http://www.wired.com/wired/archive/12.07/view.html?pg=2 The Micro-Multinational By Jason Pontin Did you hear the one about the programmer who outsourced his own job? I read about it on Slashdot.org, the "news for nerds" Web site. A pseudonymous poster wrote, "About a year ago I hired a developer in India to do my job. I pay him $12,000 to do the job I get paid $67,000 for. He's happy to have the work. I'm happy that I only have to work 90 minutes a day, talking code. My employer thinks I'm telecommuting. Now I'm considering getting a second job and doing the same thing." The story is instructive, even if it is apocryphal. (Requests for an interview went unanswered.) It's a case where everyone wins. By subcontracting out the generic parts of his job, the programmer gives himself a promotion. The Indian developer is well paid. The employer gets good code. In the US, the debate about outsourcing often focuses on large companies laying off employees. News stories typically focus on the plight of people whose jobs have been eliminated by pitiless corporations. But there is another side to outsourcing. By tapping foreign markets, startups are creating jobs in the US that otherwise would not exist. Venture capitalists now routinely demand that the companies they finance outsource what labor they can. Yogen Dalal, a partner at Mayfield, says more than half the companies he funds have offshore workers. The Valley even has a name for these startups: micro-multinationals. Solidcore Systems, a developer of security software with headquarters in Silicon Valley, is a micro-multinational. Solidcore has 20 employees in New Delhi and six subcontractors in Pune, India. The company also has 20 employees, including its CEO, CTO, and sales reps, in the US. The president and chief executive of Solidcore, Rosen Sharma, is an unapologetic fan of outsourcing. "We were a micro-multinational from day one. It didn't mean I hired fewer people in the US," he says. "It meant that I could hire more people in sales and marketing, because I didn't have to concentrate on building R&D in America." Micro-multinationals turn inside out an organizational fad of the 1990s: the incubator. But whereas incubated startups divest some business functions to their investors, micro-multinationals purchase these functions from subcontractors. Incubators allow startups to concentrate on what economists call a "comparative advantage" - the thing that any economic entity does best and most cheaply. Alas, incubated startups were also at the mercy of their patrons' whims. Micro-multinationals, by contrast, control their own fortunes. The wisdom of outsourcing applies to businesses great and small. When companies have some of their operations performed elsewhere, they reduce costs and allocate capital and labor instead to those activities that cannot, or should not, be subcontracted. When businesses use capital and labor efficiently, they can better explore expanding markets. And faster growth creates a need for new workers. The result is almost always a net gain in employment. Over the past 10 years, 325 million jobs were eliminated in the US, but 342 million jobs were created. The tech industry was the site of the latest shakeout. According to the Information Technology Association of America, some 372,000 technologists were laid off in the recent recession. Some fraction of those positions were no doubt moved offshore. But the ITAA also predicts that outsourcing will create 317,000 entirely new jobs in the US over the next four years as a result of cost savings. And outsourcing generated 90,000 jobs in 2003 alone. Outsourcing is change. As ever, change will be harrowing for a few; there will be "dislocations," to use the jargon of labor economists. Some people will be too old, too inflexible, or otherwise unable to find new work. But most Americans can relax. Cheap overseas labor means more jobs in the US, not fewer. And working for a company that's both global and small might just be the best of both worlds. Jason Pontin (jason_pontin@yahoo.com) was the editor of Acumen Journal of Life Sciences.