Recently, I wondered what would happen to MSFT when it had to start paying real wages rather than rely so heavily on stock options to keep its people happy.
My musings elicited this interesting message from the ether:
“I am not a fan of Microsoft and I hate Bill Gates, partly because I do not have money like him and partly his philosophy about selling software does not match with mine. However, I am long his stock, because he is a savvy CEO and the world demands his products. I think his stock will do good in the long run. However, I do not agree with your projection of labor cost etc. Following are my reasons.
- Just like when the US was a powerhouse in small scale industries in 70s and early 80s and now the whole industry is shifted to Asia and Latin America, software industry will follow it. It is a matter of when, not if. It could be 20 years, 50 years or whatever. Already you can see it. Microsoft has only 3 offices (R&D) in the world. 1. Redmond, WA; 2. Israel; and 3. Hydrabad (India) – will be operational by December 98. Microsoft does not believe in opening many offices and the fact that they have considered India as their only major offshore software development center is significant. Recent Bill Gates visit to India signifies his commitment.
- Almost all software companies worth their salt have some of their operations offshore (somehow they like to use this word). One big reason is that U.S. universities are not churning out enough graduates to keep up with the growth worldwide.
- American graduates cost more, demand more, and prefer to (or I should say forced to) move around. That creates a drag on product development.
- India has state subsidized (almost 50-95% of education cost. I am a great beneficiary of this subsidy and always grateful to the government) and very good education system and relatively stable job environment. Graduates cost less than 5 to 20% of cost of US graduates and the number of universities and institutes are almost equal to US. The engineering and science graduates pool is almost 2 to 4 times of the size of US graduates. Naturally, demand and supply works here and wages are rising about 20% a year for last 10 years. Microsoft entry would ignite this competition.
- Most companies offer restrictive (cannot sell before 5 year or 10 years) stock options to their overseas employees in US$. That alone is a significant attraction to most potential employees. How else they can get almost sure chance to become millionaire (in local currency, $1=Rs 40)? I know some of my friends, who did become millionaire by exercising stock options.
- Internet, satellite telecom and government support do play a big role. The world is so close. When I was in India recently, I was able to read your page, trade stocks and be in touch with my office, just as I would staying in US. This was not possible even 3 years ago.
“Bottom line is, these technological advances will accelerate the migration of software jobs and will keep the production cost in check (in today’s dollars). Just think about it, your clothes, cars, shoes are much cheaper today (please include inflation in your calculation) than they were 50 years ago.
“However, I do worry about unexpected things which no one has control of it. Would next CEO will be as lucky or smart or savvy as Bill? How about something like Internet, which Bill miscalculated badly. Would next president of US or justice dept. go after Microsoft big time. I do not know and frankly nobody does…So keep investing in profitable growth companies…and pray for higher stock prices.”
A.T.: I pray for higher productivity, continued technological breakthroughs, good health, and auto insurance reform. I do not pray for higher stock prices. They’re already awfully high. Better to let earnings catch up for a while.
But his message is interesting. When I was growing up, India was a distant abstraction. One day soon, my late-night customer service query may be handled (at noon, India time) by a customer service rep in New Delhi. Small world, indeed.
Quote of the Day
On the day of the 1983 economic summit, James A. Baker 3rd, then chief of staff, realized Mr. Reagan had not read his briefing book. When Mr. Baker asked why, Mr. Reagan responded, 'Well, Jim, The Sound of Music was on last night.'~Professor Herbert S. Parmet reviewing President Reagan: The Role of a Lifetime
Request email delivery
- Mar 26:
iPhone Tips And The KGB
- Mar 25:
Of Deficits And That Mechanical Swan
- Mar 22:
Pins And Groats — Be It Ever Thus
- Mar 21:
Demand Your Carbon Dividend
- Mar 20:
Success! Why Do New York’s Mayor And City Council Resist It?
- Mar 19:
The Other Kind Of Bankruptcy
- Mar 18:
- Mar 15:
Pete Buttigieg And John Delaney
- Mar 14:
The Fifth Risk
- Mar 13:
Reader Feedback: How About A Stock Update?
- Mar 26: