COLUMN ONE : Creating High-Tech Sweatshops : U.S. computer firms find skilled--and cheap--programmers abroad. Some say the workers are exploited and American jobs are threatened.

When Kala Sivasubramanian arrived in San Francisco, her employer took her passport, put her in an apartment with another Indian worker and warned her not to get pregnant.

Alex Dubenko, a Ukrainian, was met at the airport by an employer who put him up with several Russians in a house in rural Virginia, where he was made to work long hours for just $20 a week.

The scenes are eerily familiar. Canny “body shoppers” round up workers from Third World countries and ship them to the United States, where they work long hours for employers on the lookout for cheap labor. Or employers looking for even better deals simply set up shop in low-wage countries.

Textiles? Low-end manufacturing? Hardly. The work is computer programming, and the new arrivals are accomplished code writers. They come from Russia, or they live in India and China, and more U.S. companies are turning to them to grind out the millions of lines of computer code required for today’s increasingly complex software.

As in earlier economic upheavals, the Information Age has spawned a new breed of migrant workers who leave impoverished homelands to make money satisfying the developed world’s insatiable demand for computing instructions. Legions of programmers, many working on dubious visas, are hacking away right now in cheap motel rooms, guarded hideaways and corporate computer centers throughout America.

Really more guest workers than immigrants--their numbers could be as high as 150,000, said Demetrios Papademetriou, an immigration expert at the Carnegie Endowment for International Peace--the exploitation and alienation they often encounter are the price they pay for the chance to get some hard currency, and a shot at staying in the United States when their work is done.

These high-tech itinerants wandering the globe in search of work are mirrored by a new breed of work wandering the globe in search of cheap labor. Linked to the United States by satellite and electronic mail and often backed by government subsidies, overseas workers are providing quality programming at prices far below what it would cost here.

The result is a situation in some ways emblematic of the growing new global economy. Workers and work move fluidly across borders, providing companies and consumers with the best products at the lowest possible prices. The personal computer revolution that is helping to boost American productivity--and maintain the U.S. standard of living--is fueled partly by falling software prices, which are made possible by cheap, capable foreign programmers.

Lacking the capital or infrastructure to compete in other arenas, Third World countries are rushing to train programmers and attract programming as a low-cost way to promote economic development. To the extent that such efforts succeed in raising foreign living standards, they also help generate new markets for newly competitive American goods.

On the other hand, foreign programmers compete with Americans. As big companies such as Digital Equipment Corp., International Business Machines and Safeway lay off thousands of employees, many of them programmers, an outcry is arising.

Unfair Competition

In Redmond, Wash., Microsoft Corp. recently turned away 50 Americans to hire a young Malaysian with two years experience for a job helping customers trouble-shoot software problems.

“The notion that no American could be found for a job like that is unbelievable,” Michael Lindberg, one of the rejected American programmers, told the Seattle Times. There are 1.25 million programmers and computer systems analysts in the United States.

A Microsoft spokeswoman defended its decision to hire the Malaysian: “You look for the best talent possible to meet your needs. He had the correct skill set to match the job.”

In Los Angeles, which has the world’s highest concentration of programmers after Tokyo and London, cutbacks by aerospace companies such as Hughes Aircraft Co. have left many of Southern California’s 110,000 software engineers unemployed. Even Los Angeles County is using some foreign programmers to do piecework.

For 27 years, Doug Pfenninger made a good living in Los Angeles as a programmer, working at such aerospace companies as Rockwell, Northrop and Lockheed. Last year, he lost his job in a wave of cutbacks. Unemployed for six months, he lost his house.

Last September, he got a contract to work on a project for Hitachi America Ltd. and moved to Northern California. But after three months, he was back on the street. He said the company replaced him and three others with lower-paid foreign programmers.

“They compete unfairly with their low wages,” said Pfenninger, who finally landed another job. “They are putting many of us out of work.” Hitachi would not comment, but has previously said it has no control over whom its contractors hire.

In San Francisco, contract programmers undercut by foreign body shoppers are waging a campaign to get immigration authorities to stop issuing short-term visas to foreign programmers.

U.S. firms can bring foreign workers to this country for months or even years if the workers have special skills unavailable locally, or need training they can only get here. These guest workers are supposed to get prevailing wages.

But many foreign programmers have been given such visas--even though Americans could do the same work--and often they are paid far less than the going rate. This summer, the Labor Department slapped $180,000 in penalties on Complete Business Solutions Inc., a Farmington Hills, Mich., company, for paying its Indian workers at rates below the prevailing wage required by their visas.

An anti-immigration group, Californians for Population Stabilization, recently sued Hewlett-Packard Co. of Palo Alto for using foreign programmers hired by a contractor under conditions it termed “nothing more than high-tech, indentured servitude.” Some programmers had been forced to sign contracts agreeing to pay their Indian employers as much as $50,000 if they quit.

An H-P spokeswoman said the company was paying its contractor $60,000 a year per Indian programmer, but that the contractor was not passing much of the money along. H-P now requires contractors to certify that imported programmers get a prevailing wage, and is reviewing the issue. Separately, H-P recently suspended a program that brought Chinese, Indian and Russian programmers to Silicon Valley as trainees, after some Russians complained that they were doing the work of Americans for a fraction of the pay.

Silicon Valley companies also send programming work overseas. Mountain View, Calif.-based Sun Microsystems, whose co-founder is Indian, recently boasted of getting 50 top Moscow programmers to work on supercomputer systems at bargain prices. Quattro Pro, a popular spreadsheet program from Borland International in Scotts Valley, Calif., was overhauled in record time by using work-starved Hungarian programmers.

Programmers who get to this country and manage to stay often do well. Such immigrants are playing a major role in the booming U.S. software business, just as they are in the computer industry in general. Microsoft has come out with new software quickly and at low cost in part with the help of top foreign brains, and one company official estimates that 20% to 30% of its work force is foreign-born.

Indeed, one reason overseas programmers are so attractive is that they do such good work.

“They cost half the price of American contractors, and they guarantee delivery,” said Leilani Allen, senior vice president for information technology at Sears Mortgage Corp.

Allen used foreign contractors once and was impressed with the service and quality of their work. They visited the headquarters in Riverwood, Ill., to be briefed on the project and then returned to India to do the coding.

Allen prides herself on knowing when to use foreign programmers and when to use her staff. Such knowledge can be important to companies competing in international markets; effective use of foreign programmers has helped make U.S. software companies among the world’s strongest.

As good as many of these programmers are, most cannot stay and many are not here altogether legitimately because they hold visas meant for trainees and consultants.

“The immigration system is not there to reduce the labor cost of the firms,” said Papademetriou, who was the Labor Department’s director of immigration policy under President George Bush. “The best way to compete in the long term is to help develop the work force.”

The tendency to use low-wage foreign labor for programming raises fears that, like the auto and consumer electronics industries, America’s software companies will fail to make the investments necessary to stay in the lead.

“I believe that the software industry is where the auto industry was 20 to 30 years ago,” said Lloyd Mosemann, deputy assistant secretary of communications, computers and support systems for the Air Force. “They have about 80% of the world market and there is no sense of urgency or realization that there is a problem.”

Computer programs are made up of line upon line of code, which are detailed commands written in special computer language. Thanks to layers of whiz-bang features and eye-catching graphics, common computer programs today are bigger than ever. The first release of the MS-DOS operating system, some version of which is used on millions of personal computers worldwide, consisted of just a few hundred lines of code. Microsoft’s latest operating system, Windows NT, contains more than a million.

All that code makes programming labor intensive, which makes foreign programmers, who work for less, much more attractive. Moreover, the size and complexity of modern programs makes mistakes likelier, and critics say U.S. software producers are not sufficiently vigilant about this.

“The Achilles’ heel of American software is that it tends to have a lot of bugs,” said Edward Yourdon, a New York-based management consultant and author of “The Decline and Fall of the American Programmer,” a book published last year that warned of the dire consequences of not improving the productivity of U.S. software engineers. “It is like in the 1950s and 1960s, when we took it for granted that autos would have defects.”

The need for higher standards in software development is particularly evident in military contracting, Mosemann said. “Almost any horror story you read about the DOD (Department of Defense) has software behind it.”

Rapid technological change is another reason companies are importing programmers--or exporting programming. Laid-off American programmers often spent careers programming big mainframe computers. But today, most companies want software engineers who know the programming languages used to design software for personal computers. In countries such as India and China, which skipped the age of mainframes, virtually all programmers were trained on smaller computers.

American-based foreign contractors blame U.S. companies for failing to retrain American workers, and say they are supplying the skills American corporations need but cannot get locally. Even experts such as Papademetriou worry that leading American software firms could be hurt if the nation restricts immigrant programmers. Microsoft does 95% of its development in Redmond, Wash., although it gets a major portion of its sales overseas.

“If you limit the pool you can hire from, you don’t get as good a selection,” said Charles Stevens, Microsoft’s general manager for worldwide business strategy. “You can’t always get people in the U.S. with the skills you need.”

But few question that some foreign contractors use questionable tactics. Sivasubramanian, the Indian programmer, was employed by Tata Consultancy Services of Bombay, which has brought to the United States more than 1,000 Indian software engineers over 1 1/2 years ending in May. When Sivasubramanian tried to break out of Tata’s employ, the company sued. Tata had forced her to sign a contract agreeing to pay more than $30,000 to the company if she quit.

“Slavery isn’t allowed here in California,” said Mary Dumont, an attorney who successfully defended Sivasubramanian based on state laws that make it illegal for employers to take actions to prevent quitting.

Tata, which did not respond to phone calls, has previously insisted that its concern with employees switching jobs was a matter of protecting trade secrets.

Foreign Assist

A year and a half ago, Fred Shulman, a computer contractor, got a call from Dubenko, the Ukrainian, and a Russian friend, asking for jobs. When Dubenko’s employer found out, he ripped out the telephone, removed the battery from their only car and warned the emigres that they would be sent back to Russia. Shulman said the two programmers escaped through a window and now work for him as independent contractors.

U.S. immigration officials are beginning to crack down on contractors by ordering U.S. embassies to reduce the number of short-term visas they grant to computer programmers. Even if such efforts are successful, they will do little to stem the widening flow of programming offshore. Virtually every major software developer, from IBM to Andersen Consulting, has operations overseas.

Foreign governments play a role, too. Taiwan is building a massive software park where companies will be given free access to software tools, legal advice and marketing expertise to promote software exports. India has software parks and offers a 100% tax exemption on income from software exports.

Indian universities annually graduate thousands of English-speaking engineers trained on the latest computer equipment and, as a result, India can produce software for one-eighth the cost than the United States, said Capers Jones, a Boston-based computer consultant.

The number of programmers in China and India has quadrupled in the past three years, and Jones estimates that those two countries will each have 25% more programmers than the United States by 1995--many of them serving U.S. corporations.

“There is no way of dictating where the work will be done,” said Jonathan Ginsburg, an attorney who represents American computer contractors in Washington. “You don’t stand in the way of satellite signals.”

The Cost of Coding

The cost of creating computer software varies widely depending on where the work is done--and who is doing it. A standard measure is the “feature point,” which expresses the relative cost per unit of software developed, allowing for a program’s size and complexity.

The cheapest places are mostly in the Third World...

*Cost per feature point (U.S. dollars) India: $125.00 Pakistan: $145.00 Poland: $155.00 Hungary: $175.00 Thailand: $180.00 Malaysia: $185.00 Venezuela: $190.00 Colombia: $195.00 Mexico: $200.00 Argentina: $250.00 +

. . . while the industrialized nations are far costlier.

*Cost per feature point (U.S. dollars) Japan: $1,600.00 Sweden: $1,500.00 Switzerland: $1,450.00 France: $1,425.00 United Kingdom: $1,400.00 Denmark: $1,350.00 Germany: $1,300.00 Spain: $1,200.00 Italy: $1,150.00 United States: $1,000.00 Source: Capers Jones, Boston-based software productivity consultant

A Question of Jobs

The question of whether new immigrants take jobs away from Americans is hotly debated in California. A bare majority thinks illegal immigrant workers are not vital to farms and industries in the state. But Californians are split as to whether legal immigrants take away jobs from Americans.

Do you believe that cheaper labor provided by illegal immigrants is essential to California industries and farms to survive? Agree: 43% Disagree: 51% Don’t know: 6% *

Do legal immigrants take jobs that nobody wants, or do they take jobs away from Americans who need them? Take jobs nobody wants: 35% Take jobs from Americans: 36% Don’t know/refused: 29% Source: Los Angeles Times Poll; 1,162 Californians surveyed Sept. 10-13, 1993. Margin of sampling error: 3 percentage points.