current situation. I think that's actually been the biggest contributor and mistake, as you rightly point out. Regulation doesn't work well retroactively, though, and tightening policy during the bust is salt in a wound. There's no pressure to put it in place during the boom, though. What to do?
mock turtle, thanks for the link. I hope I don't offend anyone here by saying it, but I'm actually glad they're unloading some gold in an effort to increase the appeal of financial assets. Not so much for the IMF's sake, since it's probably not in its favor, but to try to encourage people back into currencies that can be affected by traditional policy means.
Praetoriain-Software engineering was never a good fit for outsourcing: it requires highly skilled professionals (which are available in much more limited numbers abroad than most business people assume) and the most difficult part of it is exactly what outsourcing hurts the most: communication. Without a constant feedback loop between the consumer and producer of software (ideally with physical presense/whiteboarding) you are almost guaranteed to end up with crap. Teleconferencing doesn't do it.
I disagree. Software development can be quite successfully offshored. Notice the distinction. Outsourcing and offshoring are two very different things. Outsourcing just about considers it as a manufacturing process whereas offshoring, from my perspective, means incorporating best of breed offshore resources into the development process. The key is to have experienced development personnel at hand no matter where your development shops are located.
This is not just theoretical argument. I have been involved in the offshore software engineering game for more than 30 years and have successfully managed the offshore development of systems that took more than 300 man-years to complete.
As with everything else, one needs to understand the culture, education level, demographics, etc of the place where one establishes such a center and then gradually build up the expertise to make it successful. It is not just a matter of using a boilerplate methodology as most assume when they enter the game. It is a matter of making a long-term commitment to the place and its people otherwise turn-over will kill you.
In the age of globalization, it is imperative for an export oriented business to think of itself as a distributed organization with operating islands efficiently connected and effectively cooperating to develop their business objectives. Software development is just one small aspect of this strategy. These principles are even more important for business development and marketing.
Looked at in this light, I dont expect much of that the offshored business to ever coming back. It simply makes no sense. Once the expertise is developed and hasnt priced itself completely out of the market, there will be very little incentive to bring it back. In fact, quite in contrast, the full recognition of this inevitable process will actually accelerate offshoring into the faster expanding markets of the world. Multinationals have recognized these facts for many years. It is simply the full recognition of the man in the street that has lagged.
As I mentioned yesterday, I firmly believe that the combination of automation and offshoring will put extreme pressure on wages in the G7 over the next few decades as a secular trend and this is why I dont expect an early and significant recovery.
RE, totally agree. I've spent a lot of time working with software engineers abroad to the point of making the significant mistake of giving my cell phone number to TCS. I've also spent a lot of time working with American CS grad students from the "top" schools. There's a significant distinction, and not in the direction one might hope.
Not just the CRE total expenditures but there really has been a revolution in construction and construction costs. Concrete tilt-ups and pre-engineered steel and gluelams and more. Construction time has fallen, price per sq ft (sans land acquisition) has fallen. $35b buys a lot more CRE construction in 2008 than it did in even 1998.
Rob I'd have to respectfully disagree. Buildings take about the same amount of time to build if not longer. Yes it seems crazy but its true. Even with all the advancements in technology they take longer. Labor (union) seems to keep raising at a 5% clip and recently materials have spiked in real terms.
Another example of how this slowdown will have little to do with the classic inventory cycle.
We have overcapacity in retail: space, employment, and construction employment. It was caused largely by MEW and a decline in the savings rate, not by rising incomes.
Yet, economists continue to point to the stability of incomes as reason to expect a mild recession.
The question they are not asking themselves is this:
Picture the U.S. with a 7% savings rate and 1997 levels of MEW. What will this economy look like?
the CBs keeping gold now is kinda like closing the barn door after...etc.
it will be interesting to see what their action does to price.
as is obvious from some of my posts i am not a professional, and most of my plays have been bonds, and PMs...im a small fish.
but hey... whoooha look at what platinum has done lately... was up from 1834 ny closing Thursday to 1881 fri close and Rhodium (aircraft turbines etc) takes off again!
commodities price appreciation has been exhilarating and scary
Rob I'd have to respectfully disagree. Buildings take about the same amount of time to build if not longer.
I don't deserve none of this "respectfully" crap. I oversimplified and got caught and called on it. Concrete products are way up, lumber down and anything to do with labor or planning is steady to up in both time and cost. I was talking about "pour tilt cap frame out and move on" time. You may be paying more per hour but for less hours. Even flame cutting and welding is getting to be the exception. The trusses line up first time. And those gluelams and engineered I-beams are awesome.
And then there's my personal hate object; Walmart. I may hate them but the way they build a new store is a sight. From the preliminary lunches with city council members to the political machine to the land use lawyers to the pre-staged construction teams the Huns were amateurs. You have to go to nature's army ants to find a better scorched earth and occupation force.
im going to log off and go vote... but one crazy idea first.
what about if none of this is by accident????
what about if this systemic crisis is by design?
what leader or policy maker would like to tell americans that we... as a society that comprises less than 10 percent the worlds population, consuming more than 75 percent of the worlds energy and other resources...HAVE GOT TO CUT BACK...and conserve and save and live more efficiently.
WHO? not one politician or leader that expects to rise up the political or corporate ladder (club for growth, ha!) or (the west is the better and more deserving than all the rest of the worlds people.)
it just might be that this meltdown is the G7 leaders preferred way of dealing with the undeniable limits to consumption..energy and all other resources, rather than tell the "unwashed masses" the distasteful truth about limits and have us react to denial????
smurf | 02.09.08 - 12:57 pm | #
"shouldn't a slowdown in construction help keep commodity prices lower?"
You won't find domestically produced lumber prices going much lower. They are at or below cost already. Mills are curtailing and closing across the US and Canada. Good time to buy mill equipment by the ton.
~
Rob regarding Walmart building stores. One of the more remarkable things I recall reading (3 or 4 years ago) was a Walmart destroyed by a twister near Petersburg, VA in july/august. They had all the permits for a Sams Club about to be built a mile or two away. Switched gears and rebuilt a superstore there. Opened before Xmas. Same year.
The thing about offshoring software and software development is that once you lose control of the product YOU LOSE CONTROL. These systems are so ingrained into the core of your company that now you are now at the total mercy and the whims of an outsider. There is nothing in this world to stop or prevent that outside company from eventually just taking over your company.
Those that don't believe that are so naive they deserve what they will finally get. Watch it happen.
Our company makes a market in the stored value cards for national and regional retailers (secondary gift card market). I can tell you firsthand, there are a couple on this list that are not going to come through this.
We sell the stored value directly to consumers, at a discount to face. There are some on this list that you can't even give away. That said, our business has been strong in Jan/Feb. - selling what is effectively discounted cash.
A big problem with many retailers it that they took their eye off the ball of customer service. They hired don't know/don't care sales people who are always half asleep. They slacked off security and became vulnerable to theft by employees and corruption by executives.
All of that made them vulnerable to online competitors that don't have these problem. I wrote yesterday about the bankruptcy of Fortunoff, a semi-upscale jewelry company, last week. These problems ran down that chain over years.
About the 8th time you ask: "Do you have any _____" and are told "If we do, it's over there some where" you tell yourself maybe you should stay home and buy it online instead.
Pearson "Picture the U.S. with a 7% savings rate and 1997 levels of MEW. What will this economy look like?"
I don't expect the savings rate to appreciate much. However, the 7% you suggest that might be saved will instead be gobbled up by debt service and not spent on consumption.
Went shopping last night at Target and Dicks. I don't do much shopping outside of the grocery store. I mostly buy online. I live in Maryland outside of DC. I live in the middle of something like the 5th richest county in the US.
I was surprised at how empty the stores were. More than half the open cash registers had no one buying. I saw as many teenagers running around as adults. These stores must be losing money.
I got a gift Dicks gift certificate for christmas and wanted to use it since I was near the store. I couldn't find anything to buy. I guess everything I need, I already have. I ended up buying some sneakers. I figure I'll need new sneakers sooner or later and my feet stopped growing 25 years ago.
I took a large sum of money out of a savings account to buy down my mortgage. The interest rate was cut by 1.5% after the fed cuts and now it makes more sense to buy down my mortgage than to save it. Anyway, I got an email from a VP of the bank asking why I took the money out. I've never gotten that before after large withdrawals. I guess the banks really are hurting. If they want me to keep my money there, cutting the rate 1500bp isn't a good idea.
Another bank was all over me when a CD recently matured. They really wanted the money to stay with them. They're going to be unhappy when my CDs mature. Their current rates are too low for me to bite.
A big problem with many retailers it that they took their eye off the ball of customer service.
Oh, I think some retailers have excellent customer service. At the local mall here, a guy managed to waltz out of a Best Buy with six stolen 19" flatscreen TV's (three trips, one under each arm) and none of the associates gave him a hassle.
California, of course, will take a number of interesting bank shots from this. Prop 13 meant cities can no longer rely on property taxes to cover their bills, so they compete for sales taxes. In the competition, many offered "front-end loaded" tax incentives to sweeten retail development, hoping to recover the money down the road from the expected sales tax revenue stream. Now, with the risk of that tax stream not coming into being, bond insurance failing, and the property values falling, everything that could go wrong just might.
RE, I have to say that I have been involved in "offshoring" for a long time too. My experiences are the exact opposite. A friend of mine is also in charge of the same thing for a MAJOR bank/finance institution here. Her feedback is crap too.
The constant feedback loop is very true. Perhaps you are doing big-company projects that move at a time scale the is longer, and have requirements that have long defined lead times. But innovative fast-moving development has never worked for me with off-shoring. And there was no cost savings in my budgets at all.
It isn't the corporate boom it is supposed to be. In fact, said large bank is now moving a lot of the development back because of those very issues.
Ipodius,
Given the right approach IMO, offshoring software development will be just as successful or unsuccessful as onshore development. Clearly there are additional challenges in offshoring especially relating to management, communication and methodology.
I have seen success for structured, long-term and strategic projects as well as development/evolutionary design environments. Despite the reputation of the dot com era today, there was never a more challenging development environment than during that period and I consulted and was involved in a number of projects and companies that were very successful with offshoring in an extreme quick delivery environment, some of them large and some of them relatively small companies.
I contend that it is in most cases the commitment of the organization to a new development process that makes or breaks this approach.
I am not claiming that offshoring is the universal corporate salvation for its IT woes. As I mentioned in my prior post, I believe it is simply a necessary evolution of the business process in a globalized environment. We will need to draw on the most cost effective, best of breed talent wherever it is located and in order to successfully do that we need processes in place that can make that happen successfully. This doesnt happen overnight as it involves increased complexity and not everybody will be successful with it. However, those that will not be successful will eventually be left behind!
Big deal. With the growth in online retailing wan't this inevitably going to happen? Its like saying that the problems with the record companies means there won't be any music anymore.
You've got all the patter down, but our corporate experience discovered that if there's any "R" (research) in the software development, you may as well keep it home. Massive turnover rates as employees treated the job as equivalent to another class at I.I.T.; as soon as they were up-to-speed with a key skill, they left for another company. Average tenure was around 7 months.
Wasted lots of good time and money. We eventually shut down the India office.
"Given the right approach IMO, offshoring software development will be just as successful or unsuccessful as onshore development." Luckily you tossed in the "IMO", or I would have suggested that your facile equivalence of on/offshore software development and massive overuse of managerial buzzwords suggests an overconfident consultant, paid up-front.
Sorry RE, its not gonna fly. I was involved in the IT effort(s) for many, many years. Your buzzspeak sounds good but it is propaganda at best (and it goes down from there).
It is a fad profitable for you, nothing more. Either this country makes it investing in its own workers and making a success of it else we (and the companies) will be left behind.
To go one step further, should the corps put everything elsewhere the US corp itself becomes only a shell shuffling staged progress reports all sugar-coated and crafted toward total dismal failure. And that, of course, is the object. You are being naive to think otherwise.
Eventually, out the corp management goes correctly identified as useless incompetent overhead and replaced by those who do the actual production, manufacturing, marketing, etc, etc.
Here is the problem. Factories represent a fixed capital cost alone with the skills of the workers. It is not easy for a third world country to get the capital to start, normally.
On the other hand, intellectual skills say entry level programming can be taught in mud hut with generator powered PCs. Once the entry level person can be productive, then there are no jobs for entry level programmers in the developed country develop skills and experience they move up the food chain, hollowing out the worker base at the developed country.
Now if said developed country's leadership the presumes that its work force is on it's own, then there is a disaster waiting to happen. Said country loses both the factories and the skills.
Granted it will take time for India and China to catch up, but once they have the factories in place they have already paid the price for entry into developed country status. Intellectual skills will follow because the capital cost for entry is low.
Massive turnover rates as employees treated the job as equivalent to another class at I.I.T.; as soon as they were up-to-speed with a key skill, they left for another company. Average tenure was around 7 months.
As I mentioned before, It is a matter of making a long-term commitment to the place and its people otherwise turn-over will kill you. Managing turnover is the key to successful offshoring. Your experience is not atypical which is why I mentioned it upfront. Unless you understand what motivates and keeps people at your organization which may vary from place and culture to culture, there is no way that you will not be treated as glorified training organization. This is particularly true in India today but applies to any development shop around the world to some degree. In fact this even happened to me in the U.K. in the early 80s in my first offshore job. Anybody that offshores simply because of a certain spread in rates deserves their fate. The game on the ground has changed.
As to the overconfident consultant label that is easy to dispel. I am proud to say that I actually executed these projects A Z and some of them are still available in the marketplace today. So no smoke and mirrors but the real deal.
Hazard, To go one step further, should the corps put everything elsewhere the US corp itself becomes only a shell shuffling staged progress reports all sugar-coated and crafted toward total dismal failure. And that, of course, is the object. You are being naive to think otherwise.
It is not a matter of putting everything elsewhere. It is a matter of competitiveness for the organization. The key for any organization in this tough global marketplace is to take advantage of the best resources at the best price. When it concerns shoes or sweaters, nobody questions the premise. However, as soon as it concerns people then the story quickly changes.
The fact is that in this new world order there is no choice in this matter however unpleasant it may be. I firmly believe that organizations that do not adopt strategies along these lines will not be competitive over the long haul and that doesnt help anybody.
Just like facing realities about the current downturn and where it will lead, I believe that facing the facts regarding a globalized labor pool for globalized business is essential to understanding the future. It is not a matter of liking it or not, it is simply a reality. As I have extensive personal experience in this field, I thought Id contribute my views and expectations.
RE, I have also executed many projects A to Z (as you say). And have used talent from around the world. Some of these projects were very successful, some were so-so. Spare me the buzz.
However forget all that, it does boil down to one thing. Either we support the citizens of this country or the country will go down the tube. Its as simple as that.
Make no mistake about it, these companies in China, Russia, etc are not your friend. Instead they are playing you as the naive simpleton (don't mean to be so blunt but its true), ready to give it all away. To the lowest bider at that. They want it ALL, not just some esoteric part, THEY WANT IT ALL and are going for it and, unfortunately, are getting it.
Place all the technical, scientific and manufacturing jobs elsewhere then this country rapidly becomes nothing. Just a bunch of maxed-out credit card holders no longer able to purchase a loaf of bread. At which time the corps turn elsewhere to sell their products with their new owners and management.
I've read that some of those who originally supported the outshoring are finally beginning to see that gosh this wasn't such a good idea after all. I mean an unemployed factory worker in SC could have told them that YEARS ago.
And you? Eventually you too will be replaced and you can then tell everyone how great it is that you no longer can find any kind of work. Thats coming, watch. I've seen it and so will you.
Hazard,
I dont think Ive ever been called a simpleton. But here it is.
I am not worried about my job as at this point in my career it has morphed into being an investor primarily and a consultant secondarily.
As an investor, I am trend watching and anticipating events based on my life experience. There is a reason for Jim Rodgers investment strategy and I believe that it is reasonably in line with the trends that I anticipate.
I expect the great leveling of living standards between the G7 and foremost China but secondarily India within the next two decades. Ive outlined in my recent posts some of the reasons why I believe that this is inevitable unless we experience a significant war or an environmental disaster. I am personally but a very small part of that chain of events.
Norka - sorry back so late. We are constantly evaluating retailers and when demand for their wares falls out of favor, the discount rates are increased- or they are no longer considered for purchase.
Fridson did a piece using our data and analysis with respect to high-yield risk. Interesting application of the data I thought.
Personally I don't have a problem either, retiring with a good income rather than continuing on with this charade (as I saw it). And so, my life goes on as before.
But you know, I don't give a rip about China or where ever. Why should we give away our technology, our know how, our jobs? Many people have moved here from other countries and have done very, very well. And good for them. What helps them helps all of us.
I really do think the American public is beginning to wake from a long slumber and is finally beginning to see and realize just what these so-called global policies have done to us as an entire nation. And with that awakening, watch out. The repercussions will be enormous.
You slyly avoided my point, slipping the problem into what sounded like just teething problems of a green management in an unfamiliar culture. That we were not: the CEO had successful experience moving IT offshore to India from a previous firm, and the key top personnel from that effort led the new India operation. So your breezy implication that we just didn't "understand what motivates" those darn Indians doesn't wash.
Again, the problem was the domain: rather than pure IT, there was a large component of research in the development effort. Communication requirements, difficulty in hiring and retaining key personnel, rising costs, and poor quality education for research tasks (if it wasn't spec'd to 200 pages, they floundered: rapid prototyping left them flummoxed) led to this being a cash drain with poor-quality and late-arriving outputs.
As to the overconfident consultant label that is easy to dispel. I am proud to say that I actually executed these projects A Z and some of them are still available in the marketplace today. So no smoke and mirrors but the real deal.
No, it's not. Your lack of acknowledgment of gray areas, insisting this is all black-and-white, means you have a dangerous blind spot that will cause someone to lose a lots of money if you are hired for the wrong task. I'd update your banter to include more balance, but I guess consultants sell confidence as much as ultimate correctness.
I dont appreciate your characterization of my post as sly. I believe that a productive interchange involves a little more decorum.
If you have a problem as severe as the average tenure was around 7 months there is no question that you had a fundamental problem in your offshoring approach. Similar to people walking away from their houses and blaming it on irresponsible buyers, blaming high turnover rates on employees or a culture is not facing the real issue.
But let me address in particular the teething problems of a green management in an unfamiliar culture issue. There are a number of pitfalls in offshoring and the easiest one to fall into is outsourcing to an unfamiliar organization. Gathering from your post it looks like that was not the case.
Here are another set of pitfalls primarily related to turnover and my guess is that your CEO fell into most of these.
1.\t Located the development center in one of the offshore hotspots like Bangalore, Mumbai, Hyderabad, Chennai or Pune and possibly even into one of the premier campuses at these locations. ==> Deadly easy to jump to another job
2.\tLocal management in India was primarily and likely exclusively comprised of Indian born managers. ==> Reinforces Indian hierarchical management styles and signifies lack of career path into the main organization
3.\tHired resources primarily directly from college because of low costs. ==> As soon as base marketable skills are attained (bullet point resume), the employee looks for greener pastures.
4.\tHired primarily males. ==> In India women have much better retention rates. On one of my projects, I have several women with service records in excess of 15 years, all one the same project. I have no men with such long-term records.
5.\tProvided no well defined career path with clearly marked incentives into the main organization in the U.S. ==> For many Indians it is a key career achievement to have worked abroad even if they later return home.
Id be curious if you would tell me to what degree the above matches your organizations experience. My guess is at least three out of five.
Agree that decorum is typically best, but as I was failing to hear a direct response to my statement, and as I kept reading rather alarming black-and-white claims, I do stand by my characterization of your messages.
As I am a scientist, and was not in management, I cannot give you a numerical count, as I was not privy to the inner working of the organization. However, in fairness, I think you are likely correct in at least three, from my observations.
That said, this is all tactical: suggesting that a better-managed organization could have been successful (via better retention). My feeling is that the error was strategic: and that the tactical pain-point that hit the wall first was retention. Fix that, and the disaster is delayed, not eliminated.
The real issue is that most modern management has no idea how to manage software research, and wants to treat it as just another cost center, with parts that can be uprooted and placed anywhere to save X% on cost, with tenure unimportant, all cogs replaceable. Many IT departments are easily outsourced because their activities can be treated that way; but research has a way of falling apart, with the cost-savings appearing immediately (earning huge bonuses), but the problems appearing years later, for the next CEO to figure out (earning their own huge bonuses).
DCRogers,
I am not certain what you mean by strategic in that sense. If the strategy was purely to save a few bucks on the next few projects and then shift research and development to the next hotspot, I agree.
However, that was not my point in any of my messages. My point was that software engineering can be quite successfully outsourced and by my personal experience, a few key players in the field like IBM, HP and Microsoft will confirm this. IBM in particular has done it for a very long time, very successfully even in the research realm.
Obviously, none of these players entered India for the short haul. They established long-term development centers where expertise was developed and retained, generally not only because of cost savings but also, with time, because of familiarity with the subject area, be it research or product development.
I stand by my statement that export oriented business [needs] to think of itself as a distributed organization with operating islands efficiently connected and effectively cooperating to develop their business objectives. This doesnt imply in any way that tenure isnt important. Expertise cannot be developed quickly no matter where it is gained. My point was that an organization that wants to successfully operate in the global marketplace NEEDS to take advantage of resources from around the globe wherever it is available at the right price.
If, as in the case of processor design, Intel found that their best resources were in Israel, it made sense to establish the Mobile Platform Group in Haifa and not in San Jose.
It is even more important for businesses that derive significant revenue from international sources. It is hugely important to market a local presence in order to thwart the protectionist boondoggle prevalent not only in the U.S.
As an organization it then becomes an issue of how to effectively and efficiently take advantage of these operating islands and mold them into a cohesive unit. This I think is the real challenge for business today.
As a side note, I do think that SOA and object oriented development are very conducive to distributed development because subject area expertise can be leveraged at the component level and therefore the big picture understanding becomes far less important.
RE, the way to look at is who gains? You with your outsourcing projects or your US or your non-US clients?
With each new project that you complete do your US clients turn over a bit more technology, lose a little more control on each process turned over, resulting in losses of US jobs? In that case, you lose.
Is what you are implementing elsewhere resulting in industries in other countries eventually being able to effectively compete with your US client. In that case, you lose again.
Bottom line - are you buying or selling? If you are buying at a loss as well as selling at a loss you CAN NOT win. And thats where YOU are and thats what YOU are pushing.
The next time you are in meetings with your non-US clients, think a moment. These folks aren't really interested in your dinky IT project. They want the whole enchilada. ALL the technology, manufacturing, marketing, industry control, and finally ownership. BTW, its a life or death issue with them, a fight to the finish, you're in a war and don't even know it. I'm amazed they keep a straight face while talking to you while internally marveling at your simplicity and naievette (sp?).
You are giving it all away for a bit of cash while losing your integrity, your honor, your country. And the sad thing is you don't even realize it. Be assured though, your non-US clients understand whats ultimately going on and understand you yourself very, very well.
Hazard,
I dont think it is particularly positive to view the world in terms of them and us. Nationalism/Patriotism is as badly exploited as religion for questionable purposes. I think Einstein said it very well: Nationalism is an infantile disease. It is the measles of mankind.
I have lived in many places around the world and have friends all over. These people are not exploiting me in any shape or form. We are all trying to make the most of this thing called life.
We share a common playground called the earth and hopefully can collaborate for our betterment. The West has exploited the East for several centuries, I dont think it has a prerogative to its privileged position or for that matter its superior standard of living.
Here are few more choice quotes from some mature thinkers:
Patriotism is a religion, the egg from which wars are hatched. Guy de Maupassant
Patriotism is a menace to liberty. Emma Goldman
Patriotism is a pernicious, psychopathic form of idiocy. George Bernard Shaw
RE, we (the US) are not the worlds keeper nor its savior.
We have problems, severe problems. There are entire states that are absolutely devastated thru the very ideas that you preach.
Take a look at Mich or SC or Ohio to name a few. A lot of jobless, homeless, just plain broken people. Look at the items for sale on Ebay, many people are selling their worldly possessions for a few $$$s so they can eat. I mean it has come to that.
And I'm not talking about people losing their homes thru speculation or buying a 2nd home w/o selling the 1st or never being qualified in the 1st place. Many others in different situations are going thru some pretty tough times (thru no fault of their own).
How long do you think this situation can or will continue? Not very much longer (that you can count on), then you see the explosion. Believe me, there are many, many people in this country (a majority) not even remotely in sympathy with your thoughts.
I'm not talking about living in a void nor am I saying ignore the rest of the world. But the fact is we are going to have to take care of ourself first before we can even think of helping others.
It isn't a case of nationalism/patriotism. It is a case of national survival. A war as I suggested. Eventually, it will dawn on you.
Simply put, you need to get out, tour the US a bit, look and talk to people (not the intellectuals for lack of a better definition), go thru some of the down areas (and there are some horrible situations - don't mean ghettos either, far from it - if you know where to look, search for them you'll find them). You'd understand what I'm saying if you did.
America is a generous country and gives and gives. But when there is no more to give there is no more.
The very word "outsource" itself denotes a mere tactic... (and as a side-note, we can manage locations: our company, successfully, has many locations with talent that develop software). It is when companies put cost in front of talent that the downward spiral begins (and the top executive bonuses [and consultant pay] seems to increase).
You end with: "As a side note, I do think that SOA and object oriented development are very conducive to distributed development because subject area expertise can be leveraged at the component level and therefore the big picture understanding becomes far less important."
As a long term user of OOD, proponents such as yourself are my worst enemy. None of this nasty "big picture understanding" to put a project a risk... plugging distributed crap in at the last minute is my greatest nightmare.
Sirens like you with upper management's ear have destroyed more projects than I can count. Don't ask me for more "decorum" when I hear your sweet consultant-management speak. I've quality developer friends who've lost their jobs from such bad advice. The bonuses have been paid, the consultant fees paid, and the software that resulted is too-often crap.
Just so I don't come off as a crank, so what do I support for research software? Hire a visionary to run it: tight team: if they can detach units to other places, so be it. If not, don't. Rapid prototyping, rapid (internal) release schedule: one every 1-2 weeks. Buy a startup that works, if you can; leave it be, don't merge it, other than ops and sales. (These are your natural "operating islands".) Keep management and consultants away from it.
While we disagreed, I appreciate your directness, and that you never stooped to my level of discourse!
I am not the nationalist that Hazard is -- but there is some truth to his words; mercantilism is alive and well in the world, and the US is at some economic risk from it, with the pain felt at the lowest rungs. While I am less worried then he (as I think the stern hand of the market will steal wealth from any who try to manipulate so obviously as the SWFs), I do wonder what the next generation will do, and what we should teach them.
Somehow, "keep your FICO score good" seems a poor modern substitute to teaching moral enlightenment or social justice...
My best regards to you and Hazard for a lively weekend conversation!
As was born and raised in Detroit (left at 18 for California), I certainly feel both your love and pain for the great and lost state of Michigan, and the anger the people there feel from the broken promises of globalization.
I believe we have allowed most of the external costs of globalization to be borne by the lowest rungs of the ladder, and most of the benefits collected by the highest. I have seen, and feel, the anger you speak of.
Those who speak of globalization as a bloodless, abstract, economic game, with abstract "shared benefits", would do well to remember that there are non-abstract losers, and we should be grateful for what they have borne for us, and try to help them share some benefits as we move forward. (That "sharing" idea goes double for the top executives that won twice, getting so much of the gold, then the tax cuts.)
we need more walmart stores
This is great news. Maybe now stores will actually focus on really providing added value through having people who are knowledgable about their products? Could that actually happen?
Goldman Sachs sees commodities, in particular oil, going up and the price to be paid apparently will be famine in places, already there are shortages in China
Why the price of 'peak oil' is famine - Telegraph
shouldn't a slowdown in construction help keep commodity prices lower?
These graphs are more and more breathtaking. I can't believe that that's the zero line, and that expansion has continued on such a frenetic pace that is just finally beginning to suck wind.
Anecdotally, I can tell you that here, in the center of Denver, there's ample commercial real estate available. Virtually every other tenant of my nice loft building is a CRE broker or a student living on debt checks. I hope they get by all right.
What does a return to trend here mean for service sector employment?
Doubling time of three years starting mid 2003. What's wrong with this picture? Sure looks like a blowoff to me.
CR,
$35 trillion last year in multi-retail construction spending ?!?
Okay, $35 billion. Those zeros are confusing to simple minds like mine.
Sportsfan,
Billion, not trillion, thankfully. It's not absolutely preposterous, just obscene.
sportsfan- I believe 35,000 x 1 million is 35 billion not 35 trillion.
AOTC, yeah, I did notice that finally.
I hate to be critical of the GraphMeister (because his graphs are that good), but why not say "Construction Spending, Billions, SAAR" on the axis and just list 5, 10, 15, etc.?
The zeros are obviously superfluous since they appear on every line.
Cash-Out Refi's Declining in Both Numbers and Amounts
"The actual amount of money pulled out of home equity, however, declined more sharply between the third and fourth quarters. In the former $58.3 billion was cashed out while in the October-December period in 2007 $37.8 million was pocketed by homeowners refinancing their homes. This was less than half the amount cashed out in the fourth quarter of 2006"
"Amy Crews Cutts, Freddie Mac deputy chief economist said, "This is real evidence of the upset in the mortgage credit markets as well as the impact of the decline in home values that occurred late in the year. The total effect on home equity withdrawal is deeper than we document with our Cash-Out Refinance Report because at the same time that lenders tightened standards on their prime first mortgages, which is what we have recorded, many of them withdrew from the home-equity lending market or greatly tightened their criteria for new home equity loans. The Federal Reserve's Senior Loan Officer Survey reported that more than 67 percent of large banks tightened lending standards for revolving home equity loans of credit.""
This article was interesting. As was the fact that Freddie Mac had an economist named Amy Crew Cutts. Kind of sounds like her mob nickname like Franky Two Times or Freddy No Nose.
The only thing keeping Sears above the $60-70 range right now is the moronic belief they can make $150 selling off their real estate. Right, selling off retail real estate in old malls and strips during a consumer recession while there's a credit crunch....
This is a easy-money short at $98 right now.
Cal,
"In the former $58.3 billion was cashed out while in the October-December period in 2007 $37.8 million was pocketed by homeowners refinancing their homes."
They mean billion for the latter period as well. If it were million, we'd all be even more worried right now.
Cash-Out Refinance Share Falls in Fourth Quarter. - News Archive - Freddie Mac
This is one of many reasons why the "stimulus" isn't going to make any difference. It just doesn't address any of the specific situations that are going to reduce employment and activity. Adding a few percent to the money flowing through the system might mean Walmart sees an equivalent increase in same-store sales for the period in question, but it isn't going to lead Walmart to sign a new lease and employ a couple hundred people at the big planned shopping center in a half-empty exurb.
My mother walks the same mall everyday in Grapevine Texas. When she first started two years ago she could hardly walk for people in her way. Yesterday she said she was the only person as far as she could see in either direction. If the shoppers in DFW are pulling back we are in trouble. If shopping were an Olympic event Dallas/Fort Worth would take the gold medal hands down.
Houston is not nearly as rosy as some would have you believe either. The CRE in da burbs is getting ridiculous.
Bob_in_MA: Any other retailer own their real estate besides Sears, to your knowledge? I am with you on SHLD, Eddie can't unlock value if he has not takeout bid. So it is a twofer.
dk, it really is amazing looking at that graph. Multi-retail construction spending was at $15 billion per year rate in '03, and now it's at a $35 billion rate. Amazing. I wouldn't be surprised to see it fall back to $15 billion (at least in real terms).
sportsfan, I probably should have labeled / plotted it as billions, but the data is in millions - so I kept it that way. I agree that it is confusing. The hockey stick would look the same!
Best Wishes.
should be "no takeout"
Loved the point about getting rid if all the same old same old chain stores - this has been my biggest complaint about shopping for a long time now - there is no variety in what we are offered; it is all the same cheap crap everywhere.
Retailers, if you want my money right now, it better be quality, made to last, and preferably locally made or sourced. Get a clue.
Shopping is so boring. I've hated it ever since I was a little kid and my mother would drag me out when she went to look at dresses. I'd rather go to the dentist.
I hope this means the end of cookie-cutter shopping centers filled with the same chain stores in every city of the country.
"Get a clue."
Go get'em, Donna. Shoppers of America unite. Meanwhile, I'll worry about other things like how to avoid shopping at all costs. What a miserable hobby/addiction.
This is a easy-money short at $98 right now.
Bob_in_MA
If you can get stock to short ! Ameritrade had no stock for me to short sell when SHLD was at $115 and again at $106. Long dated puts is the only option(pun intended ) available to me.
-K
Donna,
My mother hates the new styles to and the fact we are buying from Vietnam. We lost 3 people in that war one 15 minutes after he arrived. Flew in and out on the same copter. She flat won't buy it. However nothing made here anymore.
As for architecture we have had a lack of design skill the last 2 decades. Welcome to the world of giant empty boxes.
RE: Sears holdings
What other companies has Lampert bought besides KMart?
Asset sales only work if you have potential buyers, and I don't think Home Depot, Lowe's or Dick's sporting goods is gonna be buying anytime soon.
If Lampert was smart he'd use that free cash to buy WMG (Warner Music Group) for the publishing so he can have even more free cash to buy up more distressed assets that have free cash.
We really have an illusion of an economy when MEW is treated as disposable income. It's absurd. Should have been treated like 401k hardship withdrawls, with severe tax consequences. Instead, it got preferential tax treatment allowing the amounts to be tax deductible. I blame the government for this entire debacle.
Why does every CRE graph look like the .com stock charts from 1999? Or the HB stock charts from July 2005?
Not just the CRE total expenditures but there really has been a revolution in construction and construction costs. Concrete tilt-ups and pre-engineered steel and gluelams and more. Construction time has fallen, price per sq ft (sans land acquisition) has fallen. $35b buys a lot more CRE construction in 2008 than it did in even 1998.
G7 are opening the candy store for the wealthy to get in on one more serving of gold... and further divorce CBs from anything tangible behind currency.
in the press release from the tokyo meeting last night BIG BEN (ask not for whom the bell tolls...) and Paulson and other luminaries reached an agreement to sell gobs of gold to provide cash flow to their countries balance sheets.
a spit in the ocean...but enuf to drive prices down for a while and create a buying opportunity.
the end of the old world order must be near.
G7 approves IMF gold sales - Italy econ minister
| Business News
| Reuters
sk,
I don't actually short, I use puts. In Sears case, since the premiums are so high, I've been doing put spreads. So say you buy a JUN 100 and sell a JUN 75, it would cost you net $11.60, if SHLD goes to 75 or lower, you net $13.40, or 115% (25-11.60, it will be closer to 100% because of costs, premiums, etc.)
Clyde, its not a question of others owning real estate, I'm sure others do. But the only thing holding up SHLD right now is this idiotic belief that the real estate is worth $150/share. No one argues that the stores themselves aren't screwed. Once people realize that valuation is nonsense, the shares will fall like a rock.
barely, there is a lot of policy and regulation that we got wrong in the run-up to this current situation. I think that's actually been the biggest contributor and mistake, as you rightly point out. Regulation doesn't work well retroactively, though, and tightening policy during the bust is salt in a wound. There's no pressure to put it in place during the boom, though. What to do?
mock turtle, thanks for the link. I hope I don't offend anyone here by saying it, but I'm actually glad they're unloading some gold in an effort to increase the appeal of financial assets. Not so much for the IMF's sake, since it's probably not in its favor, but to try to encourage people back into currencies that can be affected by traditional policy means.
From prior thread:
Praetoriain-Software engineering was never a good fit for outsourcing: it requires highly skilled professionals (which are available in much more limited numbers abroad than most business people assume) and the most difficult part of it is exactly what outsourcing hurts the most: communication. Without a constant feedback loop between the consumer and producer of software (ideally with physical presense/whiteboarding) you are almost guaranteed to end up with crap. Teleconferencing doesn't do it.
I disagree. Software development can be quite successfully offshored. Notice the distinction. Outsourcing and offshoring are two very different things. Outsourcing just about considers it as a manufacturing process whereas offshoring, from my perspective, means incorporating best of breed offshore resources into the development process. The key is to have experienced development personnel at hand no matter where your development shops are located.
This is not just theoretical argument. I have been involved in the offshore software engineering game for more than 30 years and have successfully managed the offshore development of systems that took more than 300 man-years to complete.
As with everything else, one needs to understand the culture, education level, demographics, etc of the place where one establishes such a center and then gradually build up the expertise to make it successful. It is not just a matter of using a boilerplate methodology as most assume when they enter the game. It is a matter of making a long-term commitment to the place and its people otherwise turn-over will kill you.
In the age of globalization, it is imperative for an export oriented business to think of itself as a distributed organization with operating islands efficiently connected and effectively cooperating to develop their business objectives. Software development is just one small aspect of this strategy. These principles are even more important for business development and marketing.
Looked at in this light, I dont expect much of that the offshored business to ever coming back. It simply makes no sense. Once the expertise is developed and hasnt priced itself completely out of the market, there will be very little incentive to bring it back. In fact, quite in contrast, the full recognition of this inevitable process will actually accelerate offshoring into the faster expanding markets of the world. Multinationals have recognized these facts for many years. It is simply the full recognition of the man in the street that has lagged.
As I mentioned yesterday, I firmly believe that the combination of automation and offshoring will put extreme pressure on wages in the G7 over the next few decades as a secular trend and this is why I dont expect an early and significant recovery.
RE, totally agree. I've spent a lot of time working with software engineers abroad to the point of making the significant mistake of giving my cell phone number to TCS. I've also spent a lot of time working with American CS grad students from the "top" schools. There's a significant distinction, and not in the direction one might hope.
Not just the CRE total expenditures but there really has been a revolution in construction and construction costs. Concrete tilt-ups and pre-engineered steel and gluelams and more. Construction time has fallen, price per sq ft (sans land acquisition) has fallen. $35b buys a lot more CRE construction in 2008 than it did in even 1998.
Rob I'd have to respectfully disagree. Buildings take about the same amount of time to build if not longer. Yes it seems crazy but its true. Even with all the advancements in technology they take longer. Labor (union) seems to keep raising at a 5% clip and recently materials have spiked in real terms.
Another example of how this slowdown will have little to do with the classic inventory cycle.
We have overcapacity in retail: space, employment, and construction employment. It was caused largely by MEW and a decline in the savings rate, not by rising incomes.
Yet, economists continue to point to the stability of incomes as reason to expect a mild recession.
The question they are not asking themselves is this:
Picture the U.S. with a 7% savings rate and 1997 levels of MEW. What will this economy look like?
For one thing, it will have a lot less stores.
dk, my first contact with TCS was in 1979.
"Picture the U.S. with a 7% savings rate and 1997 levels of MEW. What will this economy look like?"
Who was it Morphsis who said "Ignorance is bliss"
I'm with him on this one!
dk...im with you, i dont mind if they sell.
the CBs keeping gold now is kinda like closing the barn door after...etc.
it will be interesting to see what their action does to price.
as is obvious from some of my posts i am not a professional, and most of my plays have been bonds, and PMs...im a small fish.
but hey... whoooha look at what platinum has done lately... was up from 1834 ny closing Thursday to 1881 fri close and Rhodium (aircraft turbines etc) takes off again!
commodities price appreciation has been exhilarating and scary
Rob I'd have to respectfully disagree. Buildings take about the same amount of time to build if not longer.
I don't deserve none of this "respectfully" crap. I oversimplified and got caught and called on it. Concrete products are way up, lumber down and anything to do with labor or planning is steady to up in both time and cost. I was talking about "pour tilt cap frame out and move on" time. You may be paying more per hour but for less hours. Even flame cutting and welding is getting to be the exception. The trusses line up first time. And those gluelams and engineered I-beams are awesome.
And then there's my personal hate object; Walmart. I may hate them but the way they build a new store is a sight. From the preliminary lunches with city council members to the political machine to the land use lawyers to the pre-staged construction teams the Huns were amateurs. You have to go to nature's army ants to find a better scorched earth and occupation force.
im going to log off and go vote... but one crazy idea first.
what about if none of this is by accident????
what about if this systemic crisis is by design?
what leader or policy maker would like to tell americans that we... as a society that comprises less than 10 percent the worlds population, consuming more than 75 percent of the worlds energy and other resources...HAVE GOT TO CUT BACK...and conserve and save and live more efficiently.
WHO? not one politician or leader that expects to rise up the political or corporate ladder (club for growth, ha!) or (the west is the better and more deserving than all the rest of the worlds people.)
it just might be that this meltdown is the G7 leaders preferred way of dealing with the undeniable limits to consumption..energy and all other resources, rather than tell the "unwashed masses" the distasteful truth about limits and have us react to denial????
Rob Dawg.... you are right about the big W
we fought them in our community and lost.
you are right, they are like an army.
we were organized and we were many.
we were overwhelmed.
smurf | 02.09.08 - 12:57 pm | #
"shouldn't a slowdown in construction help keep commodity prices lower?"
You won't find domestically produced lumber prices going much lower. They are at or below cost already. Mills are curtailing and closing across the US and Canada. Good time to buy mill equipment by the ton.
~
Brain dead investment strategy for retailers:
Did the stock make dramatic gains during the housing bubble years? Do they sell high-end, pricey-brand-name stuff? Is their PE above 12?
If Yes, buy Puts.
If they have high levels of debt, buy lots of Puts.
Rob regarding Walmart building stores. One of the more remarkable things I recall reading (3 or 4 years ago) was a Walmart destroyed by a twister near Petersburg, VA in july/august. They had all the permits for a Sams Club about to be built a mile or two away. Switched gears and rebuilt a superstore there. Opened before Xmas. Same year.
The thing about offshoring software and software development is that once you lose control of the product YOU LOSE CONTROL. These systems are so ingrained into the core of your company that now you are now at the total mercy and the whims of an outsider. There is nothing in this world to stop or prevent that outside company from eventually just taking over your company.
Those that don't believe that are so naive they deserve what they will finally get. Watch it happen.
Our company makes a market in the stored value cards for national and regional retailers (secondary gift card market). I can tell you firsthand, there are a couple on this list that are not going to come through this.
We sell the stored value directly to consumers, at a discount to face. There are some on this list that you can't even give away. That said, our business has been strong in Jan/Feb. - selling what is effectively discounted cash.
dd
dr. digits:
If you truly believe that a retailer is toast, then why sell their gift cards which will soon be worthless?
A big problem with many retailers it that they took their eye off the ball of customer service. They hired don't know/don't care sales people who are always half asleep. They slacked off security and became vulnerable to theft by employees and corruption by executives.
All of that made them vulnerable to online competitors that don't have these problem. I wrote yesterday about the bankruptcy of Fortunoff, a semi-upscale jewelry company, last week. These problems ran down that chain over years.
About the 8th time you ask: "Do you have any _____" and are told "If we do, it's over there some where" you tell yourself maybe you should stay home and buy it online instead.
Pearson "Picture the U.S. with a 7% savings rate and 1997 levels of MEW. What will this economy look like?"
I don't expect the savings rate to appreciate much. However, the 7% you suggest that might be saved will instead be gobbled up by debt service and not spent on consumption.
Went shopping last night at Target and Dicks. I don't do much shopping outside of the grocery store. I mostly buy online. I live in Maryland outside of DC. I live in the middle of something like the 5th richest county in the US.
I was surprised at how empty the stores were. More than half the open cash registers had no one buying. I saw as many teenagers running around as adults. These stores must be losing money.
I got a gift Dicks gift certificate for christmas and wanted to use it since I was near the store. I couldn't find anything to buy. I guess everything I need, I already have. I ended up buying some sneakers. I figure I'll need new sneakers sooner or later and my feet stopped growing 25 years ago.
I took a large sum of money out of a savings account to buy down my mortgage. The interest rate was cut by 1.5% after the fed cuts and now it makes more sense to buy down my mortgage than to save it. Anyway, I got an email from a VP of the bank asking why I took the money out. I've never gotten that before after large withdrawals. I guess the banks really are hurting. If they want me to keep my money there, cutting the rate 1500bp isn't a good idea.
Another bank was all over me when a CD recently matured. They really wanted the money to stay with them. They're going to be unhappy when my CDs mature. Their current rates are too low for me to bite.
A big problem with many retailers it that they took their eye off the ball of customer service.
Oh, I think some retailers have excellent customer service. At the local mall here, a guy managed to waltz out of a Best Buy with six stolen 19" flatscreen TV's (three trips, one under each arm) and none of the associates gave him a hassle.
California, of course, will take a number of interesting bank shots from this. Prop 13 meant cities can no longer rely on property taxes to cover their bills, so they compete for sales taxes. In the competition, many offered "front-end loaded" tax incentives to sweeten retail development, hoping to recover the money down the road from the expected sales tax revenue stream. Now, with the risk of that tax stream not coming into being, bond insurance failing, and the property values falling, everything that could go wrong just might.
RE, I have to say that I have been involved in "offshoring" for a long time too. My experiences are the exact opposite. A friend of mine is also in charge of the same thing for a MAJOR bank/finance institution here. Her feedback is crap too.
The constant feedback loop is very true. Perhaps you are doing big-company projects that move at a time scale the is longer, and have requirements that have long defined lead times. But innovative fast-moving development has never worked for me with off-shoring. And there was no cost savings in my budgets at all.
It isn't the corporate boom it is supposed to be. In fact, said large bank is now moving a lot of the development back because of those very issues.
David Pearson writes:
Picture the U.S. with a 7% savings rate and 1997 levels of MEW. What will this economy look like?
One that will demand lots more government incentives for consumption and debt.
(Oops, that should be phrased "stimulus plans", my bad.)
Ipodius,
Given the right approach IMO, offshoring software development will be just as successful or unsuccessful as onshore development. Clearly there are additional challenges in offshoring especially relating to management, communication and methodology.
I have seen success for structured, long-term and strategic projects as well as development/evolutionary design environments. Despite the reputation of the dot com era today, there was never a more challenging development environment than during that period and I consulted and was involved in a number of projects and companies that were very successful with offshoring in an extreme quick delivery environment, some of them large and some of them relatively small companies.
I contend that it is in most cases the commitment of the organization to a new development process that makes or breaks this approach.
I am not claiming that offshoring is the universal corporate salvation for its IT woes. As I mentioned in my prior post, I believe it is simply a necessary evolution of the business process in a globalized environment. We will need to draw on the most cost effective, best of breed talent wherever it is located and in order to successfully do that we need processes in place that can make that happen successfully. This doesnt happen overnight as it involves increased complexity and not everybody will be successful with it. However, those that will not be successful will eventually be left behind!
Big deal. With the growth in online retailing wan't this inevitably going to happen? Its like saying that the problems with the record companies means there won't be any music anymore.
RE:
You've got all the patter down, but our corporate experience discovered that if there's any "R" (research) in the software development, you may as well keep it home. Massive turnover rates as employees treated the job as equivalent to another class at I.I.T.; as soon as they were up-to-speed with a key skill, they left for another company. Average tenure was around 7 months.
Wasted lots of good time and money. We eventually shut down the India office.
"Given the right approach IMO, offshoring software development will be just as successful or unsuccessful as onshore development." Luckily you tossed in the "IMO", or I would have suggested that your facile equivalence of on/offshore software development and massive overuse of managerial buzzwords suggests an overconfident consultant, paid up-front.
Sorry RE, its not gonna fly. I was involved in the IT effort(s) for many, many years. Your buzzspeak sounds good but it is propaganda at best (and it goes down from there).
It is a fad profitable for you, nothing more. Either this country makes it investing in its own workers and making a success of it else we (and the companies) will be left behind.
To go one step further, should the corps put everything elsewhere the US corp itself becomes only a shell shuffling staged progress reports all sugar-coated and crafted toward total dismal failure. And that, of course, is the object. You are being naive to think otherwise.
Eventually, out the corp management goes correctly identified as useless incompetent overhead and replaced by those who do the actual production, manufacturing, marketing, etc, etc.
Here is the problem. Factories represent a fixed capital cost alone with the skills of the workers. It is not easy for a third world country to get the capital to start, normally.
On the other hand, intellectual skills say entry level programming can be taught in mud hut with generator powered PCs. Once the entry level person can be productive, then there are no jobs for entry level programmers in the developed country develop skills and experience they move up the food chain, hollowing out the worker base at the developed country.
Now if said developed country's leadership the presumes that its work force is on it's own, then there is a disaster waiting to happen. Said country loses both the factories and the skills.
Granted it will take time for India and China to catch up, but once they have the factories in place they have already paid the price for entry into developed country status. Intellectual skills will follow because the capital cost for entry is low.
DCRodgers,
Massive turnover rates as employees treated the job as equivalent to another class at I.I.T.; as soon as they were up-to-speed with a key skill, they left for another company. Average tenure was around 7 months.
As I mentioned before, It is a matter of making a long-term commitment to the place and its people otherwise turn-over will kill you. Managing turnover is the key to successful offshoring. Your experience is not atypical which is why I mentioned it upfront. Unless you understand what motivates and keeps people at your organization which may vary from place and culture to culture, there is no way that you will not be treated as glorified training organization. This is particularly true in India today but applies to any development shop around the world to some degree. In fact this even happened to me in the U.K. in the early 80s in my first offshore job. Anybody that offshores simply because of a certain spread in rates deserves their fate. The game on the ground has changed.
As to the overconfident consultant label that is easy to dispel. I am proud to say that I actually executed these projects A Z and some of them are still available in the marketplace today. So no smoke and mirrors but the real deal.
Hazard,
To go one step further, should the corps put everything elsewhere the US corp itself becomes only a shell shuffling staged progress reports all sugar-coated and crafted toward total dismal failure. And that, of course, is the object. You are being naive to think otherwise.
It is not a matter of putting everything elsewhere. It is a matter of competitiveness for the organization. The key for any organization in this tough global marketplace is to take advantage of the best resources at the best price. When it concerns shoes or sweaters, nobody questions the premise. However, as soon as it concerns people then the story quickly changes.
The fact is that in this new world order there is no choice in this matter however unpleasant it may be. I firmly believe that organizations that do not adopt strategies along these lines will not be competitive over the long haul and that doesnt help anybody.
Just like facing realities about the current downturn and where it will lead, I believe that facing the facts regarding a globalized labor pool for globalized business is essential to understanding the future. It is not a matter of liking it or not, it is simply a reality. As I have extensive personal experience in this field, I thought Id contribute my views and expectations.
RE, I have also executed many projects A to Z (as you say). And have used talent from around the world. Some of these projects were very successful, some were so-so. Spare me the buzz.
However forget all that, it does boil down to one thing. Either we support the citizens of this country or the country will go down the tube. Its as simple as that.
Make no mistake about it, these companies in China, Russia, etc are not your friend. Instead they are playing you as the naive simpleton (don't mean to be so blunt but its true), ready to give it all away. To the lowest bider at that. They want it ALL, not just some esoteric part, THEY WANT IT ALL and are going for it and, unfortunately, are getting it.
Place all the technical, scientific and manufacturing jobs elsewhere then this country rapidly becomes nothing. Just a bunch of maxed-out credit card holders no longer able to purchase a loaf of bread. At which time the corps turn elsewhere to sell their products with their new owners and management.
I've read that some of those who originally supported the outshoring are finally beginning to see that gosh this wasn't such a good idea after all. I mean an unemployed factory worker in SC could have told them that YEARS ago.
And you? Eventually you too will be replaced and you can then tell everyone how great it is that you no longer can find any kind of work. Thats coming, watch. I've seen it and so will you.
Hazard,
I dont think Ive ever been called a simpleton. But here it is.
I am not worried about my job as at this point in my career it has morphed into being an investor primarily and a consultant secondarily.
As an investor, I am trend watching and anticipating events based on my life experience. There is a reason for Jim Rodgers investment strategy and I believe that it is reasonably in line with the trends that I anticipate.
I expect the great leveling of living standards between the G7 and foremost China but secondarily India within the next two decades. Ive outlined in my recent posts some of the reasons why I believe that this is inevitable unless we experience a significant war or an environmental disaster. I am personally but a very small part of that chain of events.
Norka - sorry back so late. We are constantly evaluating retailers and when demand for their wares falls out of favor, the discount rates are increased- or they are no longer considered for purchase.
Fridson did a piece using our data and analysis with respect to high-yield risk. Interesting application of the data I thought.
dd
Personally I don't have a problem either, retiring with a good income rather than continuing on with this charade (as I saw it). And so, my life goes on as before.
But you know, I don't give a rip about China or where ever. Why should we give away our technology, our know how, our jobs? Many people have moved here from other countries and have done very, very well. And good for them. What helps them helps all of us.
I really do think the American public is beginning to wake from a long slumber and is finally beginning to see and realize just what these so-called global policies have done to us as an entire nation. And with that awakening, watch out. The repercussions will be enormous.
RE:
You slyly avoided my point, slipping the problem into what sounded like just teething problems of a green management in an unfamiliar culture. That we were not: the CEO had successful experience moving IT offshore to India from a previous firm, and the key top personnel from that effort led the new India operation. So your breezy implication that we just didn't "understand what motivates" those darn Indians doesn't wash.
Again, the problem was the domain: rather than pure IT, there was a large component of research in the development effort. Communication requirements, difficulty in hiring and retaining key personnel, rising costs, and poor quality education for research tasks (if it wasn't spec'd to 200 pages, they floundered: rapid prototyping left them flummoxed) led to this being a cash drain with poor-quality and late-arriving outputs.
As to the overconfident consultant label that is easy to dispel. I am proud to say that I actually executed these projects A Z and some of them are still available in the marketplace today. So no smoke and mirrors but the real deal.
No, it's not. Your lack of acknowledgment of gray areas, insisting this is all black-and-white, means you have a dangerous blind spot that will cause someone to lose a lots of money if you are hired for the wrong task. I'd update your banter to include more balance, but I guess consultants sell confidence as much as ultimate correctness.
DCRogers,
I dont appreciate your characterization of my post as sly. I believe that a productive interchange involves a little more decorum.
If you have a problem as severe as the average tenure was around 7 months there is no question that you had a fundamental problem in your offshoring approach. Similar to people walking away from their houses and blaming it on irresponsible buyers, blaming high turnover rates on employees or a culture is not facing the real issue.
But let me address in particular the teething problems of a green management in an unfamiliar culture issue. There are a number of pitfalls in offshoring and the easiest one to fall into is outsourcing to an unfamiliar organization. Gathering from your post it looks like that was not the case.
Here are another set of pitfalls primarily related to turnover and my guess is that your CEO fell into most of these.
1.\t Located the development center in one of the offshore hotspots like Bangalore, Mumbai, Hyderabad, Chennai or Pune and possibly even into one of the premier campuses at these locations. ==> Deadly easy to jump to another job
2.\tLocal management in India was primarily and likely exclusively comprised of Indian born managers. ==> Reinforces Indian hierarchical management styles and signifies lack of career path into the main organization
3.\tHired resources primarily directly from college because of low costs. ==> As soon as base marketable skills are attained (bullet point resume), the employee looks for greener pastures.
4.\tHired primarily males. ==> In India women have much better retention rates. On one of my projects, I have several women with service records in excess of 15 years, all one the same project. I have no men with such long-term records.
5.\tProvided no well defined career path with clearly marked incentives into the main organization in the U.S. ==> For many Indians it is a key career achievement to have worked abroad even if they later return home.
Id be curious if you would tell me to what degree the above matches your organizations experience. My guess is at least three out of five.
RE:
Agree that decorum is typically best, but as I was failing to hear a direct response to my statement, and as I kept reading rather alarming black-and-white claims, I do stand by my characterization of your messages.
As I am a scientist, and was not in management, I cannot give you a numerical count, as I was not privy to the inner working of the organization. However, in fairness, I think you are likely correct in at least three, from my observations.
That said, this is all tactical: suggesting that a better-managed organization could have been successful (via better retention). My feeling is that the error was strategic: and that the tactical pain-point that hit the wall first was retention. Fix that, and the disaster is delayed, not eliminated.
The real issue is that most modern management has no idea how to manage software research, and wants to treat it as just another cost center, with parts that can be uprooted and placed anywhere to save X% on cost, with tenure unimportant, all cogs replaceable. Many IT departments are easily outsourced because their activities can be treated that way; but research has a way of falling apart, with the cost-savings appearing immediately (earning huge bonuses), but the problems appearing years later, for the next CEO to figure out (earning their own huge bonuses).
DCRogers,
I am not certain what you mean by strategic in that sense. If the strategy was purely to save a few bucks on the next few projects and then shift research and development to the next hotspot, I agree.
However, that was not my point in any of my messages. My point was that software engineering can be quite successfully outsourced and by my personal experience, a few key players in the field like IBM, HP and Microsoft will confirm this. IBM in particular has done it for a very long time, very successfully even in the research realm.
Here is an example from Switzerland:
IBM Research - Zurich
Obviously, none of these players entered India for the short haul. They established long-term development centers where expertise was developed and retained, generally not only because of cost savings but also, with time, because of familiarity with the subject area, be it research or product development.
I stand by my statement that export oriented business [needs] to think of itself as a distributed organization with operating islands efficiently connected and effectively cooperating to develop their business objectives. This doesnt imply in any way that tenure isnt important. Expertise cannot be developed quickly no matter where it is gained. My point was that an organization that wants to successfully operate in the global marketplace NEEDS to take advantage of resources from around the globe wherever it is available at the right price.
If, as in the case of processor design, Intel found that their best resources were in Israel, it made sense to establish the Mobile Platform Group in Haifa and not in San Jose.
It is even more important for businesses that derive significant revenue from international sources. It is hugely important to market a local presence in order to thwart the protectionist boondoggle prevalent not only in the U.S.
As an organization it then becomes an issue of how to effectively and efficiently take advantage of these operating islands and mold them into a cohesive unit. This I think is the real challenge for business today.
As a side note, I do think that SOA and object oriented development are very conducive to distributed development because subject area expertise can be leveraged at the component level and therefore the big picture understanding becomes far less important.
RE, the way to look at is who gains? You with your outsourcing projects or your US or your non-US clients?
With each new project that you complete do your US clients turn over a bit more technology, lose a little more control on each process turned over, resulting in losses of US jobs? In that case, you lose.
Is what you are implementing elsewhere resulting in industries in other countries eventually being able to effectively compete with your US client. In that case, you lose again.
Bottom line - are you buying or selling? If you are buying at a loss as well as selling at a loss you CAN NOT win. And thats where YOU are and thats what YOU are pushing.
The next time you are in meetings with your non-US clients, think a moment. These folks aren't really interested in your dinky IT project. They want the whole enchilada. ALL the technology, manufacturing, marketing, industry control, and finally ownership. BTW, its a life or death issue with them, a fight to the finish, you're in a war and don't even know it. I'm amazed they keep a straight face while talking to you while internally marveling at your simplicity and naievette (sp?).
You are giving it all away for a bit of cash while losing your integrity, your honor, your country. And the sad thing is you don't even realize it. Be assured though, your non-US clients understand whats ultimately going on and understand you yourself very, very well.
Hazard,
I dont think it is particularly positive to view the world in terms of them and us. Nationalism/Patriotism is as badly exploited as religion for questionable purposes. I think Einstein said it very well: Nationalism is an infantile disease. It is the measles of mankind.
I have lived in many places around the world and have friends all over. These people are not exploiting me in any shape or form. We are all trying to make the most of this thing called life.
We share a common playground called the earth and hopefully can collaborate for our betterment. The West has exploited the East for several centuries, I dont think it has a prerogative to its privileged position or for that matter its superior standard of living.
Here are few more choice quotes from some mature thinkers:
Patriotism is a religion, the egg from which wars are hatched. Guy de Maupassant
Patriotism is a menace to liberty. Emma Goldman
Patriotism is a pernicious, psychopathic form of idiocy. George Bernard Shaw
RE, we (the US) are not the worlds keeper nor its savior.
We have problems, severe problems. There are entire states that are absolutely devastated thru the very ideas that you preach.
Take a look at Mich or SC or Ohio to name a few. A lot of jobless, homeless, just plain broken people. Look at the items for sale on Ebay, many people are selling their worldly possessions for a few $$$s so they can eat. I mean it has come to that.
And I'm not talking about people losing their homes thru speculation or buying a 2nd home w/o selling the 1st or never being qualified in the 1st place. Many others in different situations are going thru some pretty tough times (thru no fault of their own).
How long do you think this situation can or will continue? Not very much longer (that you can count on), then you see the explosion. Believe me, there are many, many people in this country (a majority) not even remotely in sympathy with your thoughts.
I'm not talking about living in a void nor am I saying ignore the rest of the world. But the fact is we are going to have to take care of ourself first before we can even think of helping others.
It isn't a case of nationalism/patriotism. It is a case of national survival. A war as I suggested. Eventually, it will dawn on you.
Simply put, you need to get out, tour the US a bit, look and talk to people (not the intellectuals for lack of a better definition), go thru some of the down areas (and there are some horrible situations - don't mean ghettos either, far from it - if you know where to look, search for them you'll find them). You'd understand what I'm saying if you did.
America is a generous country and gives and gives. But when there is no more to give there is no more.
The very word "outsource" itself denotes a mere tactic... (and as a side-note, we can manage locations: our company, successfully, has many locations with talent that develop software). It is when companies put cost in front of talent that the downward spiral begins (and the top executive bonuses [and consultant pay] seems to increase).
You end with: "As a side note, I do think that SOA and object oriented development are very conducive to distributed development because subject area expertise can be leveraged at the component level and therefore the big picture understanding becomes far less important."
As a long term user of OOD, proponents such as yourself are my worst enemy. None of this nasty "big picture understanding" to put a project a risk... plugging distributed crap in at the last minute is my greatest nightmare.
Sirens like you with upper management's ear have destroyed more projects than I can count. Don't ask me for more "decorum" when I hear your sweet consultant-management speak. I've quality developer friends who've lost their jobs from such bad advice. The bonuses have been paid, the consultant fees paid, and the software that resulted is too-often crap.
Just so I don't come off as a crank, so what do I support for research software? Hire a visionary to run it: tight team: if they can detach units to other places, so be it. If not, don't. Rapid prototyping, rapid (internal) release schedule: one every 1-2 weeks. Buy a startup that works, if you can; leave it be, don't merge it, other than ops and sales. (These are your natural "operating islands".) Keep management and consultants away from it.
DCRogers,
I appreciate the conversation. Despite the rhetoric, I enjoyed it!
RE:
While we disagreed, I appreciate your directness, and that you never stooped to my level of discourse!
I am not the nationalist that Hazard is -- but there is some truth to his words; mercantilism is alive and well in the world, and the US is at some economic risk from it, with the pain felt at the lowest rungs. While I am less worried then he (as I think the stern hand of the market will steal wealth from any who try to manipulate so obviously as the SWFs), I do wonder what the next generation will do, and what we should teach them.
Somehow, "keep your FICO score good" seems a poor modern substitute to teaching moral enlightenment or social justice...
My best regards to you and Hazard for a lively weekend conversation!
Hazard:
As was born and raised in Detroit (left at 18 for California), I certainly feel both your love and pain for the great and lost state of Michigan, and the anger the people there feel from the broken promises of globalization.
I believe we have allowed most of the external costs of globalization to be borne by the lowest rungs of the ladder, and most of the benefits collected by the highest. I have seen, and feel, the anger you speak of.
Those who speak of globalization as a bloodless, abstract, economic game, with abstract "shared benefits", would do well to remember that there are non-abstract losers, and we should be grateful for what they have borne for us, and try to help them share some benefits as we move forward. (That "sharing" idea goes double for the top executives that won twice, getting so much of the gold, then the tax cuts.)