U.S. Criticism Publicizes Low-Cost Labor, Expertise; Lots of ‘Free Advertising’

This article appeared in today’s Wall Street Journal. I dont have the link for veracity as i read this article in a newsgroup and the link put there took me to a paid subscription section of the WSJ website…..arZan

U.S. Criticism Publicizes Low-Cost Labor, Expertise; Lots of ‘Free Advertising’

By JAY SOLOMON
Staff Reporter of THE WALL STREET JOURNAL

June 28, 2004; Page A3

BANGALORE, India — The pace of outsourcing work to India is picking up, in part because the controversy in the U.S. over the trend has publicized India’s low costs and expertise.

In the high-technology hub of Bangalore, two to three Western companies are opening operations in the city every week, say officials at Software Technology Parks of India. More companies are turning to India to do everything from software development to back-office work.

Revenues for call-center businesses grew by 46% to nearly $4 billion, or about ?3.3 billion, during the year ended March 31. And the number of workers in India’s technology sector is projected to have jumped by 23% to more than 800,000 in the period, according to the National Association of Software and Service Companies, or Nasscom, the Indian technology industry’s trade body. Nasscom expects India’s exports of software and services to jump more than 30% to $16 billion in the current year ending next March, about the same growth rate as last year.

Many Indian and American executives say the U.S. criticism of outsourcing is generating important buzz for Indian technology companies, highlighting their low costs and expertise. “During the last six to nine months, we’ve received hundreds of millions of dollars of free advertising,” said Vikram Talwar, chief executive officer of Exlservice Inc., a New York company that processes financial claims for U.S. banks and insurance companies in India.

Companies such as Accenture Ltd., Unisys Corp., Trilogy Inc. and Google Ltd. are significantly expanding back-office, call-center and research-and-development operations here.

Accenture is more than doubling its Indian work force to 10,000 people by the end of the year, the company said, dividing the staff between the Indian cities of Bangalore, Hyderabad and Bombay. Accenture officials say the workers will support the company’s consulting business and its back-office operations and provide technical support to clients.

The company stresses, however, that most of the jobs in India are new, rather than headcount transfers from the U.S. or other countries. A spokesman said that even as it expands in India, Accenture plans to add 8,000 employees in the U.S. this year and 11,000 in Europe.

Recent reports in the U.S., too, have argued that the number of jobs being lost to new operations abroad is relatively small. A U.S. Labor Department survey released this month said 4,633 jobs were moved overseas in the first three months of this year. The number represents less than 2% of the total 239,361 layoffs for the quarter, the report said. Critics charged the report picked up only a fraction of the total number of jobs lost to outsourcing, and the issue could well remain contentious as the U.S. presidential campaign heats up this fall. But such findings — combined with a pickup in job growth in the U.S. — have in recent months blunted concerns in Washington to some degree.

Some of the concerns that could have derailed investment in Indian operations appear to be easing. In India, national elections in May brought to power the left-leaning Congress Party, initially raising fears that technology companies could face new taxes or regulations. But the party appointed an experienced economic manager as prime minister, and no such measures have been proposed. Executives now say that with the Indian technology industry building up so much critical mass, it is too lucrative for domestic politicians to stop.

There are signs that the outsourcing trend is broadening. U.S. companies continue to make up roughly 80% of the companies outsourcing work to India. But now, Chinese, Japanese and a number of European firms are opening offices in Bangalore and other cities. Companies like Chinese telecommunications-equipment maker Huawei Technologies Co. and Switzerland’s STMicroelectronics NV are using India’s English-speaking engineers and designers to expand into new markets and create new products. And a growing roster of smaller companies are beginning to outsource work to India.

“Every company in the services sector now knows you have to have a low-cost delivery base,” said Mukul Agrawal, the managing director for Unisys’s Indian operations. “It’s a competitive necessity…and India’s the No. 1 destination.”

Unisys’ business is emblematic too of a wider trend: foreign companies establishing their own operations in India. For five years, the Blue Bell, Pa., software and consulting firm simply contracted with Indian firms to provide back-office support and software development.

Mr. Agrawal said that with the work done in India becoming increasingly complex, Unisys’ clients now demand that the company directly oversee it. Unisys’ own executives also have concluded that the company needs an Indian presence to protect intellectual property and other strategic assets.

Unisys opened its Bangalore offices in April and is planning to hire 1,000 Indian staff over the next 18 months, Mr. Agrawal said. The workers will focus on software development, financial-claims processing and providing online technical help for Unisys customers. The company plans eventually to hire another 1,000 workers.

While many Indian software firms started by offering basic software code-writing skills, they are now doing research and development for semiconductor makers like Intel Corp. and hardware producers like GE Medical Systems.

Geneva-based chip maker STMicroelectronics has had operations in India since 1987, but for the first years largely just used its Indian engineers for software development, the company said. Today, STMicroelectronics has 1,500 workers engaged in chip design and research for developing wireless technologies.

The company expects to increase its Indian staff to 3,000 during the next few years with its research center near New Delhi becoming a central cog in its global business model. STMicroeletronics’ India offices have produced more than 100 patents in the past three years. “A lot [for the company] will depend on the results coming out of India,” said Carmelo Papa, a corporate vice president.

The growth is presenting India with new challenges. Cities like Bangalore are facing choking traffic and other infrastructure bottlenecks as they make way for scores of new companies and workers. Even connectivity can be a problem, and mobile-phone networks are often jammed.

Indian executives also say their companies are under pressure from U.S. clients to ensure that they are providing data security and sufficiently skilled workers. India produces 300,000 engineers a year, and local colleges train millions of English-speaking graduates. But one in six call-center workers usually quits his or her job within one year, according to industry executives. Qualified staff are also susceptible to being poached by higher-paying rivals.

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