The Return of the Outsourced Job

From BusinessWeek | Dec 30, 2009

To boost employment, local governments are wooing Indian companies such
as Tata, Wipro, and Infosys. But the job gains are a drop in the bucket

By
Mehul Srivastava and
Moira Herbst

Ohio Governor Ted Strickland is quick to admit that he doesn't
"particularly enjoy heights." So why would he climb into a cherry
picker to be lifted 40 feet in the air?

To show off a 196,000-square-foot office park in the Cincinnati
suburb of Milford to executives from Tata Consultancy Services, India's
biggest tech company and a thriving part of the Tata Group
conglomerate.

To sweeten the deal, Strickland threw in $19 million in tax credits
and invited the TCS crew to a state dinner at the governor's mansion.
"The economy is difficult," Strickland says. "I will go wherever I can
to find jobs."

TCS said yes, and in November Strickland showed up at the sprawling
wooded campus for a ceremony to mark the hiring of the 300th employee
at what has become the cornerstone for TCS's North American efforts.
Tata has hired some 250 graduates of Ohio State University, the
University of Cincinnati, and other nearby schools. Soon the facility
may employ as many as 1,000 Americans doing back-office and technology
outsourcing for U.S. health-care companies and local governments.

With the economy growing again-but unemployment stuck at
double-digit levels-states and municipalities across the U.S. are
scrambling to woo anyone with hiring plans-even if that means going,
hat in hand, to the same bunch that have been responsible for hundreds
of thousands of jobs going overseas.

local talent offers advantages

Dallas, Atlanta, Minneapolis, and Tallahassee have all been actively courting Indian tech outfits. Wipro Technologies (WIT)
in March inaugurated a center in Atlanta, which now has 350
employees-nearly 300 of them Americans, including senior managers
recruited from U.S. tech rivals. Infosys Technologies (INFY),
meanwhile, is planning an operation in Dallas to target some of the $52
billion the U.S. government will spend on outsourcing work in 2010.

For Indian companies, U.S. facilities can mean more work on
government and health-care projects-areas where laws prevent the
transfer of data overseas. An on-the-ground strategy gives them access
to local workers who can better understand cultural nuances. And it
lets them better compete against U.S. rivals IBM (IBM) and Accenture (ACN),
which tend to win lucrative consulting contracts that hinge on solving
complicated business problems on-site, rather than simply writing
computer code for cheap wages in India.

"We need to become more efficient, more sophisticated," says
Sambuddha Deb, a Wipro vice-president who makes sure the company's
India-based and foreign employees work seamlessly together. "It's not
just about setting up software factories" in India.

Some critics say that the new centers offer little more than
political cover and do little to boost employment in the U.S. "One
reason they are doing this is for public relations," says Ron Hira, an
expert on offshoring at Rochester Institute of Technology. "They want
to send the message, 'We're creating jobs for Americans.'"

Congress to limit temporary visas?

It's true that the jobs Indian companies have created in the U.S.
are a rounding error compared with their overall workforce. Even as it
hired a few hundred U.S. employees in 2009, TCS took on tens of
thousands of newbies in India. And TCS has more than 11,000 Indians
working in the U.S. on temporary visas, while Wipro has 7,000.

That could change if a Senate bill introduced in April makes it
through Congress. The measure would bar companies with more than 50
U.S.-based employees from using temporary visas for more than half
their U.S. workforce, effectively forcing Indian IT companies to hire
more Americans.

A further concern for Indian companies is that hiring Americans is
far more expensive than shipping work off to India. TCS staffers in
Milford, for instance, earn more than $50,000 per year, vs. the $7,000
to $8,000 that Indians doing similar work make in Bangalore.

"Offshore outsourcers' wonderful profitability has largely been on
the back of labor arbitrage,"" says Peter Bendor-Samuel, CEO of Everest
Group, a Dallas consulting firm that advises companies on outsourcing
strategies. "Those profits surely would take a hit if the Indian
companies start hiring more Americans."

Time zone proximity preferred

TCS already had to delay opening the Ohio center for almost six
months during the recession in the U.S. Wipro says its Atlanta
operation isn't yet profitable. Both say American facilities are
unlikely to create huge numbers of new jobs in the U.S. soon. For
several years, at least, the vast majority of work will continue to be
done in India and other low-cost countries, according to Surya Kant,
North America president for TCS.

"But many [clients] want work to be done in the same time zone, and
we want to be closer to our customers," Kant says. "Increasingly, we
will move that work to centers like Cincinnati."

For Strickland and other officials in places where jobs have
disappeared as carmakers go bust and steel production moves overseas,
the new jobs-and the taxes they generate-are rare good news.

"I certainly don't see it as consorting with the enemy," says
Strickland, who ended up sharing a table with Tata Group Chairman Ratan
Tata and India's Commerce Minister Anand Sharma at the Nov. 25 White
House state dinner for Indian Prime Minister Manmohan Singh. "These are
good, solid jobs," adds the governor. "Jobs that we feel will be
long-term and that we hope will increase in numbers."

Tata is one of several outside contractors that gather and supply data distributed through the Bloomberg Professional Service.

Srivastava reports for BusinessWeek from New Delhi.
Herbst is a reporter for BusinessWeek.