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Outsourcing of knowledge workers didn't work out because at large enough scales, the geographic arbitrage disappeared. Companies mostly always got what they paid for.

The determinant of success was only whether the task needed American-tier labor or could make do with sub-American quality labor.

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I am not sure this feels right. I agree that the US currently has leading minds in terms of tech, but I am not sure it is too big of difference with the EU knowledge workers. EU is still a lot cheaper then US in terms of wages you would need to pay.
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That's certainly part of it. But the other part that I've heard time and time again is that in order for outsourcing to be successful you basically needed an american engineer in the mix hand holding everything, clarifying requirements, and vetoing bad code.

That part of dev work, the requirements gathering, attention to details, clarifying requirements, is something AI also struggles with. A lot of companies basically waste time and money on outsourced devs because without a clear path forward they effectively will sit and do nothing, waiting for a prompt.

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I would not agree on that point. It really depends on company's structure. I mean it also depends with people that makes the team. I would say there are a lot of unknowns but I would certainly not generalize.

How I find your argument is that one distinguished engineer from US could do the same with the use of AI.

I worked with both and I know great and bad engineers from both sides. Only thing is that US has a bigger pool of great engineers.

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