Offshore outsourcing - 4 miles!

[Pat McCotter]

SeaCode (Company website)

Shipping Out U.S. Jobs -- to a Ship (LA Times story)

Michael Hiltzik
Golden State

May 2, 2005

The public reaction was predictable when word first got out of SeaCode Inc.'s proposal to house 600 foreign software engineers on a cruise ship moored three miles off the California coast, thus undercutting U.S. wage rates and circumventing local labor rules.

The veteran technology columnist John Dvorak described the vessel as a "slave ship." Other critics preferred the label "sweatshop." The words "exploitative" and "inhumane" caromed around the Web. The image that first leaped to my own rather more literary mind was of the floating prison hulks that housed the convict Abel Magwitch in "Great Expectations."

Roger Green tried to take the rhetoric philosophically. "We know we'll be a lightning rod," Green, 58, a co-founder and chief operating officer of the San Diego company, told me. "But my hope is we'll get our story out."

The story is SeaCode's plan to help clients overcome the drawbacks of outsourcing sophisticated engineering work overseas. The chief benefit of offshoring — the low pay scales in India and elsewhere — often is offset by the cost of flying executives out to monitor progress, the time difference (you have to be awake at 10:30 p.m. in California to reach India at noon) and the doubtful security of intellectual property abroad.

When a mutual friend hooked up Green, a manager of corporate software projects, with David Cook, 42, a former tanker captain who had moved into the information technology business, their complementary skills suggested a way to bring low-cost offshore labor near to hand. (The mutual friend, Joe Conway, is SeaCode's third co-founder.)

For all the skepticism that has greeted this proposal, it hardly sounds like the launch of a slave ship. SeaCode says it will pay two to three times the going rate for foreign IT workers, which works out to as much as $24,000 for lower-level jobs and $60,000 for senior programmers. They'll work in two shifts of 12 hours each, spending four months on board and two months off, with flights home provided by contract. Assuming they're cleared by immigration authorities, they'll be able to take shore leave whenever they're off duty.

Clients, meanwhile, will gain an inexpensive workforce no farther away than a coast-to-coast flight, allowing for more direct supervision of projects than they could achieve at longer range. SeaCode also promises to provide better security for client data than can be offered abroad.

The company says that the cost of maintaining a floating software lab requires it to look for high-value software development, not grunt work; it expects most of its employees will have master's degrees or better. The actual recruiting of engineers, along with the acquisition of a ship, won't take place until it signs one or two major clients, which it hopes will happen in the next few months.

The ship's location just outside the three-mile limit will exempt it from California labor and environmental regulations, but not international maritime labor rules or federal regulations forbidding the dumping of fuel, trash and sewage. Because the ship will be registered under the Bahamian flag or another foreign registry, the workers won't need H-1B visas, unlike foreign employees housed temporarily on U.S. territory. SeaCode's U.S. clients might consider that a plus because H-1Bs have become extremely scarce since 2003, when the government slashed the annual quota by more than half, to 85,000.

Plainly, one's opinion of the scheme depends on one's opinion of offshoring — whether it's a scourge to be fought from every battlement or a fact of life to be made the best of. If the former, then it's easy to view SeaCode as threatening to hasten the disappearance of decent-paying jobs for American professionals.

The drawbacks of offshoring "are real, and this may be a way of addressing that," says Ron Hira, author of "Outsourcing America: What's Behind Our National Crisis and How We Can Reclaim American Jobs."

If the latter, then it's a means of salvaging some domestic profit from the inevitable shift of certain work overseas. The firm expects to spend millions of dollars a year on fuel, food and supplies in local communities. Indeed, Green and Cook say only 10% of SeaCode's total revenue will be spent on foreign labor, with the rest staying in the U.S.

"We'll be creating a lot of jobs on the mainland," Green says. Even a small onboard cadre of 200 engineers will require support from 35 or more workers on land. The engineering jobs, he says, "are ones that have already gone out of country. We'll be taking jobs from Indians over there and bringing them back here."

In any event, while the founders dream of eventually running multiple ships off the U.S. coast and even expanding to Europe, their initial goal of 600 jobs won't make a ripple in the overall employment picture. The biggest Indian outsourcing company, Infosys, employs more than 30,000 workers outside the U.S.

Still, offshoring is bound to remain a hot-button issue. Some researchers say the share of global information technology jobs domiciled in low-cost locations like India could double to 7% over the next three years. Most of that work will be for American companies.

Accordingly, SeaCode's big challenge may not be logistical but political. While the company's plans appear to conform to existing law, says James P. Walsh, a maritime lawyer at Davis Wright Tremaine, critics might charge that classifying software engineers as maritime crew and using a temporary mooring as a long-term anchorage amount to exploiting legal loopholes.

"Someone in Congress might say these people are taking advantage of a set of rules that never were designed for them," Walsh says. Protectionist legislation has been enacted on far less provocation.

Green says he hopes that once SeaCode lines up some major clients, its model's economic logic will become clearer. "The very definition of a brilliant idea," he says, "is that it's obvious after you know it."

*

Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at

golden.state@latimes.com and read his previous columns at

http://latimes.com/hiltzik.

[Pat K]

  Ships be very expensive to run and maintain.

[error]

The government screws people and the market adapts.

[J’raxis 270145]

Sounds like the same thing some do to get around idiotic gambling or liquor laws... cruise ships, riverboats, and so forth. That someone would go to these lengths to run a software business truly shows you how insane our government regulation has become.

[David]

The government screws people and the market adapts.

Rewritten     The gov't screws people, and people don't like it, so they react.