India Outsourcing to the U.S.

Stephen DeAngelis

September 28, 2007

I have written a number of posts about the global commute — a term used to describe how labor is changing to match the requirements of globalization [e.g., Updates on the Global Commute and More Stories About the Global Commute]. To succeed, globalization requires the movement of resources, capital, and people; but, in the information age, much of that movement is virtual. Last October I wrote about Americans joining the global commute by heading to India to train with Infosys Technologies [Americans Discover the Global Commute]. Anand Giridharadas provides an update on Indian outsourcing in an article in the New York Times [“Outsourcing Works, So India Is Exporting Jobs,” 25 September 2007].

“Thousands of Indians report to Infosys Technologies’ campus here to learn the finer points of programming. Lately, though, packs of foreigners have been roaming the manicured lawns, too. Many of them are recent American college graduates, and some have even turned down job offers from coveted employers like Google. Instead, they accepted a novel assignment from Infosys, the Indian technology giant: fly here for six months of training, then return home to work in the company’s American back offices. India is outsourcing outsourcing.”

Other developing countries have taken notice how India has benefited from outsourcing and would like to apply the lessons learned there to their own economies. Indian companies, fearing that they may lose their edge, are trying to preempt competitors in such states — by outsourcing.

“One of the constants of the global economy has been companies moving their tasks — and jobs — to India. But rising wages and a stronger currency here, demands for workers who speak languages other than English, and competition from countries looking to emulate India’s success as a back office — including China, Morocco and Mexico — are challenging that model. Many executives here acknowledge that outsourcing, having rained most heavily on India, will increasingly sprinkle tasks around the globe. Or, as Ashok Vemuri, an Infosys senior vice president, put it, the future of outsourcing is ‘to take the work from any part of the world and do it in any part of the world.’ To fight on the shifting terrain, and to beat back emerging rivals, Indian companies are hiring workers and opening offices in developing countries themselves, before their clients do.”

Infosys Technologies is not the only Indian company hiring foreign workers.

“In May, Tata Consultancy Service, Infosys’s Indian rival, announced a new back office in Guadalajara, Mexico; Tata already has 5,000 workers in Brazil, Chile and Uruguay. Cognizant Technology Solutions, with most of its operations in India, has now opened back offices in Phoenix and Shanghai. Wipro, another Indian technology services company, has outsourcing offices in Canada, China, Portugal, Romania and Saudi Arabia, among other locations. And last month, Wipro said it was opening a software development center in Atlanta that would hire 500 programmers in three years. In a poetic reflection of outsourcing’s new face, Wipro’s chairman, Azim Premji, told Wall Street analysts this year that he was considering hubs in Idaho and Virginia, in addition to Georgia, to take advantage of American ‘states which are less developed.’ (India’s per capita income is less than $1,000 a year.)”

Like the article that prompted my earlier post, this article focuses primarily on Infosys Technologies.

“For its part, Infosys is building a whole archipelago of back offices — in Mexico, the Czech Republic, Thailand and China, as well as low-cost regions of the United States. The company seeks to become a global matchmaker for outsourcing: any time a company wants work done somewhere else, even just down the street, Infosys wants to get the call. It is a peculiar ambition for a company that symbolizes the flow of tasks from the West to India. Most of Infosys’s 75,000 employees are Indians, in India. They account for most of the company’s $3.1 billion in sales in the year that ended March 31, from work for clients like Bank of America and Goldman Sachs. ‘India continues to be the No. 1 location for outsourcing,’ S. Gopalakrishnan, the company’s chief executive, said in a telephone interview. And yet the company opened a Philippines office in August and, a month earlier, bought back offices in Thailand and Poland from Royal Philips Electronics, the Dutch company. In each outsourcing hub, local employees work with little help from Indian managers. Infosys says its outsourcing experience in India has taught it to carve up a project, apportion each slice to suitable workers, double-check quality and then export a final, reassembled product to clients. The company argues it can clone its Indian back offices in other nations and groom Chinese, Mexican or Czech employees to be more productive than local outsourcing companies could make them.”

Since the purpose of outsourcing is to take advantage of lower wages in places like India, the same strategy should work for Indian companies as they seek workers in areas with even lower wages. Although this strategy reinforces critics notions that globalization is only about exploiting cheap labor, there is an up side. Teaching workers in low cost countries skills that will help them join the information age can significantly improve their quality of life. It can help those low cost countries develop a middle class, which is critical for promoting sustainable economic growth. Some analysts wonder, however, if outsourcing back to higher wage countries (by establishing back offices in places like the United States) will really work. The article notes that this wouldn’t be the first time such a strategy had been followed.

“Some analysts compare the strategy to Japanese penetration of auto manufacturing in the United States in the 1970s. Just as the Japanese learned to make cars in America without Japanese workers, Indian vendors are learning to outsource without Indians, said Dennis McGuire, chairman of TPI, a Texas-based outsourcing consultancy.”

In a pretty good description of how the global labor market is shaping up, Giridharadas discusses how one Infosys project is working in Mexico.

“In one project, an American bank wanted a computer system to handle a loan program for Hispanic customers. The system had to work in Spanish. It also had to take into account variables particular to Hispanic clients: many, for instance, remit money to families abroad, which can affect their bank balances. The bank thought a Mexican team would have the right language skills and grasp of cultural nuances. But instead of going to a Mexican vendor, or to an American vendor with Mexican operations, the bank retained three dozen engineers at Infosys, which had recently opened shop in Monterrey, Mexico. Such is the new outsourcing: A company in the United States pays an Indian vendor 7,000 miles away to supply it with Mexican engineers working 150 miles south of the United States border. “

The article concludes by noting that Infosys now wins business because of its expertise in handling highly complex, multi-lingual processes and not just because it hires and trains low wage employees.

“In Europe … companies now hire Infosys to manage back offices in their own backyards. When an American manufacturer, for instance, needed a system to handle bills from multiple vendors supplying its factories in different European countries, it turned to the Indian company. The manufacturer’s different locations scan the invoices and send them to an office of Infosys, where each bill is passed to the right language team. The teams verify the orders and send the payment to the suppliers while logged in to the client’s computer system. More than a dozen languages are spoken at the Infosys office, which is in Brno, Czech Republic.”

One of the most interesting side notes contained in the article is the fact that Infosys mostly trains individuals with no software experience — giving trainees the equivalent of a four-year bachelors degree in computer science in six months. The reason I found this tidbit so interesting is because it underscores why Enterra Solutions recommends a flexible framework for implementing Development-in-a-Box™ that includes training of local individuals, most of whom will have no prior technical skills. The fact that Infosys can train novices to become skilled employees who support work from and in developed countries is testament that this approach works.