Sunday, March 28, 2004

Storm in the USA, clouds over India

Business Process Outsourcing is no longer an exclusively business activity. As campaigning for the US Presidential elections, to be held later in the year, gathers momentum, it has become a political hot potato. Peeyush Agnihotri gives the backdrop to the debate raging over the offshoring of jobs from the West to countires like India.

WHEN Tim Bernards Lee created the Internet, little did he imagine that his feat would render millions of his countrymen jobless 20 years later. The WWW wired the whole world and, spurred on by free economy ideas, the capitalist-oriented market relocated commercial establishments at places where they made more business sense and profits. For the uninitiated, this concept is termed outsourcing.

The world is now a global technopolis sans boundaries in which data can travel through the Net to places where it can be processed in an economically efficient way. As a natural corollary, those employees who were earlier associated with processing tasks are losing jobs as their work gets redistributed to countries that have less expensive workforces.

The rules of business say that usually one person's loss is another's gain. Who stands to gain from outsourcing? Tech-savvy countries with English-speaking workforces who charge one-tenth of their overseas contemporaries China, Mexico, Singapore, Ireland, Canada, Japan the Philippines and most importantly, India.

To outsource or not

Some of the major companies that outsource to India include Citibank, General Electric, American Express, Dell, Prudential, British Telecom, JP Morgan, HSBC, Merrill Lynch, British Airways, Ernst & Young, Reuters, Oracle, Conseco, IBM, McKinsey, Ford, Citigroup, Microsoft, Nokia and Avis online.

An outcry in the state of Indiana, USA, over outsourcing prompted its government to cancel a $15-million contract with TCS.

Developed nations are understandably sore at the prospect of their jobs moving to other countries. The rate of unemployment in the US is hovering at 5.6 per cent (February 2004). Forrester Research Inc. estimates 33 lakh US service jobs will migrate offshore by 2017. The American Electronics Association reports that more than 7.5 lakh US technology jobs have been lost since 2001.

With the US Presidential elections coming up later this year, outsourcing has become a major poll issue. While President Bush has issued statements favouring outsourcing, John F. Kerry, the Massachusetts Senator and front-runner for the Democratic presidential nomination, has lambasted President Bush's chief economist for his laudatory statements on the movement of the US jobs abroad. "They've delivered a double blow to America's workers, three million jobs destroyed on their watch, and now they want to export more of our jobs overseas. What in the world are they thinking?" Kerry has been quoted as saying.

For the US, it is a classic case of being cent-wise, dollar foolish. To check the inflow of immigrants and the rising rate of unemployment, the US restricted the entry of H1B-visa holders. The number of such immigrants fell to 65,000 from 1,95,000 within a year. Since the entry of a cost-effective workforce was contained, assignments were offshored to places where cheap labour existed.

The USA is split into pro and anti-outsourcing lobbies. The pro-outsourcing lobby's argument is that offshoring jobs means more revenue that can, in turn, be used to build infrastructure, do research and create more job avenues. Further, as per a survey, just 11 per cent of the US corporations believe that outsourcing hurts their brand image. The line of argument taken by the anti-outsourcing lobby is that when the present is not secure, how can a rosy future be guaranteed. Further, they allege, when India is behaving like a closed economy in the agricultural sector, why should the US outsource?

By linking the WTO imbroglio with the outsourcing debate, the Bush administration hopes to use the backlash in the US against outsourcing as a lever to press India to make concessions in other trade-related areas. Media reports suggest the US wants India to reduce its agricultural and industrial tariffs and quotas, liberalise the government procurement rules and stiffen its intellectual property laws.

Last year, US states like Indians, Florida, Connecticut, New Jersey, New York and Michigan tried to get an anti-outsourcing Bill passed. Finally, the US Senate passed a law stipulating that if any US firm got a contract from the Federal government, it could not subcontract the work to any firm outside the US.

In the UK, critics allege, British banks and companies that offshore work to India have reportedly been circumventing laws that ban the export of personal information of customers out of Britain. Concern is being voiced over the sharing of credit card numbers and income tax statements with executives in Indian call centres. According to the UK Data Protection Act, such information can only be passed on to countries which have 'adequate legal protection' and India is not on that list.

What might come as a relief to India, however, is the fact that the UK is refusing to toe the US line and is not interested in moving Bills and making laws that discourage offshoring, not at least till the filing of this report.

Some Australian firms, too, are considering moving jobs to India and there is a considerable outrage over the issue. The Aussies fear loss of business and Opposition leaders are seeking a ban on offshore contracts. Telstra, a leading telecom and information company, has moved over 450 jobs to India and as The Sydney Morning Herald quotes a native techie, the "morale is lower than zero."

India shining

India has a large English-speaking workforce that is tech-savvy. The technical coup that the Indians pulled off in the Silicon Valley is legendary. And Indian labour comes cheap. For example, in India, an average accountant earns nearly $300 per month. In the US, the amount is $3,000 per month for a certified professional accountant. No wonder foreign companies are taking the services of Indian accountants for getting balance sheets prepared. By the end of the current fiscal, Indian chartered accountants would have prepared 2 lakh income-tax returns of foreign clients. The figure was a little more than 20,000 last year and was merely 1,000 two years ago.

Accountancy is just one example. Business management, complaint handling, customer queries, legal and medical transcription, consultancy, data processing, animation or copywriting Business Process Outsourcing (BPO) is the order of the day.

Global incursions are also being made by the French-speaking population of India and the Indian government is planning to tap professionals from four French colonies of Pondicherry, Mahe, Karaikal and Chandannagar to meet the outsourcing demands from Canada, Haiti, Mauritius and Morocco.

Companies like E-Loan Inc., an online lender, have gone to the extent of advising their clients that their request would be processed faster if they dialled up the company's call centre in India.

According to Hewitt Associates, the percentage of jobs being offshored will roughly double in next three years. The report says: "While an average of 13 per cent of jobs at each company is relocated, 12 per cent are being considered for relocation in the next three years." The principal beneficiaries are going to be Eastern Europe and South-East Asia. The research company predicts that within the next three years, 60 per cent of the US companies would have relocated to India.

BPO has arrived with a bang in the country. The relatively new BPO services industry is being projected as a sector with promising growth prospects. Revenue from BPO and related services is projected to grow by 54 per cent in the financial year ending March 31, to touch $3.6 billion. According to various projections, by 2008 more than one million persons would be employed by the ITES and outsourcing sector in India, would be three times the present strength.

The backlash against outsourcing is a cause of worry for Indians. While Union IT and Telecom Minister Arun Shourie has been quoted as saying the real meaning of outsourcing is partnership and that US firms have saved nearly $60 billion, others like Parmod Bhalla, MD, Blue Star Infotech Limited, are more candid. "The current outsourcing row is a natural reaction that occurs whenever there is an adverse impact on certain pockets of population. It certainly will make some of the decision makers go slow till they can find support from some credible advisers. Lately, we have seen support from some political quarters such as comments by Hillary Clinton and also a stream of newspaper columns and research reports from reputed advisors. All of them are elaborating circumstances when it is advisable to go offshore and when not. This is a sign that business managers are not going to back out under the stress of political rhetoric. They have credible shoulders to fire their guns."

Gear up

Kiran Karnik, president, Nasscom (National Association of Software and Service Companies) says: "We are concerned with the Bills being introduced that restrict offshoring of work contracted out by the US government. The business impact of such a move on Indian IT industry will be very small, as the share of US federal government contracts in exports of IT software and services from India is less than 2 per cent. The offshore delivery model (leveraged by Indian vendors and global IT services vendors) has demonstrated its capabilities in reducing costs and improving quality of IT services. In the context of budget deficits, governments around the world are leveraging offshore resources to lower costs of government services and improve quality of service delivered to the citizens, thereby making governance more effective and productive."

"The US government has a long track record of leveraging IT resources for improving quality of government services for its citizens. In an era of global free trade, protectionist measures in any country are unlikely to last long, as witnessed in the recent lowering of customs tariffs by India (far more than those agreed upon at the WTO) or the withdrawal of anti-dumping measures on steel by the US. In keeping with this, we understand that the Indian government has recently decided to award two large contracts to US IT companies in connection with computerisation of income tax operations."

Sanjeev Kumar, an HRD manager, e3R call centre, avers that the anti-outsourcing din will reach its crescendo just before the US polls. "Once the US presidential elections are over, the noise will die down. How can a capitalist country survive without adhering to the basic principles of economics?" he asks.

He says that BPOs are here to stay but adds that India should be wary of the Philippines and China, which are its main rivals.

Indian vendors are making conscious efforts to move up the value chain and target new service lines for better price realisation and stronger relationship with the customers. "Vendors are moving up the value chain either vertically (offering more critical services in the same domain), or horizontally (expanding service portfolios by moving into sophisticated areas that require the deployment of highly skilled professionals such as complex claims, risk analysis and underwriting processes). Several under-the-radar opportunities exist such as engineering design, clinical trails, biotech research outsourcing, process plant data analysis, customer analysis, market research, equity research which are being tapped by Indian vendors. At the same time, India continues to have considerable competitive advantages in the so-called "low-end", and there is no reason for us to vacate this space which provides considerable employment opportunities," says a Nasscom spokesperson.

Navdeep Malhotra, director, IdeaRings, an animation company, is of the view that Indians need to pull up their socks if they want to remain in the outsourcing race or else the opportunities will be grabbed by other countries. "We Indians don't have the eye for detail that the industry demands. We just want to finish the job," he says.

It will require a two-pronged approach to sustain the windfall. First, Indian call centres and BPOs will have to gear up to finish the outsourced jobs in the best way and two, Indian policy-makers and business representatives will have to devise diplomatic ways to keep the outsourcing and WTO issues separate. The thrust should be to encash upon the BPO opportunities that exists.

Let's not forget, BPO for now is India's pride and America's envy. And of the UK... and Australia... and Canada...

Photos by Pankaj Sharma

"India has done a tremendous job"

Arun MaheshwariARUN MAHESHWARI is President and CEO of Computer Sciences Corporation India Pvt. Ltd., a 100 per cent subsidiary of CSC. The company has completed 50 software projects in countries across the world. CSC is one of the fastest growing IT companies in India. It has a development centre in NOIDA and another in Indore. Maheshwari is an alumnus of IIT, Mumbai, IIM, Calcutta, Stanford University and Wharton School of Business.

Maheshwari gave this interview via e-mail to Roopinder Singh.

Why did outsourcing become so popular in the USA? And why has it suddenly become politically unpopular?

Offshore outsourcing has become popular because Indian companies have done a tremendous job of providing high quality at low cost. It has not become unpopular. The fact is that work coming to India continues to grow. With a recession first and then jobless recovery in the USA, it is natural for many IT professionals who have lost their jobs to be upset about offshore outsourcing.

What is the position of the US corporations on outsourcing?

Most are doing what is best for their shareholders.

Is there widespread resentment among American workers about outsourcing?

Certainly, those who have lost their jobs are likely to be resentful but in general America is a strong believer in the free enterprise system.

Will recent political manoeuvres, like Bills to stop outsourcing, actually impact outsourcing business in India?

Almost all Bills are about restrictions on government work. More than 95 per cent of the work coming to India is from private companies so the impact should be very small even if all the Bills are passed and held to be constitutional.

If the US stops outsourcing, who stands to lose, India or the US?


How much will India lose in terms of opportunity and revenue if outsourcing stops altogether?

Nobody is predicting such a drastic possibility.

How should India fight the outsourcing backlash?

Keep a low profile. Do not make provocative statements. Work with the US government quietly and behind the scenes.

Which specific areas in outsourcing should business in India focus on?

India should go after all areas.

What is the skill set needed to make a career in outsourcing?

The range of outsourcing is very broad and will need a broad range of skills.

How are you at CSC coping with the outsourcing hullabaloo?

This has not been an issue for us.

Can the row over outsourcing snowball into a Indo-US diplomatic problem?

I doubt it.